Case Study of Maggi: Brand Extension and Repositioning in India

The industrial revolution in Switzerland in the late 1800s created factory jobs for women, who were therefore left with very little time to prepare meals. This wide spread problem grew to be an object of intense study by the Swiss Public Welfare Society. As a part of its activities, the Society asked Julius Maggi miller to create a vegetable food product that would be quick to prepare and easy to digest. Born on October 9, 1846 in Frauenfeld, Switzerland, Julius Michael Johannes Maggi was the oldest son of an immigrant from Italy who took Swiss citizenship. Julius Maggi became a miller and took on the reputation as an inventive and capable businessman. In 1863, Julius Maggi came up with a formula to bring added taste to meals. Soon after he was commissioned by the Swiss Public Welfare Society, he came up with two instant pea soups and a bean soup – the first launch of the Maggi brand of instant foods in 1882 – 83. Towards the end of the century, Maggi & Company was producing not just powdered soups, but bouillon cubes, sauces and other flavorings. The Maggi Company merged with Nestlé in 1947. Today, Maggi is a leading culinary brand and part of the NESTLÉ family of fine foods and beverages. Under the Maggi brand, which is today known worldwide for quality and innovation, Nestle offers a whole range of products, such as packaged soups, frozen meals, prepared sauces and flavorings.

Maggi in India

Maggi Comes to India – teething troubles Maggi noodles was launched in India in the early 1980s. Carlo M. Donati, the Chairman and Managing Director of Nestle India Ltd, brought the instant noodle brand to India during his short stint here in the early eighties. At that time, there was no direct competition. The first competition came from the ready-to-eat snack segment which included snacks like samosas, biscuits or maybe peanuts, that were usually ‘the bought out’ type. The second competition came from the homemade snacks like pakoras or sandwiches. So there were no specific buy and make snack! Moreover both competitors had certain drawbacks in comparison. Snacks like samosas are usually bought out, and outside food is generally considered unhygienic and unhealthy. The other competitor, ‘homemade’ snacks overcame both these problems but had the disadvantage of extended preparation time at home. Maggi was positioned as the only hygienic homemade snack! Despite this, Nestlé faced difficulties with their sales after the initial phase. The reason being, the positioning of the product with the wrong target group. Nestle had positioned Maggi as a convenience food product aimed at the target group of working women who hardly found any time for cooking. Unfortunately this could not hold the product for very long. In the course of many market researches and surveys, the firm found that children were the biggest consumers of Maggi noodles. Quickly they repositioned it towards the kids segment with various tools of sales promotion like color pencils, sketch pens, fun books, Maggi clubs which worked wonders for the brand.

Why the Specific Brand Positioning?

Maggi was positioned as ‘2-minute noodles’ with a punch line that said ‘Fast to cook! Good to eat!’ And this gave the implied understanding to the consumer that it was a ‘between meals’ snack. The company could have easily positioned the product as a meal, either lunch or dinner. But, it chose not to do so, because the Indian consumer mindset did not accept anything other than rice or roti as a meal. Hence trying to substitute it with noodles would have been futile. The firm did not position it as a ‘ready-to-eat’ meal either, as the housewife prefers to ‘make’ a meal for her kids rather than buy it for them. And if she can make it in two minutes with very little effort, then obviously it’s a hit with her! What’s more, if kids also love the taste, the product is as good as sold! So the ‘2-minute’ funda coupled with the ‘yummy taste worked!

Maggi Brand Extension and Repositioning in India Case Study

Launched in 5 flavors initially – Masala, chicken, Capsicum, sweet & sour, and Lasagna – Maggi had to fight hard to be accepted by Indian consumers with their hard-to-change eating habits. The packaged food market was very small at this time, Nestle had to promote noodles as a concept, before it could promote Maggi as a brand. It therefore devised a two-pronged strategy to attract mothers on the ‘convenience’ plank and lure kids on the ‘fun’ plank. Gradually, the market for instant noodles began to grow. The company also decided to focus on promotions to increase the brand awareness. In the initial years, Nestle promotional activities for Maggi included schemes offering gifts (such as toys and utensils) in return for empty noodles pack.

