U.S based Kellogg’s is a world leader and the most successful cereal manufacturer in the world. Kellogg’s entered India in 1994 and it took them a good 15 years for stability in the Indian markets facing initial problems and trying to change the Indian consumer’s mentality about the morning breakfast http://www.kelloggs.co.uk/company/history/howitallbegan.aspx About the assignment: (Refer Appendix 1)
Growth strategy by Kellogg’s in India:
Kellogg’s were successful to create a need for the product which was never a necessity for an Indian household.
We will now discuss how the company managed to establish themselves with a dominant market share in the Indian market.
1.) Ansoff Matrix
Ansoff Matrix was introduced to address the corporate strategy of the future. It delivers the perspective of growth options on the horizontal level and introduces the possibility of diversification. (Kotler, Berger & Bickhoff, 2010)
Market Development is capturing new markets with your existing products or services.
(Lester, 2009) In a new market or to a new consumer, it will be a quiet a task to have them to believe in your product on launching (Meldrum, M & McDonald, M., 2007) especially, when a country is so fond of their traditional recipes. With the help of extensive market research Kellogg’s found out that there was no breakfast cereal trend in the Indian market. Hence they launched their flagship product ‘Cornflakes’. This was always going to be tricky as Indians love their hot breakfast.
Kellogg’s had a challenge to turn the mindsets of the Indian consumers who traditionally were used to having hot breakfast in the morning.
Ready-to-eat breakfast or food was nonexistent. Kellogg’s via their advertising campaign did also educate the Indian consumers about the calorie and nutritional contents, etc. Company also struggled with their introductory pricings as their competitor ‘Mohan Meakin’ sold at a reasonable price. Although, Kellogg’s had a safe and attractive packaging but was considered as high. We assume that the market for Kellogg’s in the U.S and U.K was saturated and hence they decided to enter India. (Haig, 2003)
Companies develop new products or upgraded products for an existing market. It also includes thinking on how the new products can satisfy customer needs and outperform the rivals. http://www.ansoffmatrix.com/product-development.html
http://businesscasestudies.co.uk/portakabin/achieving-growth-through-product-development/ansoffs-matrix.html Following the corn flakes the company launched chocolate covered flakes, named as Chocos and to go with it flavours such as coconut and mango. The product which saw the company sales rise up by 17% was the ‘Iron Shakti’ which contained iron and was designed to address the iron deficiency in the Indian kids as most of the population ass had no proper breakfast apart from milk, tea & biscuits, etc. Iron Shakti was their first major success which helped them capitalise eventually. Kellogg’s tried its hand in producing biscuits which apparently didn’t work due to a very tough competition it faced from Parle-G and Britannia biscuits. Kellogg’s other product ‘Cheez-It’, launched in 2002 and was withdrawn in 2003 didn’t garner any attention either. (Refer to Appendix 2)
(Excerpts from the case study, page 5)
It’s well known growth strategy where the company concentrates on selling existing products into existing markets. (O’Shaughnessy, 1995) Kellogg’s with their intelligent research team did find out that the cereals were actually consumed by the entire family and also for health/diet conscious women so they launched a different variant of the cornflake known as ‘Special K’ under weight management. With this product (Special K), Kellogg’s challenged the consumers to lose 2.5 kgs in just two weeks. To encourage the household adults to consume, they produced adverts with adults featuring in it. (Excerpts from the case study 6 & 7)
Market penetration increases or helps maintain the market share of the current products with advertising, sales promotions and personal selling. The Special K and the Iron Shakti just did that for Kellogg’s; they kept educating their consumers via adverts, campaigns and attractive and informative packaging which later paid off with good market share on these products. http://tutor2u.net/business/strategy/ansoff_matrix.htm
A process which defines the activities of firms to enter new product market combinations. It is of primary interest to the researchers. (Klier, 2008) To improve the market capitalisation of the company, Kellogg’s introduced ‘Cheese-It’ a baked cheese snack crackers in the snacks category. It was launched in 3 flavours to suit the Indian tastes. And along with the snacks, the company introduced biscuits, as Kellogg’s Choco Biscuits. The move to launch snacks and biscuits backfired and resulted in withdrawal of the products in a very short time. The Indian biscuits industry has been dominated by Parle-G and Britannia for a very long time now.
It was an up heel task for the Kellogg’s but they were confident as people started to recognise Kellogg’s as a good quality brand. With the launching of the snacks and the biscuits Kellogg’s wanted to reach out to the masses and redefine them as a convenience food market. Kellogg’s made a major announcement that they are ready to acquire salty snack maker ‘Pringles’ from Proctor & Gamble. This deal marks the entry of Kellogg’s into salty snacks, an important add-on to their portfolio with convenience foods and the successful breakfast cereals.
(Excerpts from case study, page 7) http://www.business-standard.com/india/news/with-pringles-buy-kelloggs-haslarger-canvas-in-india/464942/ http://www.just-food.com/news/kelloggs-exits-biscuits-business_id68045.aspx
2.) Kellogg’s India in regards with the 4P’s of Marketing:
According to Borden, 1964, the marketing mix included product planning, pricing, branding, distribution channels, personal selling, advertising, promotions, packaging display, servicing, physical handling, fact finding & analysis. All the above factors were later grouped into 4 categories now known as 4P’s of Marketing.
