kelloggs overview

7/29/2019 Kelloggs overview

1/11

Introduction

The 1990s brought a flood of multinational corporations (MNCs) into India. The lure wasthe prospect of selling consumer goods to a 300-million-strong middle-class that waspresumed to be starved of good quality products. After nearly a decade of operating in the

Indian market, most companies are pausing to lick their wounds and figure out whetherthey are making any headway.

Today most MNCs, whether they are fast-moving consumer goods (FMCG) majors suchas Heinz, Kellogg and Pillsbury, automaker DaimlerChrysler, or consumer durablesmakers Whirlpool and LG, would agree that they had stepped into unfamiliar territorywithout even a rudimentary roadmap.

The Problems faced by Kelloggs

It is not as though Kelloggs has been a rank failure in India. According to a report

published by the Centre for Monitoring Indian Economy (CMIE) in August 2001,breakfast cereal volumes in the country have increased from 1,090 tones in 1994-95 to4,380 tones in 1999-2000. And Kelloggs enjoys a substantial 65 per cent share of themarket, a fact independent sources verify.

But the problem is that the volume growth has tumbled dramatically from between 50per cent and 70 per cent since launch (admittedly on a small base) to just 6 per cent in1999-2000. The challenge is to regain Kellogg Indias initial momentum and generatevolumes in the first place. And to do that, the company needs to splurge on advertisingand communication. Margins can only follow this exercise.

The mistakes committed by Kelloggs have been divided according to the marketing mixas follows:

1. Product

a) Crispness and taste pallet - The price-value equation also collapsed for a reasonKelloggs should certainly have anticipated Indian eating preferences.Kelloggs flakes can stay crisp only if they are consumed with cold milk. ButIndians are well-known to be finicky about cold milk (its mostly considered anantidote for acidity), and instead combined it with hot milk. As a result, Kelloggsflakes turned soggy just like the other cheaper variants.

Another issue was the taste. For all its fortification with iron and other minerals,Kelloggs cereal needed a dash of sugar to cut the blandness. But most Indiansprefer a savory rather than sweet breakfast.

b) Insufficient Marketing - There was no proper market research done which wouldreveal the taste of habits of the Indian consumers. With its breakfast cereals,Kelloggs didnt just need to address the usual issues of distribution, pricing andso on it had to change ingrained eating habits. As Indians prefer the traditional


2/11

food like idli, vadas etc. They tried to challenge the deep rooted Indian foodhabits. The breakfast table was no different idli-dosa was the staple of thesouth, dalia and parathas in the north. Moreover, these were considered moresubstantial and filling than any crispy cereal. That was because Indians, typically,treat breakfast as a lunch-like meal. They went for undifferentiated marketing and

were not able to find the right consumers. There was no product testing. Theyfailed to understand the buying psychology of the customer.

c) Branded snacks are slotted into two categories - the Western-type snack marketand the Indian-type. While the latter is really dominated by the unorganised sectorand a few branded commodities, the former offers the opportunity for uniquevalue added products. It is in this sector that Kelloggs is competing - a sectorwhich offers the possibility of significant growth One of the reasons attributed toKellogg's failure in India brand irrelevance. The products of Kellogg are simplytoo foreign to have any relevance in the Indian market. There is also the feelingthat perhaps Kellogg launched its products too early in the market. The other

reason offered for Kellogg's failure is remote management.

2. Pricing

a) No competitive pricing - Price was another barrier. When it entered the Rs 4-croremarket in 1994, Kelloggs cost nearly double the price of its sole domestic rival:Mohan Meakins Mohun brand of cereals. A 450 gm pack of Kelloggs cost Rs63; a 500 gm pack of Mohuns cost Rs 33. When Kelloggs introduced a 500 gmpack in 1996, it carried a sticker price of Rs 80. Kelloggs explained this premiumto consumers as the price of offering an international quality product thecornflakes were thicker and crisper than the local competition. It chose toreinforce this claim by differentiating its product with some formidably expensivepackaging, which, it claimed, kept its flakes extra crisp. Packaging accounted for45 per cent of the product cost in the early days. Also another small time brandChampion was selling at a price almost half of that of Kellogg. Their targetaudience was only the premium segment and not the masses.

