Carla Da Silva

MGMT 392 Marketing Capstone

Launching Krispy Natural Case Write-up
March 31st, 2015
Issue/Decision Problem
In the case titled Launching Krispy Natural: Cracking the Product
Management Code the major issue being presented is the promotion
and conditional success of Krispy Naturals, Pemberton Products new
snack-cracker. Pemberton Products, the snack food division of
multinational beverage and snack goods manufacturer Candler
Enterprises, sought to dominate the salty snack market with its new
cracker product named Krispy Natural. However, test market results
had revealed that although the product was successful and even
exceeded expectations in Columbus, Ohio its results fell below
managements expectations in three cities in the Southeast. Ashley
Marne, the executive vice president of sales and marketing at
Pemberton Products had promised that Krispy Natural would be one of
the companys most profitable products.
However, Pemberton Products marketing director Brandon
Fredrick who was responsible for analyzing the test market results and
recommending Krispy Natural to market was convinced that Marnes
expectations were unrealistic due to the incongruent test results. The
decision problem of this case was whether or not to extend the product

line into a national product rollout and was an action Frederick needed
to decide on.
Pemberton Products was attempting to make the Krispy Naturals
product line successful in both Columbus, Ohio and in three cities in
the Southeast. The test market data revealed that Krispy Natural had
potential to be a legitimate competitor. The share target was doubled
in Columbus at 18% with an increased category volume equaling 30%
but was less successful in the Southeast cities with a share of 10% and
little category expansion. Exhibit 5 shows the highlights of the test
results. From this exhibit it can be said that Pemberton needs to focus
on increasing the number of retailers where Krispy Naturals is found in
distribution. It also must place more of the product on end aisle
displays in its retailer locations throughout the Southeast just as it had
in Columbus where the product was more successful. Category volume
will increase due to this kind of display activity.
Strategic Framework
The marketing tools that will be used in this analysis include a
description of the external market environment of the U.S. salty snacks
industry, Pemberton Products internal environment, and an analysis on
the how a national rollout will effect the companys profitability in the
long-term.

Pembertons President postulated that the companys driving

force was its culture of innovation and developed three main
strategic priorities. The strategic priorities were at odds with the
introduction of Krispy Naturals for several reasons. There is the
possibility of shifting market shares between the different cracker
segments due to external forces such as an FDA recall or the
introduction of a competitors successful product.
The fact that Pemberton could test itself on two different metrics
with the new Krispy Natural products proves that the new product fit
with the companys strategic priorities. In Columbus the Krispy brand
did not exist prior so it was able to test its competency in selling a new
line of cracker products. Alternatively, in the Southeast Krispy was
already established in the market as a single-serve product so
Pemberton was able to asses its ability to reposition the product to a
more premium offering. (Cespedes, Beckham, 2013, p. 6)
The Krispy Relaunch fulfills some of the strategic priorities as
well. Pembertons R&D labs were engaged to improve the product
taste and quality and rebrand the product to Krispy Naturals thus
meeting the first priority of building the brand to be attractive and
durable to consumers. The product line was also be extended to
multiple-serving package sizes and more flavor options which would
leverage leading marketing, sales, and DSD systems to increase
overall revenue and profits. Collectively, these actions would allow

Pemberton Products to save on costs as well as innovate to compete

with established brands.
The efforts of Pembertons R&D lab were well founded as Exhibit
2 portrays since a consumer taste test showed a 77 % to 92 % positive
purchase intent for the new flavors. It also revealed that the White
Cheddar cracker-with-filling flavor had a four-to-one preference over
the leading competitive cracker.
Analysis
Pemberton Products accounted for $5 billion of Candler
Enterprises $18 billion revenue in sales. It was also a market leader in
the U.S. cookie and bakery snacks segments of the sweet snack
market and it differentiated itself due to its innovative product
development operations.
The norm for cracker companies is to employ a push marketing
strategy where the products are directly presented to customers.
However, Pembertons approach was to use a pull marketing strategy
in the hopes of quickly establishing the Krispy Natural brand. Exhibit 3
shows competitors advertisement spending in 2008; that same year
Table 3 shows that Pemberton accumulated over $33 million in
advertisement spending alone, exceeding all of the leading cracker
brands.

