Company: Kellogg

QUESTION 1.15 marks Examine the following case from a Consumer behaviour perspective. Analyze incisively and propose a strategy that would have avoided failure of the products. Make sure your analyses are not confined only to the questions at the end of the case. You may begin with a SWOT analysis. Also address the various issues facing the company. Company: Kellogg In the United States, breakfast cereal manufacturers form a giant industry. For years, the cereals have been tailored to the tastes of young children. These come in all kinds of flavors, shapes and colors. The advertising is then directed at the children who, in general, watch T. V. comics every Saturday. And this has been a great success. The cereal makers such as General Mills, General Foods and Quakers Oats have flourished. In this decade, however, the baby boom of 1960 will turn into adult population of 1980s. So Kellog decided to introduce cereal for adults. Kellog accounts for about 40% of U. S. sales and their market research had estimated the adult cereal market to be $3 billion. Kellog developed a new cereal called Nutri- Grain, a brand aimed squarely at the Over- 20 plus market. Kellog had not introduced a new cereal in the market for 5 years. In 1978, Kellog reached a peak of 43.5% cereal market share. But rival General Mills had been considerably successful with new cereals and was chipping away at Kellogs market share. So Kellog needed a new product hit to establish its strength. The idea was developed by the chairman of Kellog, Mr. William Lamothe, on a trip to Switzerland. In 1980, he sampled a European cereal. He was convinced that such a product might capitalize on consumer interest in health. He was worried that Kellogs competitors might have similar plans. In order to gain an edge over the competition, he ordered a crash program to come up with a cereal that met criteria for taste, mouth feel and bowl life the time it takes for a cereal to become soggy. Nutri- Grain is Kellogs only sugarless cereal and is made from whole grain. For other brands, the oil is stripped to extend the shelf life of the cereal, but it removes certain minerals. Kellog devised a process to keep the oil in to make cereal more nutritious. The product development time was reduced to one year from the normal two years.

Product Promotion In order to prevent competitors from coming into the market with copies, Kellog skipped test markets. It brought out four types of Nutri- Grain-Corn, Wheat, Barley and Rye- at once. Normally cereal makers introduce new varieties one at a time. A record advertising budget was set for the first year- $ 15 million. The NutriGrain cereal was promoted in magazines and publications specially read by adults, in addition to regular print media. It was promoted in Self, Runners World, The Wall Street Journal, Sports Illustrated, National Geographic and Vogue, Kellog also distributed coupons good for discount of 40 cents, about one- third the retail price of the product. Coupons of lesser value were packed inside the Nutri- Grain boxes to keep buyers coming back for more. Figuring that many breakfast eaters read their cereal boxes while eating, the company also loaded the package with nutritional information. Results Initial results were encouraging. Grocery chains ordered so much of the product that Kellog had to put customers on allocation. Many stores added new shelf space for Nutri- Grain between cereal and health food sections. That reduced the risk that sales of Nutri- Grain would bite into other Kellog products. The mail response from consumer was fantastic, more positive letters than on any other new brand, indicating that Kellog was rightly hitting their target audience. But enthusiasm hasnt lasted. After the first few months, the sales began to drop off. As often the case with the new products many consumers bought the cereal out of curiosity, but did not continue to keep buying more. Repeat purchases were occasional. Kellog, in the first year, gained about 1% of the estimated $3 billion market. Although 1% market share is not a failure of the product, the executives at Kellog had expected a lot more impact for a product with such a large marketing budget. The main reason for disappointing results, however, is sleep. Kellog found out that the toughest in the competition for the adult appetite is sleep. The biggest challenge is to get people out of bed 10 minutes earlier in the morning to eat breakfast. If they do, there is a good chance they will eat cereal. Furthermore, Kellog discovered that a lot of consumers are clamouring for sugarless cereal but few actually want to eat it. Many really desired cereals with sugar to satisfy their tongue. Responding to reduced sales, Kellog discontinued rye and barley versions of Nutri- Grain. These were replaced by a wheat- and- raisins variety, which may compete with another Kellogs Raisin Bran cereal. Kellog expects to renew

promotional effort to attempt to get adults out of bed a little earlier and to the breakfast table to eat at ease.

Questions for case study a. What assumptions did Kellogg make before the development and launch? b. Should Kellogg have done test marketing and a gradual product introduction? Support your answer. c. Describe briefly: how would you have planned the new product introduction in this competitive marketing environment? Who would be your innovators and early majority? d. How can Kellogg increase the market share of this adult cereal market? Let your imagination fly!!!! e. Advise Kellogg on the pricing and promotional strategy. f. Kelloggs record in India so far has not been impressive. Why is the Indian customer not been enamored by the worlds leading cereal manufacturer? Suggest a strategy for Kellogg India. g. Kellogg India has recently revamped its marketing strategy and is reportedly making headway in the Indian market. Examine the strategy and the results of the new strategy. QUESTION No.25 Marks What are the imperatives for the Market segmentation and product differentiation strategies to succeed?