One problem was that the proposition that encouraged high initial trials the so-called international quality turned out to be a hindrance to further purchasesamong Indias hyper-price-sensitive consumers.

d) No estimation - The company failed to estimate the demand for the product sothey had no clue as to how much the product should be priced and what pricewould yield considerable profits to the company.

e) Market skimming - They launched their product at much higher prices than theircompetitors. With a new product ideology, in the market they adopted so as toreap maximum profits they believed in high price high quality. They adopted awrong approach by literally converting the dollar price to the rupee price andthereby loosing mass consumer.


3/11

So far as pricing is concerned, Kellogg has followed the business model that wasfound to be successful in several countries. Talking about the pricing, the Chairmanexplains we would rather have a slightly higher price, which enables us to promote,advertise and try to communicate the benefits of our products rather than a lower

priced product that limits us from doing these things. We have chosen a target groupthat can absorb the price and at the same time enable us to carry out brand buildingand innovative activities."

3. Promotion

a) Discrepancy in communication - The message was not properly communicated tothe consumers. Some consumers referred rice flakes as rice corn flakes. Kelloggshad moved away from its successful fun and taste positioning adopted in the USto a health product image.

b) Public relation - They did not have any public relation strategies to handle thenegative media coverage which was generated by the negative feedback of theconsumers.

c) There were no direct selling strategies adopted such as one to one sales, freesamples, sales promotion etc.

4. Physical Distribution

a) Distribution Channel - They did not utilize different distribution channels. Theyjust positioned the product for the premium segment. Since Indian consumers buygoods from local retailers they should have used more FMCG distributionnetworks.

b) No Research - The other problem was that Kelloggs didnt research the reasonfor the initial high trials properly. Instead, encouraged by the successes, thecompany accelerated its roll-out plans to 60 cities. What it didnt realize was thatits successes in the Mumbai market were partly illusory. The six large localdistributors in Mumbai, who were responsible for covering retail outlets,including chemists, general stores, grocers and supermarkets in the city, wereactually shipping stocks to other cities as well. In effect, then, Mumbai was beingover-supplied. So when Kelloggs officially entered other new markets, the localdistributors there took over leaving Mumbai distributors with idle stock. Now,Kelloggs packs are bulky and take up a fair amount of retail space, so Mumbairetailers cut back their off-take, leaving the company with a slowdown in its keymarket.

c) Given its dismal performance in the breakfast cereal, Kellogg sought to boostsales by diversifying into biscuits. The success of Britannia seemed to indicatethat there is a significant demand for biscuits in the Indian market. Consequently,


4/11

it launched Chocos, which was very well received and grew the company's topline significantly. But the problem was that biscuits and cereals involve two verydifferent trade dynamics and approaches. Biscuits require a completely differentdistribution channel. Also, biscuits served to take away Kellogg's focus awayfrom its main product. It was felt that as an organisation, Kellogg did not have the

ability to develop biscuits further. As a result, Kellogg took the tough decision ofwithdrawing a successful product from the market.

Kelloggs problems were heightened by the fact that this was the phase when MohanMeakins took advantage of its efforts by piggy- backing on a market Kelloggs hadcreated. Suddenly, Mohuns spruced up its packaging and increased its availability on theretail shelves. Since it was cheaper, converts to a lighter breakfast tended to reach forMohuns instead of Kelloggs.

Rectification of mistakes

In 1996, Kelloggs also realised that it needed to broad base its appeal. First, it decided tocut back on packaging so that it could improve margins. In the first year, Kelloggs flakescame in laminated cartons. Thats no longer the case. The thickness of the cardboardcarton has also been reduced.The glossy cardboard packaging was replaced by pouches,which helped in bringing down the price substantially.

Even then, it was clear that volumes were not growing fast enough. The problem wasidentified as one of reach 75 per cent of Kelloggs sales came from top retail outlets.So in 1998, Kelloggs decided to expand its range (cornflakes and wheat-flakes) tochocolate-covered flakes, branded Choco-flakes. In that year, Kelloggs also decided tomake the brand even more affordable by diversifying into biscuits. Conceived

specifically for the Indian market, the biscuits were priced at a competitive Rs 5 and Rs10 for 50 gm and 100 gm packs respectively. The logic of the biscuit launch was thatbiscuits are easier to transport stock and occupy less shelf space. Also, since biscuits tendto move quickly off the shelves, Kelloggs reckoned that this was a good way of keepingits relationship with the trade alive.