Based on the market test results the cracker with filling segment
must be focused on since the expected growth forecast is 10-14% per
year. Another segment to focus due to a forecasted 6-7% per year
growth rate would be the all other crackers segment. Since Krispy
Naturals was made using higher quality ingredients it would be a solid
choice for consumers looking for products that emphasize healthiness
and natural ingredients, a common consumer demand within both
segments.
The premium pricing strategy employed by Pemberton would be
ideal for the product since its higher quality ingredients and
distribution would be costly for the company. Although there would be
less quantity or weight in the Krispy Natural package the piece would
be comparable to competitors in the market (Cespedes, Beckham,
2013, p. 5).
Extending the product line into a national product rollout was
another significant action Frederick needed to decide on. Due to the
market test results the potential of a successful national rollout
seemed to be positive but there were underlying factors that predict
the failure of Krispy Natural going national.

SWOT Analysis
Internal Strengths and Weaknesses

Pemberton Products internal strengths give it leverage in the

U.S. cracker industry and allow it to compete with more established
competitors. The company prided itself on being able to provide
consumers a product consisting of a variety of flavors and quality
ingredients. The company was constantly improving their recipes and
coming up with new products and flavors to delight their customers
utilizing its product development labs (Cespedes, Beckham, 2013, p.
5). The R&D team was determined to reformulate the Krispy Natural
product until it was consumers preferred cracker. As discussed above,
the latest consumer taste test revealed a positive purchase intent for
the new flavors developed.
Pemberton stressed heavy advertising and promotion to the end
consumer as well as a appealing to trade, a sound strategy in order to
build awareness their new product (Cespedes, Beckham, 2013, p. 5).
Additionally, the use of a special Krispy Force sales team confirmed
the companys dedication to marketing.
Pembertons management strongly believed that its DSD
distribution system would be essential to the success of Krispy
Naturals. Its system could efficiently handle the test market quantities
while promoting sales and profit growth by the means of greater
control of shelf space, more accurate forecasting, reduced stock-outs,
and quicker turn-over of products (Cespedes, Beckham, 2013, p. 2).

There are individuals in the company, mainly those responsible

for carrying out Krispy Naturals as a successful product, who may have
unrealistic views. For example, Pembertons sales managers and vice
president of sales and marketing were all convinced the product was to
be a success despite the internal and market data collected saying
otherwise.
Pemberton Products utilized its own direct store delivery (DSD)
system where products were directly delivered to retail outlets,
circumventing retailers warehouse and distribution centers. Although
this system provided many benefits and was a major factor in the
companys growth and leading market share position it was a
significant expense as it cost the company about 20 cents of every
sales dollar (Cespedes, Beckham, 2013, p. 2). The system was also
not completely able to account for the longer shelf life of crackers
versus baked good and cookies so it was necessary to optimize the
system to account for this liability.
The U.S. cracker industry and its segments are predicted to
experience significant growth over the current year in the case. As
aforementioned, the cracker with filling segment was expected to grow
10-14% per year and the all other crackers segment was forecasted
to grow 6-7% per year. Moreover, there were many substitutes for
crackers but their consumption was still popular amongst consumers.
Pembertons Krispy Naturals was supported by the growth trends

within the industry as well as consumer demand. The sales team would
also be able to continue their solid promotional activity and consumer
advertising in order to foster brand awareness whether Krispy Naturals
went national or not.
There are significant threats that may limit Krispy Naturals
overall success in both domestic and national markets. Some within
the industry believed the taste preference claims were exaggerated
and that it was not any better than any other brands taste offerings.
Additionally, there is always the possibility of shifting consumer
preferences in regards to taste, ingredients, and the introduction of
other snack foods. Most significant is Frito-Lays introduction of its new
line of crackers since it is a much larger and more established
competitor with the reputation of being the most successful saltysnack marketers in the same space (Cespedes, Beckham, 2013, p. 7).
Finally, Krispy Naturals going national is the largest threat Krispy
Naturals faces due to these industry threats and its internal
weaknesses.
Since the promotional activity and consumer advertising were so
successful for the Krispy Naturals product line competitors will also use
this to improve their sales. They will most likely continue to advertise
their products as all-natural and also employ a pull marketing
strategy in order to show consumers the value of their product
offerings and entice them to buy their products. In order to continue to

