OSCAR MAYER CASE STUDY REPORT

 Market Challenges and Consumer Trends:

 The processed meat market is undergoing fundamental changes with a shift towards
healthier options and greater convenience. Traditional red meat products are facing
declining sales due to their high fat content, while white meat products are gaining
popularity

 Oscar Mayer's Current Situation:

 Oscar Mayer has a strong brand but is experiencing sluggish sales in its traditional red
meat lines. The acquisition of Louis Rich has provided a temporary boost by
leveraging the popularity of turkey-based products

 Strategic Dilemma:

 Marcus McGraw, President of Oscar Mayer, is faced with the challenge of aligning
the company’s product portfolio with emerging consumer trends without sacrificing
short-term profitability

 Strategic Options:

 Enhance Existing Products: Adding new benefits to current Oscar Mayer and Louis
Rich products to align with health and convenience trends.
 New Acquisitions: Exploring the acquisition of smaller companies with healthier and
more convenient products.
 Product Development: Developing new products internally to meet changing
consumer needs, such as "Zappetites" and "Lunchables"

 Internal Memos and Recommendations:

 Rob Goodman (Louis Rich Category Manager): Advocates for increased

investment in the Louis Rich brand to capitalize on the growing trend of white meat
consumption.
 Jane Morely (Director of Finance & Planning): Suggests acquisitions of small
companies to diversify product lines and enhance convenience offerings.
 Jim Longstreet (New Product Development): Proposes new product lines like
"Zappetites" and "Lunchables" to address convenience and lifestyle changes.
 Eric Stanger (VP of OM Brand): Recommends a back-to-basics approach for the
Oscar Mayer brand, including price cuts, increased advertising, and new product
formulations focusing on low-fat and low-salt options

 Strategic Decision-Making Process:

 McGraw must balance the immediate need for profitability with long-term growth
strategies. He needs to consider the potential impact of each strategic option on
different departments and the overall brand
 Competitive Landscape:

 The processed meat industry is more competitive than ever, with consolidated
companies having stronger manufacturing and marketing capabilities. This requires
Oscar Mayer to be innovative and proactive in its strategic planning

 Consumer Insights:

 Consumer trends show a clear preference for healthier and more convenient products.
Oscar Mayer must address these trends to maintain and grow its market share

 Investment Considerations:

 Investment decisions must carefully weigh the short-term financial impacts against
the potential for long-term growth. McGraw must prioritize projects that align with
consumer trends and have the potential to revitalize the Oscar Mayer brand
1. Strengthening Core Brands (Short-term and Mid-term):

 Price Adjustments: Implement a modest price reduction on top-selling Oscar Mayer

products to stay competitive and regain market share.
 Increased Advertising: Boost the advertising budget for Oscar Mayer to revitalize
the brand's image, leveraging nostalgia (e.g., Wienermobile) and emphasizing quality
and tradition.
 Healthier Options: Introduce a line of low-fat and low-sodium products under the
Oscar Mayer brand to address health concerns without completely overhauling the
product line.

2. Capitalizing on Louis Rich (Short-term and Long-term):

 Enhanced Marketing: Increase advertising spend on Louis Rich's "Switch to Rich"

campaign to strengthen its market position and capitalize on the growing demand for
white meat.
 Product Expansion: Launch new Louis Rich products like Turkey Bacon and Roast
Turkey and Gravy dinners to diversify the product portfolio and meet consumer
demand for healthier options.

3. New Product Development (Long-term):

 Convenience Products: Prioritize the development and launch of "Lunchables,"

which addresses the convenience trend for working moms and school children. This
product aligns well with the brand and has significant growth potential.
 Exploration of "Zappetites": Continue the development of "Zappetites" as a
secondary priority. It caters to the trend for quick, microwaveable meals, but ensure
thorough market testing to avoid past failures like Stuff ‘n Burgers.

4. Strategic Acquisitions (Mid-term to Long-term):

 Selective Acquisitions: Consider acquiring small, innovative companies like Turkey

Time Ltd., which aligns closely with Oscar Mayer’s expertise and can help expand
the product portfolio with ready-made options.

5. Internal Alignment and Execution:

 Cross-functional Collaboration: Ensure close coordination between marketing,

R&D, and finance teams to execute these strategies effectively. Regularly review and
adjust plans based on market feedback and financial performance.
 Clear Communication: Communicate the strategic direction clearly across all
departments to align efforts and maintain focus on shared goals.
Strategy 1: Strengthening Core Brands (Oscar Mayer)

Price Reduction and Increased Advertising:

1. Price Reduction:

 Current volume of Oscar Mayer products: 650 million pounds

 Average price per pound: $2.00

 Price reduction: $0.10 per pound

 Revenue Loss=Volume×Price Reduction=650 million pounds×$0.10=$65 million

2. Increased Advertising:

 Additionally, A&P budget: $25 million

 Expected volume increase: 1-2% (assume 1.5% for calculation)