As a tangible product, it was important for the product to be appealing for its content and its price too. Kellogg’s launched their flagship product to start with, Cornflakes which was a success in the western market. Cornflakes which initially failed, were later back in the market with some modifications then called as ‘indianization’. The flakes were a bit thick and were sweetened to suit the Indian palette. The increase in the awareness of the products via advertising resulted into the expansion in the market and health benefit of the products was the main reason for the fast driving sales. The ‘Iron Shakti’ gave the Kellogg’s taste of success with 17% rise in the sales, was designed to cater the iron deficiency in the growing kids. In order to redefine themselves as a convenience company and to pace their growth Kellogg’s introduced Cheez-It and Kellogg’s biscuits; unfortunately it did not share a liking amongst the Indian consumers and was later scrapped from production. Kellogg’s then only decided to concentrate on cereals and its development. (Excerpts from the case study, page 5 & 6)
Pricing is an important marketing mix tool for both creating and capturing customer value. (Kotler & Armstrong, 2010). Initially, Kellogg’s only focused on the quality of the product, features and benefit to the Indian consumers. India is a country with majority of population as middle class; the Indian public has been always price sensitive. Kellogg’s launched ‘KPak’, a very reasonably priced product at only INR 10 in 2007, a variant of the Chocos, an ideal option to chips and other junk foods. In 2010, Kellogg’s rolled our retail packs of different sizes & prices to cater the need of variety of consumers. After the launch with effective advertising, the company saw rise in the sales but that was just the curiosity of the Indian consumer to buy a new product. Baring in mind that the competitor Mohan Meakin reasonably priced their cereals and the situation (initial failure of Cornflakes), Kellogg’s priced their future products reasonably
The products were only available in the metro cities when it was initially launched in 1994. Then as a premium product it was only placed in the supermarkets and due its pricing clientele expected was the higher middle class or elite. Eventually, when the product became popular and after the launch of KPak which was priced at INR 10, Kellogg’s tried to reach out to the Tier 1 & Tier 2 towns in the country.
(Excerpts from case study, page 8)
Kellogg’s were quiet effective on the promotional front. They always had attractive adverts on the telly usually featuring kids and the adverts featuring at the prime time soaps. As mentioned earlier, Kellogg’s had a Bollywood celebrity to endorse their products for adults. A celebrity is like an eye-kandy who attains the attention of the consumers which helps in creating awareness about the brand. In regards with personal selling, newspapers adverts were given and special weekend adverts were posted in weekend newspapers or in the kids section of the newspapers to attract the attention of the kids.
Kellogg’s did a special promotion whilst sponsoring Spiderman 2 movie; they rolled out specially packed limited edition ‘spider web’ cereals and gave away relevant toys. The promotion was only available for 2 weeks and extensive advertising was done. Along with the pack, the buyer can also avail 20% discounts on the upcoming Spiderman 2 DVD. http://www.thehindubusinessline.in/2004/07/14/stories/2004071401260900.htm http://www.4psbusinessandmarketing.com/24022011/storyd.asp?sid=4411&pageno=1 http://searchandhra.com/cinema/karishma-kapoor-brand-ambassador-for-kelloggs-chocos
Porters Generic Strategies:
Michael Porter has identified the four strategies to achieve a competitive advantage:
1.) Cost leadership
3.) Focus Strategy – i) Differentiation
The Differentiation strategy is more relevant for the Kellogg’s, in accordance with case study. A Differentiation strategy calls for the development of a product or services that are both unique and are valued by the customers. A Differentiation strategy is also the one in which a product offering is different from that of one or more competitors. (Aaker, 2001) http://tutor2u.net/business/presentations/strategy/genericstrategies/default.html Kellogg’s started in India with their flagship product ‘Cornflakes’ with 3 variants. Unlike their competitor, Kellogg’s cornflakes were premium priced with an attractive packaging.
With cornflakes initially failing due to sogginess after adding milk and less sweet flakes, Kellogg’s was quick to do amendments to suit to the local taste buds. Kellogg’s with their effective advertising campaign and communication via packaging spread awareness about the product and its benefits. Kellogg’s always believed in advertising and promotions, as it’s the most important medium to reach the target market and spreading brand awareness in India and endorsing the product with a celebrity is adding value to its which the Kellogg’s rival never did. http://www.4psbusinessandmarketing.com/24022011/storyd.asp?sid=4411&pageno=1
Major Challenges faced by Kellogg’s
Even if Kellogg’s was a world leader in breakfast cereals with reports of profits in the western countries they did struggle for a while on their arrival in India. Kellogg’s were smart enough to apply proper strategies to tackle the issues they had. I have analysed their issues with some theories below:
1.) SWOT Analysis
The use of SWOT Analysis allows organizations to maximize their strengths, minimize their weakness, take advantage of their opportunities and overcome their weaknesses. (Fine, 2009)
Kellogg’s main strength was the product. Although they misread the market at first in regards with the product and price, they were quick to make changes and jump back. They had the advantage of first foreign cereal company to serve in the raw market India. Over the years, the best thing that Kellogg’s did was they carried extensive market research. They read the market accurately and offered quality products on a regular basis at a reasonable price. The other major factor was they were selling variety of healthy products whilst creating awareness about the products amongst the consumers. (Refer to Appendix 3)
(Refer to Appendix 4)
With the help of the Porters 5 forces we can evaluate the 5 major challenges faced by Kellogg’s in India.