According to analysts, the focus on promotion turned out to be the single largest factor responsible for Maggi’s rapid acceptance. Nestlé’s managers utilized promotions as measured to meet their sales target. Gradually, sales promotion became a crutch for Maggi noodles sales. Later many of the Maggi’s extensions also made considerable use of promotional schemes. The focus of all Maggi’s extensions was more on below the line activities rather than direct communication. In addition to promotional activities, Maggi associated itself with main stream television programs and advertised heavily on kids program and channels. After its advertisements with taglines like “mummi bhookh lagi hai, bas do minute” and fast to cook good to eat Maggi’s popularity became highly attributed to its “extremely high appeal to children”. As a result, Maggi’s annual growth reportedly touched 15% during its initial years.

Maggi’s Brand Extension

In 1998, Nestle launched Maggi’s first brand extension, Maggi soup. At this stage, there was no organized packaged soup market in India. Nestle planned to create a market for packaged soup as it felt the category had a lot of potential. However, according to analyst, the company had introduced soups only to cash in on the Maggi’s brand name, and was never very serious about the segment.

In 1993, “Sweet Maggi”, the first variant of Maggi noodles was launched. The company supported the launch with a huge advertisement outlay that amounted to 75% of the total yearly expenditure on the Maggi brand. However, the product failed to generate the desired sales volume and Nestle was forced to withdraw it. At the end of the year, Maggi noodles was generating sales volume of around 5000 tons and remained a loss making proposition for Nestle.

To boost sales, Nestle decided to reduce the price of Maggi noodles. This was made possible by using thinner and cheaper packaging material, the company also introduced “money saver multi packs” in the form of 2-in-1 pack and 4-in-1 packs. As a result volume increases phenomenally to 9700 tonnes in 1994 and further to 13000 tonnes in 1995. Maggi’s euphoria was, however, short lived, as sales stagnated in 1995 at the previous year’s level. With soup business being threatened by a new entrant “Knorr soups” launched in 1995, offering 10 flavors against Maggi’s 4 the company started rethinking its strategies towards the soup market.

In order to stretch Maggi’s brand to include Indian ethenic foods the company tied up with a Pune based Chordia foods to launch pickles under the year 1995. The company also tied up with Indian foods fermentation (IFF), a Chennai based Food Company to market popular south Indian food preparation such as sambher, dosa, vada and spices in consumer packs in Dec 1995. The company reportedly saw a lot of untapped potential in the market for ready to use south Indian market.

In 1996, products from these two ventures received lukewarm response from the market; sales were rather poor in the regions in which they were launched. Analysts attributed the failure of these Maggi extensions to the fact that Nestlé seemed to be particularly bad at dealing with traditional Indian product categories. Maggi noodles performed badly in 1996. Despite slow sales in the previous two years, Nestlé had set a sales target of 25,000 tonnes for the year. However, Maggi couldn’t cross even 14,000 tonnes. Adding to the company woes was the failure of Maggi Tonite’s Special, a range of cooking sauces aimed at providing ‘restaurant-like-taste’ to food cooked at home. The range included offerings such as Butter Chicken gravy and tomato sauce for pizzas.

Understanding these failures, and buoyed by the fact that the Maggi brand finally broke even in 1997, Nestlé continued to explore new options for leveraging on the brand equity of Maggi noodles. The company realized that the kids who had grown up on Maggi noodles had become teenagers by the late 1990s. As they associated the product with their childhood, they seemed to be moving away from it. To lure back these customers and to explore new product avenues, Nestlé launched ‘Maggi Macaroni’ in July 1997. According to analysts, Maggi Macaroni was launched partly to deal with the growing popularity of competing noodles brand Top Ramen. Maggi Macaroni was made available in three flavors, Tomato, Chicken, and Masala. The company expected to repeat the success of Maggi noodles with Maggi Macaroni. As with most of its product launches, Maggi Macaroni’s launch was backed by a multi-media advertisement campaign including radio, television, outdoors and print media.

The product’s pricing, however, proved to be a major hurdle. A 75-gm Maggi Macaroni pack was priced at Rs 11, while a 100-gm noodles pack was available at Rs 9. According to analysts, Nestlé failed to justify this price-value anomaly to customers, who failed to see any noted value addition in Maggi Macaroni (packaging and flavor variants were similar to those of Maggi noodles). In addition, customers failed to see any significant difference between Maggi Macaroni and the much cheaper macaroni that was sold by the unorganized sector players. The biggest problem however was the taste of the new product. Since macaroni is thicker than noodles, Maggi Macaroni did not absorb the tastemaker well and consequently did not taste very good. The interest generated by the novelty of the product soon died out and sales began tapering off. Eventually, Nestlé had to withdraw Maggi Macaroni completely from the market.

