The Lovers the Haters and How They Helped Drive Innovation at Kraft
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Like
many food companies, Kraft Foods has had to deal with the rising costs for
commodities, as well as the changing wants and needs of consumers. Several
years ago, the company — which has annual revenues of more than $18 billion and
a 27-brand portfolio that includes Velveeta, Jell-O and Kool-Aid — was
launching new products at a rapid rate, but it wasn’t really investing in any
of them. In recent interview on the Knowledge@Wharton show on Wharton
Business Radio on SiriusXM channel 111, Barry Calpino, Kraft’s vice president for
breakthrough innovation, discussed how Kraft rethought its strategy and reaped
the rewards of a multi-year, multi-channel mindset to marketing.
Listen to the full interview above and read edited
excerpts from the conversation
below.
Knowledge@Wharton: Could you describe the concept of
breakthrough innovation?
Barry
Calpino: There’s a lot of
definitions around it, but there is also an intention behind the term and the
title. It’s really to push our organization and our innovation teams to shoot
for bigger opportunities, more incremental white space, new categories and new
usage occasions. We have teams that work on some of the closer-in extensions of
current brands. But my charge and my push is to really encourage the
organization and lead, making sure that we deliver on big, big, big innovations
that help not just grow our brands here at Kraft, but also grow the categories
that we’re in.
Knowledge@Wharton: What kind of examples are you talking about?
Calpino: I guess the poster child, the one that we
use here internally to teach everyone the concept, is that we launched a brand
called Mio about three years ago. Mio started out as a really close-in idea. It
started out as a liquid version of our Crystal Light powder and it was going to
be marketed that way.
And via a lot of
changes we had made in the company in terms of how we were thinking about and
approaching innovation, we made it one of these big, big bets and big
breakthrough projects with our beverage division. We decided rather than just
make it a close-in extension of the current business, [we would] conceptually
launch Mio as a totally new category idea — liquid water enhancers — and go
after all the water usage occasions there are in the U.S., both tap water and
bottled water, and look at Mio as an opportunity to accompany all those
occasions, rather than only targeting people who currently buy powdered mix-ins
for their liquids….
We launched Mio as a
new idea, a new brand, a new category. And it’s won almost every imaginable
innovation award you could win. But more importantly for us as a company and
for the retailers we work with, it’s created literally a new category. You walk
into the store today, and there is a whole section of these liquid water
enhancers. And I think it’s a more than $800 million total category worldwide
three years into it. And most of that has come from going after incremental
usage occasions. So it’s been a big win for everybody who’s been involved. And
that’s the concept of breakthrough innovation — thinking bigger and thinking
broader and moving aggressively.
Kraft spent more than
$50 million launching Mio, the most we had ever spent on a launch. But more
importantly, we continued to invest the second year, the third year and now the
fourth year because these big ideas don’t just happen overnight. You have to
stick with them and you have to invest in them.
Knowledge@Wharton: How do you continue to build on those
innovations after several years have passed?
Calpino: I’ve been in the innovation game one way or
another in consumer products almost 20 years. And the number-one consistent
cause of failure is not investing in a good idea beyond just the launch period.
You have to stay with it. The ones I’ve been part of that have been big wins
have been [instances] where we’ve stuck with it, we’ve invested behind it, and
we realized that to get something new to stick, it doesn’t just happen quickly
— you have to have staying power.
Knowledge@Wharton: Kraft was started in 1903, but remade in
2012. Can you describe that process?
Calpino: The company split. The international
business and what was our Nabisco business and our chewing gum business was
split off as a separate company called Mondelez. And what was left behind was
the traditional Kraft brands that many consumers would know. And it’s a U.S.
company.
We decided to not just
treat the de-merging as a transaction for Wall Street, [but rather] to really
make a big deal about this for our company culture and our employees. I talk a
lot about how important culture is to innovation and your performance as a
company. And so we decided in 2012 when we made the split to celebrate it, and
we had signs up that are still everywhere in our company about we were remade
in 2012. We’ve tried to really encourage a fresh mindset among our employees to
say, “Look, we have these tremendous old brands, but we need to think fresh
every day to make them current and relevant.” As you know, consumers are
constantly evolving and changing, and your brands have to keep up with that.
Knowledge@Wharton: There’s an interesting video I saw of an
interview that you did, and you brought up the concept of that one of the most
important things to understand is what your customers hate about your products.
Calpino: Yes. It’s one of my favorite topics, and
it’s the one that gets the strongest reaction. I think it’s human nature that
you want to focus on what people love about you, and it’s painful sometimes to
get that negative feedback. But I’ve studied this. I have a whole presentation
on innovations that were born out of companies willing to be open about asking,
“Where is the pain in the experience of our product? What do you hate about our
category? What do you hate about [the product]?” And then that becomes the
fodder for great innovation.