In August of the same year, Kelloggs also tried to Indianise its offerings with a sub-brand of corn flakes called Mazza (Fun). Launched in three flavors mango-elaichi,coconut-kesar and rose a 60 gm pack retailed at Rs 9.50 and a 240 gm pack at Rs 36.Choco-flake volumes are also said to be low though the margins (40 per cent) arehigher than those on corn flakes (25 per cent). (Biscuits and chocolate flakes were not the

only occasions when Kelloggs experimented with extensions and variants. In 1994, apartfrom corn flakes, it also had wheat flakes and Basmati flakes. Today, except for cornflakes and a minimal presence of wheat flakes, the Basmati variant has been erased fromthe menu.)

They adopted product modification strategy by adding iron fortification in breakfastcereals. The company introduced packs of suitable sizes to suit Indian consumption


5/11

patterns and purchasing power. Kellogg introduced a 500gm family pack, which broughtdown the price per kg by 20%.

In April 1997, Kellogg launched The Kellogg Breakfast Week, a community orientedinitiative to generate awareness about the importance of breakfast. The company also tied

up with Indian Dietetic Association (IDA) to launch a nation wide public serviceinitiative to raise awareness about iron deficiency problems. This program was in the linewith the companys global marketing strategy. Kellogg increased its focus onpromotional activities by inducing people to try their product by targeting schools,housewives by offering free sachets. They also offered certain free gifts with every packlike pencil boxes, water bottles, etc. Kellogg identified distribution as another major areaby increasing the number of outlets.

Also the company started outsourcing its marketing. This is something mostmultinationals did, but in Kelloggs case many experienced sales people left and the newones took time to learn the crucial issue of category building.

Kelloggs is trying to expand its market once again. In April 2001, the company startedtest marketing a fighter brand called Sunrich in Kolkata, a market that is considered aMohun stronghold. Priced at Rs 65 for a 500-gram pack, this carry bag costs Rs 2.50 lessthan the similar-sized Mohun pack. And propelled by the Iron Shakti gains, thecompany has decided to focus on two brands cornflakes and Chocos and target childrenbecause food habits are less set among this age group.

Earlier, its communication for basic cornflakes used to address mothers who wereaffronted by the suggestion that the elaborate breakfast they prepared for their familieswas unhealthy. And cereals account for 80 per cent of the Kelloggs Indias turnover. Ofthis, cornflakes alone notch up revenues of 40 per cent.


6/11

Ranks given to various strategies, which can be followed:As per the stages of decision-making process, we have analyzed the decision criteria andallocated weights to each criterion. The reason for allocating weights is that it will help toformulate the flow of strategies and will also help to enhance smooth decision-makingprocess.

(1) LAUNCH OF NEW PRODUCTS/ PRODUCT EXTENTION /PRODUCT MODIFICATION 8

(2) DIFFERENT PACKAGING /MORE VARIETY IN SIZES 7

(3) CHANGE IN ADVERTISING STRATEGY/ PROMOTION(AWARENESS PROGRAM) 9

(4) IMPROVEMENT IN DISTRIBUTION CHANNEL 5

(5) PRICING 1

DEVELOPMENT OF ALTERNATIVES

(1) PRODUCT:

Mango Elaichi, Coconut Kesar and Rose

Extension- Choco biscuits

Added iron content to emphasize on nutritional value

(2) PACKAGING

Pouches replaced cardboard packing. Introduction of various/ different sizes (eg. 500 gm family pack, 60 gm.

Pouches)

(3) ADVERTISING

Tie up with IDA

Indianized the campaign

Promoted as nutritious diet

Promotional activities (free samples)

Discounted rates at petrol pumps, airports, supermarkets, etc

Sponsorships for events

(4) DISTRIBUTION CHANNEL

FMCG channel

Provide incentives to retailers

(5) PRICING

No competitive pricing


7/11

Push strategy/ penetration

Analysis of Alternatives

After considering each criterion, we have listed various sub criterias and allocated theweights to each of them. After that step, the weights of each sub - criteria is multiplied byits respective criteria, which will eventually help in choosing the systematic plan ofaction.