Volume Increase=650 million pounds×0.015=9.75 million pounds

Additional Revenue=9.75 million pounds×$2.00=$19.5

Net Revenue Impact: Net Revenue Change=Additional Revenue−Revenue Loss=$19.5 million−$65

million=−$45.5 million

Operating Income Impact:

Net Impact on Operating Income=Net Revenue Change−Additional A&P Budget=−$45.5 million−$25
million=−$70.5 million

Strategy 2: Capitalizing on Louis Rich

1. Advertising Increase:

 Additional A&P budget: $22 million

 Current volume of Louis Rich products: 272 million pounds

 Expected volume increase: 10-12% (assume 11% for calculation)

Volume Increase=272 million pounds×0.11=29.92 million pounds Additional Revenue=29.92

million pounds×$2.50=$74.8 million

Net Revenue Impact: Net Revenue Change=$74.8 million

2. Operating Income Impact:

Net Impact on Operating Income=Net Revenue Change−Additional A&P Budget=$74.8
million−$22 million=$52.8 million

Strategy 3: New Product Development (Lunchables)

1. Initial Investment:

 R&D and launch costs: $12 million

2. Expected Volume:
  Expected volume in the first year: 2-5 million pounds (assume 3.5 million pounds for
calculation)

 Average price per unit: $1.50

Additional Revenue=3.5 million pounds×$1.50=$5.25 million

Net Revenue Impact: Net Revenue Change=$5.25 million

3. Operating Income Impact:

Net Impact on Operating Income=Net Revenue Change−Initial Investment=$5.25 million−
$12 million=−$6.75 million

Strategy 4: Strategic Acquisition of Turkey Time Ltd.

1. Acquisition Cost:

 Estimated cost: $20 million

 Annual debt service at 12%: $2.4 million

2. Expected Volume:

 Expected additional volume: 10-20 million pounds (assume 15 million pounds for
calculation)

 Average price per unit: $2.50

Additional Revenue=15 million pounds×$2.50=$37.5 million

3. Net Revenue Impact: Net Revenue Change=$37.5 million

4. Operating Income Impact:

Net Impact on Operating Income=Net Revenue Change−Annual Debt Service=$37.5 million−
$2.4 million=$35.1 million

Summary of Financial Estimates:

1. Strengthening Core Brands:

 Net Impact on Operating Income: -$70.5 million

2. Capitalizing on Louis Rich:

 Net Impact on Operating Income: +$52.8 million

3. New Product Development:

 Net Impact on Operating Income: -$6.75 million

4. Strategic Acquisitions:

 Net Impact on Operating Income: +$35.1 million

1. McGraw's Perspective Shift and Strategic Decision-Making Process

What Changed McGraw’s Perspective?

 Initially, McGraw was overwhelmed by the complexity and the gravity of the
challenges presented by the market changes and internal pressures. The detailed and
varied recommendations from his trusted managers provided a comprehensive view of
potential solutions and directions.
 By the end of the memos, McGraw realized that the suggestions, although different,
offered actionable steps that collectively could address the multi-faceted issues facing
the company. The insights and detailed plans from each memo clarified the options
available, making the path forward seem more manageable and less daunting.

Strategic Decision-Making Process:

 Assessment of Internal and External Factors: McGraw carefully considered the

market trends, internal capabilities, and the competitive landscape as detailed in the
McTiernan report and the memos.
 Prioritization of Initiatives: He prioritized initiatives based on their potential to
align with consumer trends (health and convenience), boost short-term profits, and
ensure long-term growth.
 Cross-Departmental Analysis: McGraw evaluated the recommendations from all
departments, weighing the benefits and drawbacks of each to ensure a balanced
approach.
 Risk Management: He factored in the risks associated with each option, particularly
in terms of financial investments and potential market reception.
 Iterative Planning: McGraw likely intended to implement the strategies in phases,
allowing for adjustments based on initial outcomes and feedback.

2. Impact of Favoring One Department and Mitigation Strategies

Negative Effects of Favoring One Department:

 Resource Allocation Imbalance: Prioritizing one department might lead to

underfunding and neglect of other crucial areas, resulting in uneven development and
potential operational inefficiencies.
 Demoralization and Resistance: Departments that feel overlooked or
underappreciated might experience decreased morale, leading to resistance and lack
of cooperation.
 Sub-Optimal Performance: Focusing on one area might lead to sub-optimal overall
company performance if other critical aspects are neglected.

Mitigation Strategies:

 Balanced Resource Distribution: Allocate resources equitably to ensure all

departments have what they need to contribute effectively to the overall strategy.
 Cross-Departmental Collaboration: Foster a culture of collaboration where
departments work together towards common goals, sharing insights and resources.
 Regular Review and Adjustment: Continuously review the impact of strategic
decisions and be willing to adjust allocations and priorities based on performance and
feedback.
  Clear Communication: Maintain open lines of communication to ensure all
departments understand the strategic priorities and how their efforts contribute to the
overall success.

