Reference no: EM132229808

Case study: How (Ch)easy is developing a new product?

An interactive cheese case24 Italian Cheese Business Every Italian village has its own campanile (bell tower), and the people in its neighbourhood are deeply convinced that local products are absolutely the best: this behaviour is described by the word “campanilismo” (from campanile) and, in a sense, has lead over the years to a proliferation of typical products and specialty foods, such as cheese. To give an idea of the extent of this proliferation, in Italy there are more than 31 different types of PDO (Protected Designation of Origin) cheese for a supply that goes from the Parmigiano Reggiano, to the Mozzarella di Bufala.

Dairy production is extremely fragmented: in 2006 there were 1602 producers (-2% from the previous year), mainly small (41% of producers), and a few big companies and multinationals. The Italian cheese market can be divided into three main segments: a premium segment, that includes the PDO products and is extremely fragmented and quality oriented; a “regional” segment that include those products that characterize a certain region or area; and a branded product segment, that includes cheese produced both by bigger companies and by multinationals such as Kraft, Lactalis or Nestlè. Galbani is currently the market leader and was acquired in 2006 by the French group Lactalis. Cheese sales in 2007, mainly hard and soft unprocessed cheeses (91% of the volume), reached 936,780 tons (+2% from previous year) for a value of €8,7 billion. Production is concentrated in Northern and Southern Italy (respectively 72% and 20% in 2006). Italians, whose per capita cheese consumption in 2006 accounted for 24 kg, tend to prefer healthy products and unprocessed cheeses, but cheese consumption is likely to decline (02-07 CAAGR was 2.08) because of the maturity of the sector. Some market experts are convinced that Italians are acquiring low price imported cheese through discounts; this could explain why imports are growing faster than exports and is also supported by the difficult economic situation. In this sector, characterised by fierce competition, a high penetration level, and the strong impact that retailers’ promotion campaigns can have on purchasing behaviour, having an efficient and controlled milk supply system is considered a key factor of success for every firm. Efficiency in milk supply supports companies in all the aspects of production that affect its flexibility (i.e., change in production patterns, in quantity produced, or the development of new products) and in getting those certifications of production that sometimes drive consumer’s purchase. The role of innovative products is extremely important for attracting new consumers and retaining existing ones, through new packages, new formats, and functional cheeses. The subsector where innovation is more likely to happen is the soft and spreadable cheese: Kraft, with Philadelphia, is the market leader for spreadable processed cheese, a segment that accounts for the 55% of the whole value sales in the spreadable cheese business. Kraft offers Philadelphia in several packages, formats, and flavours, and has recently invested in the healthier segment with Philadelphia Yo and Philadelphia Balance. Recently, more companies have joined the spreadable processed cheese business: Müller has supported the launch of its “Crème de Crème” with a strong advertising campaign. Although the business is mature, the snack segments for children still show a significant amount of potential.  

Cooperlat and Cheasy

Cooperlat, a cooperative company based in the Marches (central Italy), decided in 2007 to take advantage of this market opportunity, and introduced a new spreadable processed cheese targeting mainly young consumers, the “Cheasy.” As a cooperative, Cooperlat collects milk from 1000 small producers and 15 other cooperatives located in 9 Italian regions. The vision of the company can be summed up as a goal of using the product supplied by all the cooperative members for satisfying consumer’s expectations (high quality products) and members’ needs (high revenues). These cooperative values and beliefs inspire the company’s strategic decisions: when it was born in 1982, Cooperlat was in charge of reorganizing and optimizing the Marches milk and cheese system and has had an active role in the development of local economy.  

