Discussion on "Versatility Helps Oreo Fill Gaps In Market." The New York Times (New York) 4 October 2003.

University Degree Business and Administrative studies

Economics Article Assignment #2

Aakash Dheer

October 4, 2003

Syllabus Section: 2

ARTICLE

Barboza, David. “Versatility Helps Oreo Fill Gaps In Market.” The New York Times (New York) 4 October 2003

ESSENCE OF THE STORY

Kraft, the makers of the phenomenally successful Oreo cookies, are introducing many different versions of Oreos instead of developing new products. The number of consumable Oreo products available has risen every year since 1990, as in Fig.1. Kraft is making all these Oreo products because they claim that customers demand them. From 1998 to 2001, Oreo cookies had a compound growth of 13 percent, whereas most products in the food industry don’t even grow 3 percent. This growth can be attributed to Kraft’s line extension1 of Oreo cookies. Fig. 1

However, developing too many new products is risky, as saturating the market with one brand can hurt sales. Also, Kraft stocks are currently falling as a result of reduced cookie sales, possibly because of the rising health concerns of consumers. As a result, Kraft has recently promised to lower levels of trans fatty acids in its foods. This should result in increased stock values in the future.

ECONOMIC ANALYSIS

The main reason that so many Oreo products are manufactured is that it costs less to create spin-offs of an old product than it does to introduce a new ...

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ECONOMIC ANALYSIS

The main reason that so many Oreo products are manufactured is that it costs less to create spin-offs of an old product than it does to introduce a new product. There are many costs associated with creating a new product: research, test groups, development, design, marketing, and the like. The companies are out there to make profits, so they will do whatever is cheaper. By using line extension, Kraft expands their market share and capitalizes on the fame and popularity of the Oreo name. Also, since Kraft cites customer demand as the reason for the line extension, it makes consumers think that Kraft cares about their customers and puts a positive view of Kraft in consumers’ heads. All of these factors should contribute to increased stock prices. Assuming that all other factors of production and market situations stay the same, Kraft can keep their stock at the same value or even incite a little growth, as in Fig. 2, by manufacturing new products that consumers will purchase. However, if Kraft doesn’t keep introducing new products that consumers will want to purchase, or attempt to make their foods healthier, their stock value will suffer, as shown in Fig. 3. The stock will drop more rapidly at first, and even out later. The graph is not meant to be an exact representation of what will unfold, but gives a general idea of the expected result should Kraft take the above actions.

EVALUATION

Kraft’s major concern should be to keep manufacturing new Oreo products that consumer will buy, as it will prevent reduced stock prices. So far, consumers are responding well to the introduction of new Oreo products, whether they are cookies, cakes, or candy, so Kraft should continue their trend of making various Oreo goods to keep up their rapid growth. Kraft should also continue to make their foods healthier and more nutritious, as it will promote sales in an increasingly health-conscious society like ours today.