The two classic
examples I always throw out is that Campbell’s soup did a big study in the
1970s, literally a quantitative study of what do people hate about soup. And
the number-one complaint was that the pieces [of meat in the soup] were too
small. So they launched this brand [of] chunky soup, which is still on the
market 40 years later. Very few new products stick around for 40 years.
I used to work at the
Wrigley company, and we did the same research in the 1980s. The number-one
complaint was that the flavor [of the gum] didn’t last long enough. We
literally created the brand Extra gum out of that research. And Extra was the
number-one brand of chewing gum for about 25 years in the U.S.
My favorite [example]
that I use all the time today is Uber and the Uber app. The story behind it [is
that there were] two guys who just hated the taxicab experience in San
Francisco…. Their hate led to their innovation. And you think of all the things
you hate about a taxicab experience, Uber literally flips every one of them
over. So being open to it can be a tremendous source of innovation ideas.
Knowledge@Wharton: The numbers so far in terms of sales tied to
new product innovation are pretty good for Kraft. The number I read was about
13% of all the revenue?
Calpino: Yes, we were 6% to 6.5% five years ago. We
got over 13%. We’ve doubled our sales from new products…. When we were around
6%, we made a decision as a company that the current way we’re doing things
today isn’t working, and we’re going to look at innovation and approach it
very, very differently. And the results so far have borne out that the new
approach we’ve taken has really made a big impact on our innovation results.
We feel like we’ve
still got an incredible amount of room to grow and to get better at this. But
we did change our approach, and that’s been a big driver of getting from where
we were to where we are.
Knowledge@Wharton: How is that new strategy borne out on a
daily basis?
Calpino: The hardest thing for anyone who works in
innovation is that for the big ideas like Mio, a lot of the seed effort and
work happens two to three years ahead of time. And a lot of that work is not
glamorous. And the results don’t come instantly. The teams that work on those
projects, their work is what leads to the big launches two to three years out.
So a big part of my job is to make sure across the whole organization that
we’re continuously filling what we call our funnel and the pipeline of new
ideas — and that we’re constantly working on the next thing, so that we don’t
wake up one day and say, “You know what, we don’t have anything.”
A lot of us who work
in consumer products have had those moments where our management [says], “We
need a new product,” and you don’t have anything, or you don’t have anything
exciting. And then you scramble. And then you launch small ideas. It’s about
being proactive and filling the pipeline and making sure that while we have
teams in the company that are launching new products, we also have teams that
are building the future. Because for every great idea we launch now, some team
did great work two to three years ago up to now.
Knowledge@Wharton: How is your experience at Kraft different
than a tech company like Apple?
Calpino: What we have in common is that what you come
out with has to be great for the consumer. But in our case, tastes and what
people are looking for in food constantly evolve. For our innovations to hit
home, we have to be really, really well attuned to what is happening and what
changes are going on. We spend a lot of time and energy on making sure that all
of our innovation teams are up to speed on food trends, culinary trends and
what consumers are looking for — whether it’s a cleaner ingredient line, fresher,
less processed food, things like gluten-free. The things that consumers want in
food change all the time. And you just have to be on it. You have to try to be
ahead of it, too, which is one of the hardest things to do.
Knowledge@Wharton: How does that impact the corporate
responsibility and other programs that you have as well?
Calpino: It has a big effect on where we invest in
new technology and where we place our bets on which brands to invest in. One of
our pride and joys this year is the renovation and re-launch of Philadelphia
cream cheese. We’ve added a lot more real fruit to the products and real
vegetables. And we have a whole story to the consumer about it going from farm
to fridge in just a few days. Consumers today care so much about that. And we
felt like the Philly team just was so attuned with today’s consumer….
Knowledge@Wharton: You talked about the successes you’ve had
with a new product like Mio, but like Philly cream cheese, there are a lot of
brands that you have that have been around for decades, that are staples with
consumers. What are the challenges of making changes to products that people
have loved and used for so many years?
Calpino: That’s the art of what we call renovation.
In fact, one of our best points of emphasis now at Kraft is renovating our
current brands while we innovate at the same time. When you renovate a brand
it’s exactly what you said: Everybody has studied the famous new Coke case.
Nobody wants to be the next [failed re-launch] in the Wharton case study. What
the Philly team did beautifully was to make the product more relevant and more
current, but deliver what people expect and love and care about. And you also
have to make sure that for everything you do, you run it by your consumers who
love your brand.
One of the things that
we teach all of our teams is, when you mess with a current brand, mess with it
to make it better among the people who love it first. Because if they give you
the vote of confidence, then you’re going to bring new people back to the franchise,
but you don’t want to lose the people who love you. It’s one of the trickiest
parts of what we do. People will tell you that when they try to renovate and
update an iconic brand like Philadelphia cream cheese or Kraft Singles, it can
be really tricky.
Knowledge@Wharton: You mentioned the successes with Mio. What
is the number two on your list in terms of innovations that you’re most proud
of?