3. Effects of Competitive Changes on Oscar Mayer Division

Strengths and Weaknesses of Competition:

 Stronger Competitors: The consolidation of the meat industry has resulted in

competitors with enhanced manufacturing and marketing capabilities. Companies like
ConAgra, Sara Lee, and Hormel have become formidable competitors.
 Market Shifts: The consumer shift towards healthier and more convenient products
has put Oscar Mayer’s traditional red meat products at a disadvantage.
 Innovation Pressure: The need for continuous innovation to stay relevant has
increased, requiring substantial investment in R&D and marketing.

Impact on Investment Decision:

 Increased Urgency: The need to innovate and diversify the product portfolio has
become more urgent to stay competitive.
 Focus on Differentiation: Investments must focus on differentiating Oscar Mayer
products in terms of health and convenience to align with consumer trends.
 Strategic Partnerships and Acquisitions: Considering strategic partnerships or
acquisitions can help Oscar Mayer quickly expand its product offerings and
capabilities.
 Balanced Approach: The investment decision must balance short-term profitability
with long-term growth, ensuring resources are allocated to initiatives that address
immediate market needs and future trends.

4. Viability of Departmental Directions

Most Viable Strategy:

 New Product Development (Lunchables): Developing Lunchables aligns well with

the trend towards convenience and can capture a significant market segment. It
leverages existing brand strength and targets a clear consumer need.

Second Best Strategy:

 Enhanced Marketing and Product Expansion for Louis Rich: Investing in the
Louis Rich brand and expanding its product line can capitalize on the health trend and
sustain the brand’s growth trajectory.

Least Viable Strategy:

  Selective Acquisitions: While acquisitions can be beneficial, they carry significant
risks and financial burdens, especially if the acquired companies do not perform as
expected or integrate well with existing operations.

5. Recommended Strategic Course for the Division

Balanced and Multi-Faceted Approach:

 Revitalize Core Brands: Implement modest price cuts and increase advertising to
regain market share for Oscar Mayer’s core products.
 Capitalize on Louis Rich: Boost marketing efforts and introduce new products to
maintain momentum in the white meat category.
 Develop New Products: Prioritize the development and launch of Lunchables to
address the convenience trend.
 Strategic Acquisitions: Consider acquisitions selectively, focusing on companies that
align closely with Oscar Mayer’s existing strengths and market position.
 Continuous Innovation: Invest in R&D to develop products that meet emerging
health and convenience trends.

6. Least Likely New Product to Succeed

Less Likely to Succeed: Zappetites

 Reason:
o Market Fit: Zappetites targets a niche market for miniaturized,
microwaveable meals, which may not have as broad appeal as more traditional
meal solutions.
o Consumer Acceptance: The Stuff ‘n Burgers experience suggests that the
market for microwaveable, pre-cooked meals may be challenging, with
potential issues around taste and texture.
o Competition: The market for frozen, microwaveable snacks is highly
competitive, and Zappetites might struggle to differentiate itself and achieve
significant market penetration.

Conclusion

Oscar Mayer should adopt a balanced strategy that addresses immediate challenges while
positioning the company for long-term growth. By revitalizing core brands, leveraging the
strengths of Louis Rich, and developing innovative products like Lunchables, the company
can align with consumer trends and stay competitive in the evolving market. Strategic
acquisitions should be considered cautiously, ensuring they complement existing operations
and enhance overall capabilities.

o **Identified Challenges: **
- Declining market share due to slow adaptation to consumer preferences.
- Ineffectiveness of traditional marketing methods in the digital age.
- Limited product line that does not fully meet consumer needs.
- Lack of collaboration between departments hindering innovation.
o **Proposed Solutions Overview: **
- **Rob Goodman's Proposal: **
- Strengthen Louis Rich brand through increased advertising and new product
introductions in white meat.
- **Jane Morley's Proposal:**
- Diversify product portfolio via strategic acquisitions to include healthier and
convenient options.
- **Eric Stanger's Proposal:**
- Revitalize Oscar Mayer brand with price adjustments, heightened
advertising, and new product innovations.
- **Jim Longstreet's Proposal:**
- Introduce new product categories like "Zappetites" and "Lunchables" to
cater to changing consumer lifestyles.

o **Comprehensive Approach:**
- **Integrated Strategy:**
- Combine efforts from Stanger's brand revitalization and Morley's
diversification through acquisitions.
- **Digital Transformation:**
- Embrace digital marketing to enhance consumer engagement across all
product lines.
- **Innovation Hub:**
- Establish collaborative platforms to facilitate cross-departmental cooperation
and accelerate product development.

o **Implementation Plan:**
- **Prioritization:**
- Select solutions based on feasibility, impact, and alignment with company
objectives.
- **Resource Allocation:**
- Allocate resources effectively across marketing, R&D, and acquisitions.
- **Performance Metrics:**
- Define measurable KPIs to track success in market share growth, consumer
feedback, and digital ROI.

o **Stakeholder Communication:**
- **Internal Alignment:**
- Ensure all departments understand and support the strategic direction.
- **External Transparency:**
- Communicate changes and improvements transparently to consumers to
build trust and loyalty.
o By adopting a structured approach that integrates these solutions, Oscar Mayer can
address immediate challenges while positioning itself for sustained growth and
competitiveness in the market.