Geoff Herzog, product manager for coffee development at Kraft Foods Canada (Kraft), would be better off delaying the launch of the coffee pods, until after the results were available from the United States. The reasons for not going for a simultaneous launch are, 1. The consumer market for Coffee in Canada, like the US, is one of the highest in the world. Canada consumed about 3. 5 million cups of coffee a day as per the 2003 estimates. Kraft’s launch of coffee pods in the US is planned to be aggressive and comprehensive.
So the sales data from the US would give Herzog great insights into the creation of the correct strategy for the Canadian Market. 2. With both Kraft’s brands, Maxwell House and Nabob, being market leaders in their respective categories, deciding which one was better suited for pods is difficult. A decision to go with both the brands, on the other hand, would need more marketing efforts and funds. 3. Waiting till the US results would provide data that would allow Herzog to focus the marketing efforts on the right market segments, using the right communication channels, with a better knowledge of the market and competition.
It would eliminate the risk of trial and error, thereby optimizing the limited resources. 4. The only risk of delaying the launch is that Kraft would lose the “first-mover-advantage” to it’s the competitors, especially, Procter and Gamble, whose Folgers brand was linked to the Home Cafe SSP system. But then, SSP machines needed heavy advertising and promotion to generate consumer awareness of the technology and to educate them on the benefits. By delaying its entry Kraft could save on precious resources required for building awareness, and instead could focus on the promotion of Maxwell House and/or Nabob coffee pods. 5.
Kraft’s main SSP competitor, Procter and Gamble’s Folgers brand consisted of Classic Roast, Classic Decaf, 100% Colombian and French Vanilla whereas both Maxwell House and Nabob offered more variety and flavors such as Original Roast Mellow Roast, Rich Dark Roast, Decaffeinated, Half Caffeine etc. 6. By going for a simultaneous launch, Herzog would lose an opportunity to learn about the right channel for distribution of the coffee pods. The Direct-to-Store channel distribution (DSD) would be easier to handle initially, but would not hold up when the quantity of sales increases beyond a limit which is inevitable if the launch is successful.
So it would be necessary to arrive at a balance between the traditional and DSD channels after studying the reports from the US operations. 7. There is considerable concern that that coffee pods, after all, may not be well received in North America. In that event, Herzog would be better placed to completely overhaul the idea, meanwhile concentrating on increasing the performance of the existing operation of Kraft in Canada. 8. The US launch would provide vital clues on the pricing of the coffee pods vis-a-vis the competition.
The whole sale pricing would be needed if Kraft opted for a traditional distribution system and the retail price needs to be competitive enough while providing reasonable profit to offset the marketing expenses so as to ensure the earliest break even. 9. Kraft being the market leader by a long margin in the standard roast and ground coffee business, Herzog had, on his side, the necessary time to hold on and get his resources ready for the launch by the time the market is well educated by the competition and is ready for the market leader to enter.
Conclusion : Instead of spending the limited resources and risking revisions by going for a simultaneous launch in Canada, Herzog is well placed to wait and watch the US launch of the Kraft Coffee Pods and get critical notes on pricing, promotional and distribution channels, flavors and competition. He could then formulate a well directed launch and promotional campaign, eliminating wastage of resources to a considerable level.