W.K. KELLOGG COMPANY1

W.K. Kellogg Company

As General Mills starts to go away from the traditional business model present in the

cereal market, W.K. Kellogg Company is faced with two potential paths to go on. They must

decide whether they should stay with the promotional business model present in the cereal world

or follow General Mills’ price reduction strategy, which cuts “inefficient” promotional spending.

If the Kellogg Company is to reduce promotional spending, they must focus on

developing more of a brand identity with their cereal products. Most of their products, i.e. Raisin

Bran, Frosted Flakes, etc., lack the specific identity that consumers immediately associate their

product with. When my mother buys cereal, I specifically ask for Raisin Bran. It seems like she

brings home a different “Raisin Bran” like product each time she comes home from the grocery

store. Stopping promotions is theoretically fine, but that brand still must appeal to a consumer.

The problem with reducing promotional spending for Kellogg Company is simple. If a

consumer no longer receives coupons and half-price deals for Kellogg’s Raisin Bran, they are

likely to simply use an offer presented to them by another raisin-bran product, say Post Raisin-

Bran or a private-label brand. General Mills can stop promotions because their products have a

specific brand identity. Kellogg Chairman and CEO William LaMothe illustrates this idea with

the following quote:

“Wheaties, (A General Mills’ product, is a name that means something; you can’t

make a generic Wheaties, although it is just a wheat flake. But a corn flake is a

corn flake.”

W.K. KELLOGG COMPANY2

For this strategy to work, Kellogg Company must work on brand extension, developing a close-

knit relationship between their consumers and their products.

The other alternative is for Kellogg Company to continue offering a variety of

promotions, while attempting to reduce the inefficiency associated with them. “In August 1993,

Quaker Oats reported that 44% of RTE cereals were bought on some type of promotion.” Clearly

promotions are an effective way of luring consumers to a product, but coupons are clearly an

inefficient means of promotional appeal to the producer and the distributor. My suggestion is a

digital movement towards promotions. Through Apps on smartphones, coupons could easily be

scanned and used on handheld devices. Barcodes and QR codes could be directly scanned at the

register, reducing inefficiency and time delay costs. Digital couponing would also drive down

costs associated with the printing of these promotions. Kellogg Company could allow users to

create a “couponing account” which would provide two valuable things. First, it would allow

Kellogg to decipher the data gained in the electronic database. Secondly, it would allow a

rewards program to be established, incentivizing users to continue to come back to the

Kellogg’s’ product. The problem with this strategy is that Kellogg’s would have to appeal to an

older demographic that usually does the grocery shopping. Older consumers, who are usually

the ones at the store, may have trouble working with digital coupons.

I would recommend the second strategy to Kellogg Company. Consumers will always be

lured to promotions, but they must be done in a cost effective manner. Digitizing coupons and

promotions is becoming more feasible than ever as technology continues to penetrate different

aspects of human life. The power of consumer data and a rewards program could propel Kellogg

to the top of the cereal world.