Nestlé had not even recovered from Macaroni’s dismal performance, when it learnt to its horror that Knorr had dethroned Maggi as the leader in the soup segment (end of 1997). The only saving grace for Maggi seemed to its ketchups and sauces, which were turning out to the ‘rare’ successful extensions of Maggi. These products were supported by a popular advertisement campaign for the Maggi Hot & Sweet sauce brand. These humorous advertisements, featuring actors Pankaj Kapoor and Javed Jafri, used the tagline, ‘It’s different.’ However, during mid-1997, HUL began promoting its Kissan range of sauces aggressively and launched various innovative variants in the category.

Nestlé responded with a higher thrust on advertising and different size packs at different price points. Though Kissan gained market share over the next few years, Maggi was able to hold on to its own market share. Meanwhile the operational costs of Maggi noodles had increased considerably, forcing the company to increase the retail price. By early 1997, the price of a single pack had reached Rs 10. Volumes were still languishing between 13,000-14,000 tonnes.

Pricing and Product Development

It was at this point in time that Nestlé decided to change the formulation of Maggi noodles. The purpose was not only to infuse ‘fresh life’ into the brand, but also to save money through this new formulation. The company used new noodle-processing technology, so that it could air-dry instead of oil-fry the noodles. The tastemaker’s manufacturing process was also altered. As a result of the above initiatives, costs reportedly came down by 12-14%. To cook the new product, consumers had to add two cups of water instead of one-and-a-half cups. The taste of the noodles was significantly different from what it used to be. The customer backlash that followed the launch of the new noodles took Nestlé by surprise. With volumes declining and customer complaints increasing, the company began to work on plans to relaunch ‘old Maggi’ to win back customers. In addition, in 1998, Nestlé began working out a strategy to regain Maggi’s position in the soup segment. To counter the Knorr threat, the company relaunched Maggi soups under the ‘Maggi Rich’ brand in May 1998. The soups were not only thicker in consistency than those produced earlier, the pricing was also kept competitive and the packaging was made much more attractive. However, Knorr took Nestlé by surprise by launching one-serving soup sachets priced as low as Rs 4. HLL too launched two-serving sachets of Kissan soup priced at Rs 7. As Maggi did not have any offerings in this price-range, it lost a huge portion of its market share to Knorr.

The relaunch prompted market observers to compare Nestlé’s move with US soft drinks major Coca-Cola’s ‘New Coke’ fiasco. However, the company disagreed, “It’s a hard-5 nosed strategy, that mixes nostalgia with the consumer’s voiced preference for the product it has been bred and rought up on. The reintroduction is Nestlé’s acknowledgement of the loyalty of the Indian mother and the child to the original product.” By May 1999, Nestlé’s decision to bring back the ‘old Maggi’ seemed to have paid off. Two months after the relaunch, the monthly average sales of Maggi noodles n the northern region rose 50% in comparison to the previous year. In July 1999, ‘Maggi’ the brand, was promoted as the biggest brand in Nestlé’s portfolio of brands in India, overtaking brands such as Nestum and Cerelac. Nestlé believed that Maggi had immense potential as it was a very ‘flexible’ brand under which regional variants could be introduced to meet various market needs. Company sources claimed that with reasonable price points and innovative products, Maggi could emerge as a top brand and a major growth driver for the company. To further support the brand, Nestlé carried out various promotional activities as well. These included the August 1999 ‘Fun-Dooz’ campaign and Jungle Jackpot campaigns. As a result of the above initiatives, Nestlé claimed to have cornered an 81% market share of the 20,000 tonnes noodles market by the end of 1999. Nestlé sources claimed that Maggi noodles outsold the competition four times over and that more than four Maggi noodle cakes were consumed every second in the country.

The year 2008 saw India leading in world wide Maggi sales. The brand has grown to an estimated value of Rs 160-170 crore and contributes at least 8-9% to Nestle India’s top line. All the same, some FMCG analysts feel that the brand has not done much to expand the noodles category. Even after 25 years of its launch, the size of the instant noodles market is yet quite small at Rs 300 crore. But yes, the parent company, Nestle India Limited has certainly encouraged the brand to enter into other culinary products.

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