The New Mover Advantage – Oreo In India

Published by MBA Skool Team, Published on March 08, 2012

In economics, there is a principle called the first mover advantage. It states that the first company or individual to enter a market for a specific product enjoys an advantage. This is because of a combination of a lot of factors including the hitherto untapped consumer base, the need for the product and general curiosity.

Oreo Strategy

This principle finds its implications in marketing too; Coca Cola utilized it with the bottled cola, Henry Ford with the Model T and IBM with the PC. However a new entrant in the Indian FMCG sector seems to have turned the definition on its head by following a well chalked out plan of action.

The product I’m talking about is none other than the ubiquitous sandwich cookie – Oreo. In just about three quarters of a year of its introduction, it occupies a 31% market share in 675 crore chocolate cream segment. The market leader by far in 2010 with 70% of the pie, Britannia has fallen to less than half (45%) while Parle has slipped from 14% in 2010 to 10% in 2011.

So what made Oreo click? It does not have a background in the Indian biscuit industry – in fact, it was a significant failure because of its premium sticker price when it entered India the first time round through the export route. Add to that the fact that Britannia was expecting Kraft’s entry into this segment and had launched its ambush strategy through Treat-O – A product which resembled Oreo so much that it led Kraft to press for trademark and copyright infringement issues.

Six months down the line, Oreo had a 25% share in the chocolate cream segment while Treat-O has a share of only about 4%. Adding insult to injury, many Bourbon loyalists are also switching over to Oreo which recorded another 6% growth in the last quarter while Britannia slipped down by 7%.

I think what made Oreo work was the fact that Kraft played its cards close to its chest before the actual launch. So while the whole of India were expecting Oreo to be launched as a competitor to Pure Magic (Britannia), Dark Fantasy (ITC) and Hide N’ Seek Milano (Parle), Kraft went ahead and brought out 5 and  10 packs with the 20 pack being the costliest.

Along with the lower end pricing strategy, it took advantage of Cadbury’s 1.2 million store reach in urban and rural India to launch the “Oreo Togetherness Campaign” to drive awareness and rapid trials. This coupled with the point-of-buying strategy on the trade front converted the aware Indian into an Oreo customer.

And this is exactly where I feel that the "new mover strategy" worked for Kraft. Were it to be the first entrant in the chocolate cream biscuit segment, it would probably have launched it as a premium segment product for the tip of the pyramid consumers. Soon enough, Britannia would have followed with Pure Magic and its significantly stronger distribution chain in the biscuits segment. Parle and ITC would have followed suit and Oreo would have been reduced to “just another cream biscuit”.

A lot of detractors would say that Oreo was a global name in this industry and that would have driven sales anyway. But ask most Indians about whether they knew what Oreo was back in 2005 and you would get shaking heads in return.  Only 5 students out of a class of 67 raised their hands in class when I asked them the same question.

Even today, in Tier 2 and Tier 3 cities, people would tell you what Oreo is but would have no idea about Kraft Foods. For them, it is a Cadbury product – the Cadbury which is synonymous with chocolates. And that is where Kraft has managed to pull off a master strategy.

So while it is Kraft Foods for the fruit drink concentrate Tang, it is Cadbury Oreo for now. And even a price hike of 1 has not impeded price-obsessed Indian customers to go ahead and have their bite of “the world’s favorite biscuit”.

The detractors would still be saying that Oreo will bother Britannia only in a specific product category and that too in the short term. They fail to notice that Britannia’s share in the 5500 crore cream biscuit segment has fallen from 29.2% before the launch of Oreo to 26.6% and it is on a downward plunge.

The biscuit segment in India is highly value driven and any digression from popular price points, as in the case of Oreo, could be detrimental for sales.  In fact, noticing the 2% fall in sales post the launch of Oreo, ITC has gone forward in portraying Dark Fantasy as a not-so-premium and affordable-for-most product thereby recovering its 2% share in the last quarter.

Also, in the long run, the natural equity gained by Oreo overseas will not play out to a large extent in India thanks to its pricing strategy and will definitely not be a threat to other sub-categories in biscuits that the market leaders Britannia, Parle and ITC deal in. The fact that Oreo is not very different from other offerings in the market will soon dawn on the consumer and the “new mover advantage” or novelty factor, which is Kraft’s biggest USP as of now, will be significantly diminished.

But, to put in John Maynard Keynes’ words, in the long run we are all dead. As of now, Kraft should continue making Oreo and selling it in the Indian market as long as the sun shines.

This article has been authored by Avishek Basu Mallick IIM Ranchi.

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