Product

(8)

Differentflavors

(6)= 48

Productextension

(5)= 40

NutritionValue

(7)= 56

Packaging

(7)

Modification

(7)= 49

Differentsizes(8)

= 56

Advertising

(9)

Tie Ups

(8.5)= 76.5

Indianisedcampaign

(6)= 54

Projected asnutritious

diet(6)

= 54

FreeSamples

(8)= 72

DiscountedRates

(7)= 63

Sponsorship

(8)= 72

DistributionChannel

(5)

FMCGchannel

(8.5)= 42.5

Incentivesto retailer

(7)= 35

Pricing

(1)

Nocompetitive

pricing(8)= 8

Pushstrategy

(7)=7

Selection of Alternatives: On the basis of our analysis, we have selected thefollowing parameters and under each parameter, which options should be selected first:

1) Product - Nutrition Value

2) Packaging - Different sizes

3) Advertising - Tie Ups

4) Distribution Channel - FMCG channel

5) Pricing No competitive pricing


8/11

Implementation: Implementation should be done in accordance to the analysis.Continuous monitoring and evaluation should be done for successful achievement of theobjectives.

Selling to India: Lessons for an MBA graduate

FOREIGN companies that entered India lured by visions of a "250-million strongmiddle-class market" are beginning to realise two key characteristics of the Indianmarket: India is a low-income market and while it might have millions of consumers,each individually consumes little. Many foreign companies selling branded consumerproducts and services have been compelled to alter their strategies in line with these twocharacteristics.

To succeed in the Indian market for both products and services, foreign companies havecome to realise that it is necessary to make the products affordable, address the rightsegment, widen their offerings and adapt their product to Indian needs, and to promotecommunity rather than individual usage.

Make the product affordable: Foreign companies are beginning to realise thataffordability of a product holds the key to increasing consumption. The experience ofseveral foreign firms underlines the importance of the price factor. The most striking useof price as a weapon to increase sales has been demonstrated by Mr. Kabir Mulchandaniof Baron International.

Like many MNCs, Coca-Cola and PepsiCo failed to realise that product prices needed tobe affordable if the Indian market had to be expanded. Low-margin and high-volumes isthe most successful business model for India as has been successfully demonstrated byHindustan Lever. Instead, both Pepsi and Coca-Cola raised prices and, what is worse,

introduced the 300 ml bottle, which made the product even more expensive. Of course,the high price was blamed on India's excise duty structure. Coca-Cola and Pepsi did notrealise how price-sensitive cola consumption is in India. In 1999, both Pepsi and Cokeraised prices by a rupee in May, only to see sales slipped badly during the year.

Wisdom finally dawned in 2002. Coca-Cola and Pepsi realised that an affordable pricepoint can drive huge volumes and expand distribution in virgin markets. Last year, Pepsiand Coca-Cola re-introduced the 200 ml bottle and reduced prices to Rs 5 for a 200 mlbottle, Rs 7 for 300 ml bottle (from Rs 10), Rs 40 for a 2-litre bottle. Coca-Cola's growthstrategy now centres around the affordable 200 ml returnable glass bottle at Rs 5.

Product can also be made affordable by innovative packaging. A smart marketer of theChik shampoos increased his sales several-fold by offering shampoos in Re 1 sachets.This set off a stampede and products ranging from chewing tobacco to shampoo andcosmetic lotions are available in sachets. Even direct marketer, Amway, whose personaland home-care products are considered expensive because of the large bottle size, hasbeen exploring the option of offering shampoos in sachets.


9/11

Pre-paid cards have done for the cellular phone market what sachets did for the shampoomarket. Faced with a stagnant market, cellular operators launched the prepaid card. Itreduced the entry barrier where there were no rentals or security deposits. Further, therewas no billing problem for the customer and no bad debts for the operator. Prepaids havedriven the rapid increase of the subscriber base of cellular phones to over 11 million. The

cellular phone has become so affordable that more cellular phones are now being addedthen fixed phones!

Address the right market segment: Most foreign companies entering India end upaddressing only the high-priced premium segment. Instead of focusing on large volumesby attacking the belly of the market, they fall prey to the temptation of skimming themarket, settling for small volumes but large margins. This was the strategy of Lacoste,Levis, Reebok, Adidas, Benetton, several car makers and all the private operators ofcellular mobile services. Not surprisingly, all of them have tended to price themselves outof the low-income market.