The company, over the years, has been able to create local brands to achieve a successful area penetration. Cooperlat competes in all the price segments: it has invested in the higher price segment through the promotion of the PDO cheeses. Although Cooperlat products can be found in the main grocery chains, the company’s revenues come mainly from a net of small grocery shops, resupplied by the signature Cooperlat fleet of small vans. Today, Cooperlat is the third biggest group in Italy in the diary sector (the first company is Granarolo, followed by Parmalat). It holds 4 companies (Fattorie Marchigiane cons.coop.arl, Colavev Valtellina cons.coop.arl, Agrilatte srl, Abit Piemonte cons.coop.arl), and has a joint venture in Greece. Company Revenues in 2007 reacher 243,8 million Euros (+7% from previous year). The idea of launching a new product came to Paolo Cesaretti, the Product Manager of Cooperlat after a talk with the President of Abit, a consortium of producers in Northern Italy, a subdivision of Cooperlat: “Abit was producing a spreadable cheese that had encountered some resistance in reaching an extensive coverage throughout Italy, although it was appreciated in Northern Italy. We thought we could launch a new spreadable cheese, the Cheasy, targeting young consumers, a segment that is usually less influenced by market leaders.” Through Cheasy, Cooperlat wanted to reinforce its overall competitive position, first by serving a customer segment that can ensure high margins, and secondly, by selling other products to established Cheasy customers. The company relied on its strong brand and on the high quality perceived by customers. The challenge was combining the know how Cooperlat already had in producing spreadable cheese to a new successful image totally different from the traditional one the company previously had. It took nine months and required several adjustments within the company’s organization to get from the original idea to a product available on supermarket shelves. The most relevant changes occurred in outbound logistic in order to ensure effective product distribution; inbound logistic and productions remained almost the same, whilst several adjustments occurred in corporate culture: the decision of addressing a product to a specific target was quite new for the company since because of the strong allegiance in local markets to local brands, it has never felt as strongly the competition with big companies. In addition, the choice of a massive usage of the web in product promotion was brand new for the company. Cooperlat decided to hire an agency for developing the packaging and image of the product and for developing an appealing name. To test product features appreciations, Cooperlat has carried out some product tests with consumers and sales force. The product was launched in 2007 during “Food,” the annual international exhibition on food and beverage in Milan: the package is a rectangular box containing 125 grams (it is available in bulk for restaurants), with a green cow on the cover. With the motto “take it Cheasy,” the company underlines its intent of speaking to the younger generation (mainly millennials): this intent was even clearer when the company realised its promotional campaign. The company, following Paolo Cesaretti’s idea, decided to use a mix of Viral and Wireless Marketing for launching the product. Viral Marketing can be considered as “a special tool of world of mouth communication” (Brassington and Petitt, 2003, p.1078); Wireless Marketing or Mobile Marketing is, in particular, based on a flow of information through sending text messages. Cooperlat promoted the product through a website, www.cheasy.it with the aim of building a community of people that are retained by a reward system offering them appealing prizes such as mobile phones, free mobile credit and free sms. Among young Italian people mobile communication is very popular, and sms are the cheapest way to be connected. The more the users are active members of the community – that means uploading videos and recommending the website to new members – the easier they can get prizes. In 2007, in partnership with an Italian Radio Station, Cheasy also launched a promotional campaign in the main clubs on the east coast of Italy for recruiting testimonial for the advertising campaign. The website and the community are highly recommended in blogs and forums, because the chance it offers to get free sms. According to the main web marketing principles (Brassington and Pettitt, 2003), if the website viewer “can be entertained and informed and enjoys coming back to the site, the brand values and image are enhanced”; this process is called loyalty reinforcement. By adopting this promotional strategy, Cooperlat could reach specific target groups at reduced costs; in this specific context, geographical distances are reduced, and the community member or its contacts can be reached all over Italy. The effectiveness of this promotional system has been reduced by the scarce diffusion of the product covering the whole Italian territory: “A criticality in launching Cheasy, was that the introduction in the grocery chains has happened very slowly and inconsistently: this created difficulties for planning targeted promotions.” Cheasy community members became loyal to the website, but in some areas of Italy could not find the product. Cheasy sales currently account for 1% of company’s total revenue, but in the period 2007 – 2008, they grew by 120% by volume and 184% by value; the highest growth has been registered in supermarket sales (+364% by volume and 485% by value in 2007 – 2008). “For a total investment of 100,000 Euros we got a community of 30,000 members that grows an average of 250 new members each day. Those are potential customers. Many of them have agreed to receive free promotional advertising through their mobile phones. I wonder whether our big competitors get similar or better results by investing much more in advertising.”  

Case questions

1. Paolo Cesaretti knows that Cheasy just came up to a critical point of its life cycle, and is thinking about how to improve product performance. What would you suggest to him?

2. In your opinion, what are the strengths and opportunities of the Cheasy promotional campaign? How you would define Cheasy’s competitive position? What do you think can threaten Cheasy’s competitive position? In your opinion, what, if any, mistakes has Cooperlat made in developing and launching Cheasy?