Krackel launched across the country with its jaw-dropping trade discount, forcing Nestlé to meet this unexpected threat with a similar discount across the base of its entire Crunch volume in the vending class of trade. But that didn’t last. Not only did it drain the discretionary spending budgets across their entire company to fund this unanticipated attack, but Nestlé’s major national accounts — their big customers in the grocery and mass merchant channels — soon learned of this new corporate largess that apparently was not mentioned in their last most-favored-nations pricing meetings. So this temporary discount aimed at dealing with an inconsequential competitor in an inconsequential class of trade threatened to cascade across the entire base of Nestlé’s business. Once the pain was too great, Nestlé folded, leaving Krackel as the last bar standing and boosting the brand’s revenue by an incremental $25 million. More than that, it provided an entry point for other Hershey products into that vending class, riding the coattails of this once lowly brand.
What can we take away from Krackel?
- It’s not about size or budget overall; it’s about leverage in one spot. The vending class of trade was the proverbial “pinky finger” of the $150-million Nestlé Crunch brand, and Krackel had twisted it hard.
- If you can’t compete on marketing spending, compete on pain thresholds. Krackel couldn’t compete on above-the-line, traditional marketing investment. But by virtue of its small size — and relative unimportance to the overall Hershey P&L — it could win on the basis of having a higher pain threshold.
- Halo effects have far-reaching consequences. Look at what this program did in a short period of time, from driving incremental volume for Krackel, to allowing other Hershey products to ride its coattails, to sapping Nestlé’s marketing dollars across all brands and channels, to even threatening to cascade this deep discount into other more important classes of trade. This program did a lot of good and put more than just a small portion of Nestlé’s business at risk.
Krackel’s trade discount — an inconsequential brand in an inconsequential class of trade — made giant Nestlé dance to their tune, temporarily upsetting the status quo in a business dominated by big budgets.
This isn’t a strategy for everyone. But it does give us reason to look for areas of relative advantage, where localized efforts can have wide-reaching consequences. If we can force the giant’s hand, we’ve achieved a strategic victory.
— Stephen Denny
Reprinted by arrangement with Portfolio, a member of Penguin Group USA, Inc. Copyright © 2011 by Stephen Denny.