The most striking example of the need to choose the right market segment is afforded bythe differing fortunes of two car makers Hyundai Motor and Ford Motor. Both werelate entrants in India's already crowded car market and chose to set up their plants nearChennai. In 2001-02 Hyundai sold 87,822 cars raking in revenues of Rs 3,403 crore andnet profit of Rs 210 crore. In contrast, Ford Motors sold just 15,131 cars and itsaccumulated losses has wiped out its net worth. The main reason is that while Hyundaibegan by daring to take on the well-entrenched Maruti Udyog in the small car segmentand thereby aim at large volumes, most foreign car-makers, including Ford, were contentto launch products for the miniscule mid-segment (1,200-1,800 cc) and were therebycondemned to small volumes and high costs.

The cellular mobile operators made the cardinal mistake of promoting call phones as alifestyle product for the status conscious and charging obscenely high airtime rates of Rs16.80 per minute. Not surprisingly, there were few subscribers and the operators werecompelled to beg the government to relieve them of their licence fee commitments.

Widen the product offerings: Foreign firms have been compelled to recognise thatwhile the potential of the Indian market may be enormous, it is often not for thecompany's traditional product. Thus, to realise the market's potential, the company wouldhave to cater to Indian needs by widening its offerings and developing or modifyingproducts to suit the Indian consumer.

Coca-Cola began its Indian innings with an exclusive focus on carbonated soft drinks. Ittook it some time to realise that its competition was not Pepsi its traditional rival inother markets but water, tea, coffee and fruit juice. Finding that the market forcarbonated soft-drinks was not growing fast enough, the company has been compelled towiden its product range to non-alcoholic commercial beverages.

The company now wants to become a complete beverage company and has beenchurning out a series of new products. Taking advantage of its vast distribution reach, it


10/11

entered the packaged water business with Kinley and met with unexpected success Kinley is now the largest packaged water brand. Next, it launched Sunfil powdernationally. In November 2002, it launched its ready-to-drink Georgia brand of tea andcoffee through vending machines.

Not surprisingly, Pepsi has also followed a similar strategy. It introduced its Aquafinabranded bottled water and several new drinks. Some MNCs have even been compelled tointroduce products that they do not sell elsewhere in the world. Kellogg's provides themost striking example.

Reebok was compelled to introduce a shoe without frills suitable for just walking orjogging (not many people in India require air cushioned shoes for special sports). Reebokhad to offer shoes in dark colours, including black, as buyers in India shied away fromwhite shoes as they easily got discoloured with dirt.

Promote community usage: Foreign companies are only now beginning to realise that to

increase usage of a product or service, the consumer need not own it and only needs tohave access to it. The first success story in the privatisation of telecommunicationservices is payphones, because it did not require users to have a phone but easy access toit.

India now has over 45 million phones but the average revenue per direct exchange line isaround Rs 6,000-7,000 per annum. On the other hand, payphones are used intensivelyand the average revenue per payphone exceeds Rs 30,000 per annum.

While thousands of payphone operators have benefited form this, Zip Telecom hastapped into this business opportunity. Zip manages about 13,000-ranchised Zip Fone

payphones in Maharashtra and Madhya Pradesh, apart from Delhi.

An Indian entrepreneur, Dr Bindeshawari Pathak, has made a success of community paytoilets that are operated and maintained for a fee. In a country where most public servicescome free, the public pays for using the toilets.

Audit your marketing: Evaluation of all aspects of marketing periodically is importantto keep your brand in good shape. Marketing audit involves thorough evaluation of allelements of marketing. The assessment is enabled by a comparison with the objectivesand targets, set not only in terms of sales but in parameters such as the ratio of advertisingto sales, percentage of awareness, percentage of household penetration, performance of

the sales force and promotional programmes.

After this, it is crucial to summarise the findings and bring about the most value-addedcontribution during the marketing audit process. This is the stage of interpretation of thefindings, which helps in correcting the course in terms of structure, systems andawareness at the consumer level, trade, sales force and overall organisation process.


11/11

It is important to regularly check, assess and evaluate your marketing and brands processand systems to ensure awareness, trials, repeats, higher sales growth, marketing share andprofits for your brands.

kelloggs overview

Documents