Company: Kellogg

Examine the following case from a product managerial perspective. Analyze incisively
and propose a strategy that would have avoided failure of the products. Make sure your
analyses are not confined only to the questions at the end of the case.
You may begin with a SWOT analysis. Also address the various issues facing the
company.

Company: Kellogg

In the United States, breakfast cereal manufacturers form a giant industry. For years, 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 at the children who, in general, watch T.
V. comics every Saturday. And this has been a great success. The cereal makers such as
General Mills, General Foods and Quakers Oats have flourished.

In this decade, however, the baby boom of 1960 will turn into adult population of 1980’s.
So Kellog decided to introduce cereal for adults. Kellog accounts for about 40% of U. S.
sales and their market research had estimated the adult cereal market to be $3 billion. Kellog
developed a new cereal called Nutri- Grain, a brand aimed squarely at “the
Over- 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 rival General Mills had been
considerably successful with new cereals and was chipping away at Kellog’s market share.
So Kellog needed a new product hit to establish its strength.

The idea was developed by the chairman of Kellog, Mr. William Lamothe, on a trip to
Switzerland. In 1980, he sampled a European cereal. He was convinced that such a product
might capitalize on consumer interest in health. He was worried that Kellog’s competitors
might have similar plans. In order to gain an edge over the competition, he ordered a crash
program to come up with a cereal that met criteria for taste, “mouth feel” and “bowl life” –
the time it takes for a cereal to become soggy.

Nutri- Grain is Kellog’s only sugarless cereal and is made from whole grain. For other
brands, the oil is stripped to extend the shelf life of the cereal, but it removes certain minerals.
Kellog devised a process to keep the oil in to make cereal more nutritious. The product
development time was reduced to one year from the normal two years.

Product Promotion

In order to prevent competitors from coming into the market with copies, Kellog skipped 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 by adults, in addition to
regular print media. It was promoted in Self, Runner’s World, The Wall Street Journal, Sports
Illustrated, National Geographic and Vogue, Kellog also distributed coupons good for
discount of 40 cents, about one- third the retail price of the product. Coupons of lesser value
were packed inside the Nutri- Grain boxes to keep buyers coming back for more. Figuring
that many breakfast eaters read their cereal boxes while eating, the company also loaded the
package with nutritional information.

Results
Initial results were encouraging. Grocery chains ordered so much of the product that
Kellog had to put customers on allocation. Many stores added new shelf space for Nutri-
Grain between cereal and health food sections. That reduced the risk that sales of Nutri-
Grain would bite into other Kellog products. The mail response from consumer was fantastic,
more positive letters than on any other new brand, indicating that Kellog was rightly hitting
their target audience.

But enthusiasm hasn’t lasted. After the first few months, the sales began to drop off. As
often the case with the new products many consumers bought the cereal out of curiosity, but
did not continue to keep buying more. Repeat purchases 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 Kellog had 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 out that the
toughest in the competition for the adult appetite is sleep. The biggest challenge is to get
people out of bed 10 minutes earlier in the morning to eat breakfast. 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 but few actually want to eat it. Many really desired cereals
with sugar to satisfy their tongue.

Responding to reduced sales, Kellog discontinued rye and barley versions of Nutri- Grain.
These were replaced by a wheat- and- raisins variety, which may compete with another
Kellog’s Raisin Bran cereal. Kellog expects to renew promotional effort to attempt to get
adults out of bed a little earlier and to the breakfast table to eat at ease.

Questions for case study

1. What assumptions did Kellogg make before the development and launch?

2. Should Kellogg have done test marketing and a gradual product introduction? Support
your answer.
3. Describe briefly: how would you have planned the new product introduction in this
competitive marketing environment? Who would be your innovators and early majority?

4. How can Kellogg increase the market share of this adult cereal market? Let your
imagination fly!!!!

5. Advise Kellogg on the pricing and promotional strategy.

6. Kellog’s record in India so far has not been impressive. Why is the Indian customer not
been enamored by the world’s leading cereal manufacturer? Suggest a strategy for Kellog
India.