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Company: KelloggQUESTION 1.15 marks

Examine the following case from a Consumer behaviour perspective.Analyze incisively and propose a strategy that would have avoided failureof the products. Make sure your analyses are not confined only to thequestions at the end of the case.

You may begin with a SWOT analysis. Also address the various issuesfacing the company.

Company: Kellogg

In the United States, breakfast cereal manufacturers form a giant industry. Foryears, 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 atthe children who, in general, watch T. V. comics every Saturday. And this hasbeen a great success. The cereal makers such as General Mills, General Foodsand Quakers Oats have flourished.

In this decade, however, the baby boom of 1960 will turn into adult populationof 1980s. So Kellog decided to introduce cereal for adults. Kellog accounts forabout 40% of U. S. sales and their market research had estimated the adultcereal market to be $3 billion. Kellog developed a new cereal called Nutri- Grain,a brand aimed squarely at theOver- 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 rivalGeneral Mills had been considerably successful with new cereals and waschipping away at Kellogs market share. So Kellog needed a new product hit toestablish its strength.

The idea was developed by the chairman of Kellog, Mr. William Lamothe, on atrip to Switzerland. In 1980, he sampled a European cereal. He was convincedthat such a product might capitalize on consumer interest in health. He wasworried that Kellogs competitors might have similar plans. In order to gain anedge over the competition, he ordered a crash program to come up with a cerealthat 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. Forother brands, the oil is stripped to extend the shelf life of the cereal, but itremoves certain minerals. Kellog devised a process to keep the oil in to makecereal more nutritious. The product development time was reduced to one yearfrom the normal two years.

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Product Promotion

In order to prevent competitors from coming into the market with copies, Kellogskipped 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 Nutri-Grain cereal was promoted in magazines and publications specially read byadults, 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- thirdthe retail price of the product. Coupons of lesser value were packed inside theNutri- Grain boxes to keep buyers coming back for more. Figuring that manybreakfast eaters read their cereal boxes while eating, the company also loadedthe package with nutritional information.

ResultsInitial results were encouraging. Grocery chains ordered so much of the

product that Kellog had to put customers on allocation. Many stores added newshelf space for Nutri- Grain between cereal and health food sections. Thatreduced the risk that sales of Nutri- Grain would bite into other Kellog products.The mail response from consumer was fantastic, more positive letters than onany other new brand, indicating that Kellog was rightly hitting their targetaudience.

But enthusiasm hasnt lasted. After the first few months, the sales began todrop off. As often the case with the new products many consumers bought thecereal out of curiosity, but did not continue to keep buying more. Repeatpurchases 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 Kelloghad 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 outthat the toughest in the competition for the adult appetite is sleep. The biggestchallenge is to get people out of bed 10 minutes earlier in the morning to eatbreakfast. 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 butfew actually want to eat it. Many really desired cereals with sugar to satisfy theirtongue.

Responding to reduced sales, Kellog discontinued rye and barley versions ofNutri- Grain. These were replaced by a wheat- and- raisins variety, which maycompete with another Kellogs Raisin Bran cereal. Kellog expects to renew

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promotional effort to attempt to get adults out of bed a little earlier and to thebreakfast 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 productintroduction? Support your answer.

c. Describe briefly: how would you have planned the new productintroduction 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 Indiancustomer 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 isreportedly making headway in the Indian market. Examine the strategyand the results of the new strategy.

QUESTION No.25 Marks

What are the imperatives for the Market segmentation and product differentiationstrategies to succeed?