be successful with their Krispy Natural product line Pemberton must

use a differentiation strategy and diversify their products from the
competition. Some examples of how they can accomplish this are
offering new and trending flavors, improving package sizes and styling,
and keeping up with the most current consumer demands and trends
in the salty snack market. They can also find new ways to improve the
cost-effectiveness and efficiency of their distribution methods.
Recommendations
Regardless of Krispy Naturals success in the city of Columbus
and three cities in the Southeast bringing the brand out nationally is a
mistake. Before making such a significant move there are some actions
Pemberton Products can take in order to strengthen Krispy Naturals as
well as its internal operations. These actions include adding more sales
representative to their Southeastern cities sales efforts, continue to
employ a pull marketing strategy, focus on the cracker with filling
segment of the market, and using a premium pricing strategy. Lastly,
reviewing the test market results do not support a national rollout.
Although Krispy Naturals was already established in the market
as a single-serve product in the Southeast perhaps its share could be
improved by adding the special Krispy Force representatives to help
the regular DSD route delivery representatives, regional, and sales
managers handle the sales of the new product line.

The norm for cracker companies is to employ a push marketing

strategy where the products are directly presented to customers.
However, Pembertons approach was to use a pull marketing strategy
in the hopes of quickly establishing the Krispy Natural brand. Exhibit 3
shows competitors advertisement spending in 2008; that same year
Pemberton accumulated over $33 million in advertisement spending
alone, exceeding all of the leading cracker brands. Utilizing a pull
strategy would be ideal for the Krispy Natural product line so that
consumers would learn about its value and be motivated into purchase
due to the various flavors, all-natural ingredients, and multi-serving
package convenience.
A focus on the cracker with filling segment should be prioritized
since the expected growth forecast is 10-14% per year. Another
segment to focus on due to a forecasted 6-7% per year growth rate
would be the all other crackers segment. Since Krispy Naturals was
made using higher quality ingredients it would be a solid choice for
consumers looking for products that emphasize healthiness and
natural ingredients, a common consumer demand within both
segments.
The premium pricing strategy employed by Pemberton would be
ideal for the product since its higher quality ingredients and
distribution would be costly for the company. Although there would be
less quantity or weight in the Krispy Natural package the piece would

be comparable to competitors in the market (Cespedes, Beckham,

2013, p. 5). They also have a lot of couponing that is common in the
trade so customers would be able to afford the product. Moreover,
Table 1 indicates that Pemberton Products cost of goods sold for they
year 2011 accounted for 78% of income as a percent of sales. A high
cost of good sold indicates they must make price the Krispy Naturals
product line to make a sustainable profit over time.
Extending the product line into a national product rollout was
another significant action Frederick needed to decide on. Due to the
market test results the potential of a successful national rollout
seemed to be positive but there were underlying factors that predict
the failure of Krispy Natural going national.
The test market data revealed that Krispy Natural had potential
to be a legitimate competitor. The share target was doubled in
Columbus at 18 percent with an increased category volume equaling
30 percent but was less successful in the Southeast cities with a share
of 10 percent and little category expansion. Exhibit 5 shows the
highlights of the test results. From this exhibit it can be said that
Pemberton needs to focus on increasing the number of retailers where
Krispy Naturals is found in distribution. It also must place more of the
product on end aisle displays in its retailer locations throughout the
Southeast just as it had in Columbus where the product was more

successful. Category volume will increase due to this kind of display

activity.
Limitations and Assumptions
Introducing Krispy Naturals into the national market seems like a
sound move for Pemberton Products to make considering its immediate
and apparent success. However, there will be significant challenges to
face in the products long-term life that will ensure its failure as
discussed above. One of the main limitations facing Krispy Naturals is
that it may not be cost-effective to hire more sales representatives to
promote the product in the Southeastern cities. The pull marketing
strategy used may also not work as well as management intended it
to. This could be due to varying consumer preferences in different
locations, varying trends, and a competitors product. Even if
Pemberton were to focus on one segment, be it the crackers with filling
or the all other crackers segment, there is the possibility that either
varying consumer preferences or a competitors product may decrease
its success. There is also the chance that consumers will not be willing
to pay the industry price for less quantity in a package than other
competitors, regardless of the products quality.

Works Cited

Cespedes, F., Beckham, H. (2013, Oct 24). Launching Krispy

Natural: Cracking the Product Management Code. Retrieved from:
https://cb.hbsp.harvard.edu/cbmp/product/913574-PDF-ENG