RAPIDLY SHRINKING BUSINESS CYCLES –CASE STUDY ON

KELLOGG COMPANY

Submitted By: Group 2

Visible Signs

Increase in no of players/competitors in the market General Mills and

Kraft in the U.S.

Company Net Revenue (in millions)

International Rev as % of sales

Gross Margin %

Kellogg $12,575 32.3% 42.9%

General Mills $14,796 18.2% 39.7%

Kraft $40,386 41.4% 36.2%

Widened Umbrella of products available – Pastas & Cereals Beverages Non-alcoholic Beverages Water & Ice Food Canned & Frozen Foods

Core Causes

Customers are in the driver’s seat like never before

The nature of competition between businesses is changing

Deconstruction of existing value chains

Kellogg's largest customer is Wal-Mart Stores. Its five largest customers during 2007 accounted for approximately 34% of consolidated net sales and 44% of U.S. net sales. As these large customers are so important to sales, Kellogg has less bargaining power when determining wholesale prices.

What should we do..?

Be flexible about process Kellogg’s largest UK production plant is at

Trafford Park in Manchester. One of its storage depots was 15 miles away at Warrington. Kellogg’s moved this storage to a new warehouse site in Trafford Park, only one mile away from its production base.

To improve its distribution, Kellogg’s collaborates with TDG, a logistics specialist. This reduces transport costs considerably and is energy-efficient.

Launch of Real Fruit Winders: The television advertising was postponed because by then demand for the product was already so high that it had seriously outstripped the company’s initial production capacity.

Manage the invention pipeline Market research is a specific area of

marketing that informs businesses like Kellogg’s about the things consumers need, how best to design products to answer those needs and how to advertise those products to consumers.

This reduces the risks for any new product development (NPD)

Improved Product-Market fit and Recharged innovation cycle Kellogg’s already knew that women who

are keen to watch their weight and shape seek a range of solutions throughout the day - not just at breakfast.

The Special K bar was launched in July 2001. The Peach & Apricot variant was added to the portfolio in February 2003.

Faster time-to-market Kellogg’s ingredients are grown in many

countries. It is more important for its manufacturing sites to be near to distribution channels and customers so products can reach shelves quickly.

Additional Revenue Streams Kellogg’s came to realise that the variants

were responsible for a huge growth in the Special K brand, without a drop in sales of the core cereal product

Reduced costs Distribution has improved through the

collaboration of Kellogg’s, Kimberley Clark and TDG (Logistics specialist). Retailers like ASDA and Tesco benefit as they are kept stocked without storage costs.

Improve overall product quality using better design and production processes Kellogg’s uses a system called just-in-time

to provide an efficient stock inventory system.

The lean production system streamlines processes and eliminates waste. Computerised stock holding systems ensure

shelves are always full and orders are delivered on time.

Kellogg’s Frosties

Frosties is one of Kellogg’s core products. WithFrosties comes Tony the Tiger.

In 1999 Kellogg’s undertook a huge process of strategic market research.

The research would provide valuable insights about the brand, its icon Tony the Tiger and the current position of Frosties within its product life-cycle.

The research focused on children under the age of 12 years.

The data collected was both qualitative and quantitative.

The Frosties qualitative research showed that Tony, while ‘cool’, was losing relevance for some kids.

Quantitative Findings

Steps taken

Kellogg’s decided to extend the Frosties life-cycle by readjusting the marketing mix.

Modernising Tony’s role, basing it on the term ‘Action Hero’.

The research showed that the Frosties brand was nearing the end of the growth phase in its life-cycle and was moving towards maturity as more competition entered the market.

One effect of newer products from competitors was that children no longer considered Tony to be as ‘cool’ as other cereal characters.

Conclusion

Giving Tony a new injection of life was seen as a vital contribution towards improving the competitiveness of the brand and prolonging its useful life.

Although Special K was already a well established brand, its full potential had never been reached.

Special K cereal

The company concentrated on changing the product through new variants

Kellogg’s had to understand how the product could be extended into a series of variants which would keep the core product strong, but grow the brand as a whole.

Managers can decide when to make key changes to a core product by analysing its position within the product life-cycle.

Life-cycle analysis accepts that products have a finite life, and analysts chart a product’s performance through several phases, from its launch through various phases of growth until it reaches maturity and eventually decline.

A product’s life cycle may last only a few months (e.g. with a fad, or craze) or, as with Special K, for many years.

Although it was a successful product, Kellogg’s recognised the opportunity to stretch the brand by investments that would: revitalise it extend and further develop its growth phase help to delay the onset of the maturity phase.

Such investment would help to maintain the brand’s strength in a rapidly changing market place.

Steps Taken

Kellogg’s undertook market research. It wanted to answer these questions: What changes taking place in society are likely to

affect the product? How might new technologies affect our business? What are likely to be the future market trends? Where are the opportunities within the market place? What new categories would appeal to the target

market? How far do consumers think the brand could stretch

into the market for different product categories?

Issues involved

Manufacturing capability and Supply chain necessary to reach the customers. Supporting such expansion was not always easy for

Kellogg’s UK. Initially it produced all the Special K variants sold within Europe. The UK company had to increase its manufacturing capacity and also refine supply chain management processes to ensure that the product would be available at the point of purchase.

It had opened a portable foods plant at Wrexham,to produce bars. Other capacity was created by commissioning the production of Special K cereal in Spain.

Global Strategy It developed the idea in Europe which it

then adapted and applied worldwide. Rolled out Special K Brand products to USA,

Australia and Canada.

Result

Market research suggested that using funds to develop variants on Special K looked like a comparatively low risk project that offered the prospect of a good rate of return.

This was largely because it involved developing and extending a brand that already enjoyed huge consumer support in ways that could be adapted to the market place worldwide.

Within the space of 2 years the extensions to the brand had achieved global coverage, and were providing not only significant developments in sales value and volume of Special K products, but also a huge boost to the brand’s equity.

Awareness of the brand had been declining because of little promotional activity

Kellogg’s All Bran

Kellogg’s All Bran

The proposition that ‘a fibre cereal keeps you regular’ was less motivating to consumers than in the past. Consumers now were more interested in products that promote “inner health”.

All Bran’s PLC

Steps taken

Kellogg needed to conduct research to discover whether a change was worth making and the nature of these changes.

Large investment to support the strategy and to evaluate the consumer response.

Pulling a range of fibre products together under a single brand also made it easier to communicate with the target audiences through a shared communication plan.

Kellogg carefully coordinated television and radio advertising, PR and in-store promotions.

Result

By creating the powerbrand ‘All-Bran’ and providing the right sort of well researched promotional support, Kellogg has been able to inject renewed vigour into a family of related products.

Regular campaigns of promotional activity are helpful in enabling all organisations to sustain their own life cycle and those of their brands and products.

Thank you