Calpino: I would say in addition to Mio, it’s
probably a tie between Oscar Mayer Selects and Velveeta Cheesy Skillets…. They
were both $100 million launches. But what they both have in common is they’re
what people would call old brands. And they were brands that some people would
say had lost touch with today’s consumer. But the teams behind them were totally
committed to making them relevant, and never accepting that the brand is
irrelevant.
Our CEO’s favorite
phrase, one of his favorite phrases, is that there is no such thing as a tired
brand, only tired marketers. And one of my favorite expressions from Good to
Great is facing the brutal facts. The Oscar Mayer team made a call across all
their whole business that we were going to make Oscar Mayer products more real.
And so Oscar Mayer Selects took almost every element of their product line and
[changed it]. They launched products with no artificial preservatives and
cleaner ingredients. And it was a monster success, and it’s changed how people
perceive an old brand like Oscar Mayer.
Velveeta was a brand
that people used to make fun of. And people asked “Hey, does Kraft still make
Velveeta?” It’s now one of our fastest-growing businesses because of the team
behind it. I mentioned the importance of talking to people who love your brand;
I’m a big believer in love and hate driving innovation. The haters give you ideas.
But then the lovers also give you inspiration. What we found is that Velveeta
lovers really love the brand, and there was a lot about the brand that we
weren’t leveraging. The whole skillet dinner line — which was, again, a $100
million award winner — was all grounded in what people loved about it. We had
this tagline, “liquid gold.” And liquid gold is literally how Velveeta lovers
describe it. And it delivered a great dinner experience; it really delivered
for a family, a strapped family from an economic standpoint, the ability to
feed your family at a low price, with great taste and a great experience.
People love to talk
about the Apple iPhone. Mio was kind of like that for us. But it’s just as
rewarding, and sometimes more rewarding, when you can have really big
innovation on brands that you’ve had for, say, 100 years.
Knowledge@Wharton: What segment of Kraft’s business do you
think has the greatest potential growth opportunities in terms of innovation
over the next 10 years?
Calpino: That’s a good question. I get asked that a
lot inside the company, and sometimes that becomes a self-fulfilling prophecy
when you say you’re a high innovation brand, you’re a low innovation brand. I
work across all the brands here, and I will tell you that I walk out of every
single review and there are three or four things that I’m incredibly excited
about. There are categories that I may say in my head, “This doesn’t have a lot
of potential.” And then the team shows me three or four great ideas. It’s that
mindset that got us to where, with Velveeta, we weren’t innovating. So it’s a
tough one.
Our beverage business
has had some huge wins. But then I can show you the [success of the] Skillets
and the Selects. There is a lot of potential in our portfolio because we’re in
categories that are in all parts of consumers’ lives. One of our favorite
expressions at Kraft, which we try to emphasize to all of our employees, is
that we have to earn our place in your life. We don’t just get in your house
because we have all these brands; you have to choose our brands, and we have to
keep earning it. Just because you bought us 20 years ago doesn’t mean you’re
going to buy us today. That mindset tries to avoid the “Hey, we’re just going
to milk this because it doesn’t have the potential.”
Knowledge@Wharton: How do you ensure employee buy-in for your
innovation strategy?
Calpino: You can have the greatest processes in the
world, but usually when you break down companies that are successful in
innovation, and innovations that are successful on their own, when you do the
postmortem analysis, usually the talent and the team are at the top of the
list. We have teams, talent and culture all over Kraft that are thinking about
what’s possible for these brands. They’re not thinking what’s not possible….
We’re not going to accept the fact that this is an old brand. We are going to
constantly look for ideas.
When you have that
mindset all throughout your company, that’s when you’ve really hit your stride.
You know that you never have to lie awake at night worrying about [whether you]
are going to have enough good ideas, because you know that there are really
talented people all over the place who are trying to create the future and fill
the pipeline. By far, the most rewarding part of my job is when I get to see
that energy, because that energy is contagious and it creates momentum. And
momentum can go negative, it can go positive. Innovation is so hard that that
aspect really does matter.
Knowledge@Wharton: So it’s not a case of where even an
established company like Kraft can rest on its laurels?
Calpino: Right. Everybody’s trying to connect with
the same consumer. The business is out there. We’re all competing for flat to
1% growth, and we want more than our fair share of it. We all want to grow more
than the market. And the one who innovates best usually is the one who wins.
You know, we just won
the [Nielsen] Breakthrough Award for Gevalia [coffee]. And at the Nielsen
conference, they told us that there were 3,426 new products launched. Seventy
hit $50 million in sales. And then the 14 breakthrough winners, of which we
were one of them, from that field of 3,400, were the new products that were
successful for the first two years. So that tells you — 14 out of 3,400, that’s
what you’re shooting for. So it isn’t easy. But when you hit it, nothing’s
better for your company, for your business, for your category.
http://knowledge.wharton.upenn.edu/article/what-drives-innovation-at-kraft/
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