http://www.google.co.uk/imgres?q=porter%27s+5+forces+definition&um=1&hl=en&sa=N&biw=1366&bih=643&tbm=isch&tbnid=WmX3SuQUrNjk4M:&imgrefurl=http://www.businessmate.org/Article.php%3FArtikelId%3D9&docid=w0bo10yR_EOaQM&imgurl=http://www.businessmate.org/userupload/Michael_Porter_Five_Forces.png&w=450&h=400&ei=xE6_T9W2E82W0QWy-_nRCg&zoom=1&iact=hc&vpx=275&vpy=269&dur=44&hovh=212&hovw=238&tx=126&ty=173&sig=116673603394737623265&page=1&tbnh=140&tbnw=156&start=0&ndsp=18&ved=1t:429,r:7,s:0,i:86 With evaluation of the opportunities and threats through the SWOT analysis, The porters five forces model will give us an overview of the challenges Kellogg would face. The five major forces lead to assessment of the overall competitive dynamics of an Industry. ( Colley 2007 )
1. Threat of new entrants:
There are a lot of Domestic Companies from India like Hindustan Liver Ltd, Dabur India Ltd which may diversify and enter the Cornflakes Market which will threaten Kellogg’s position as they have an expertise in the food processing business . Also, with the Supermarket trend starting in India, there is a prospective entry of their own brands which are more reasonably priced on the market .This will make it necessary for Kellogg to come up with products with traditional Indian flavours to be able to gain competitive advantage over the domestic competitors like adding saffron or cinnamon flavour to their products.
2. Threat of substitute products or services
Kellogg is a product in which many variations are not possible. The Indian breakfast items list from a wide range of foods with different tastes and flavours. The introduction of ready to eat breakfast items from Manufacturers like Haldirams and Gits pose a huge threat to Kellogg . The Company is recommended to diversify their product portfolio.
3. Bargaining power of Buyers
The bargaining of power of an Indian consumer is very high due to a wide range of available products in the market. In case of slight fluctuations on the price, the customers may opt for other products in the market which are more reasonably priced as the buyer is price sensitive .This makes it ideal for Kellogg to price their product in accordance to the competition.
4. Bargaining power of Suppliers
The company imports most of the raw materials required for manufacturing. If it purchases these materials via domestic suppliers, it would prove to be cost efficient, save time and also save the exercise duty taxes.
5. Intensity of rivalry among competitors
With introduction of wheat flakes, extra muesli as its high fibre breakfast cereals, Kellogg is also in process of creating alternatives with different flavours in order to compete with its Rivals such as ITC , PepsiCo and Nestle . In 2006 the largest snack company in the country , Frito Lay , a division of PepsiCo India Holdings , had also , had also entered the breakfast cereal market .
The assignment has given me an opportunity to understand the marketing implications of a product launched in a foreign nation with a diverse culture and also the challenges faced in order to have an established competitive advantage on foreign soil. It gives an insight of how marketing can help reach out new markets and also create new markets for products which were never a necessity .Also the use of various marketing concepts like Porters five forces and Ansoff matrix have helped in a critical evaluation of current marketing situation and various forces that affect the performance of Kellogg .
Philip Kotler, Roland Berger & Nils Bickhoff, The Quintessence of strategic marketing, 2010, page 210 David Aaker, Strategic Market Management, 6th edition, page 159 Andrew Lester, Growth Management: Two hats are better than one, 2009, page 52 John O’Shaughnessy, Competitive Marketing: A Strategic Approach, 4th edition, 2008, page 175 Daniel O. Klier, Managing Diversified Portfolios, 2008, page 76 Philip Kotler, Gary Armstrong, Principles of Marketing, 2011 Lawrence G Fine, The SWOT Analysis, 2009
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http://www.business-standard.com/india/news/with-pringles-buy-kelloggs-haslarger-canvas-in-india/464942/ http://www.just-food.com/news/kelloggs-exits-biscuits-business_id68045.aspx http://www.netmba.com/marketing/mix/
http://www.4psbusinessandmarketing.com/24022011/storyd.asp?sid=4411&pageno=1 http://searchandhra.com/cinema/karishma-kapoor-brand-ambassador-for-kelloggs-chocos http://tutor2u.net/business/presentations/strategy/genericstrategies/default.html http://www.4psbusinessandmarketing.com/24022011/storyd.asp?sid=4411&pageno=1 http://www.kelloggcompany.com/corporateresponsibility.aspx