Kellogg Case Study

Analysis
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Question 1

Answer:

Since Kellogg is focusing on expanding to the untapped markets with low competition
for ready to eat cereals and other convenience products, Omani markets seems like a good
opportunity. However, the company needs to be very careful while deciding the product because
of very different culture and eating trends in Oman. The company needs to to come up with the
kind of products that are culturally accepted or have the potential to be accepted soon and are
tailor made to the needs and want of the Omani consumers. to identify the right market-product
fit, Kotler’s five product levels can be a good marketing tool to use to effectively develop the
products.

These 5 product levels model basically reflects the different kinds of needs customers have for a
product and there are three drivers through which consumers attach value to a product;

Need: it is lack of basic requirement that is necessary for the survival such as water and fuel.

Want: It is a specific requirement of a product to fulfill the need, such as water is need but
Nestle water is a want

Demand: it is the set of wants and the desire and ability to pay for a product.

Following is the explanation of the five product levels to develop a product in Omani market.

Core Benefit

The core benefit in 5 product level model is the key need or want consumers satisfies when they
purchase a product. For Kellogg to introduce products in Oman, it is very important to come up
with the product that fulfills the need or want of the Omani customers. For example, if the plan is
to introduce ready to eat cereal it needs to validate first that is there a need for this product in this
market.

Generic Product

another product category that Kellogg can choose to introduce in Oman is the generic product. It
is the kind of product that meets its necessary functions, for example if while developing a cereal
product for Omani market Kellogg can introduce a cereal with only basic ingredients that fulfills
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the function of the breakfast without adding any additional ingredients or tastes. For the
company it is very important to know if the Omani consumers seek for additional features or
product with basic features is more suitable for this market.

Expected product

these are the characters of a product that consumes expect while buying a product. Consumers
expectation is often shaped from social experiences and existing market trends. The companies
are often required to meet these expectations. For Kellogg to launch a new product in this
market, they need to make sure what kind of expectations do Omani consumers have from the
product being offered.

Augmented Product

these are the additional features or benefits of a product that more value to the product or
increased consumer’s perceived value of the product. These additional features help in
differentiating product from other competitors. Kellogg can identify what features can be more
suitable for Omani consumers and help the company get competitive advantage.

Potential product:

These are the transformations that a product might face in the future and a company needs to
keep the scope of change for future interventions. While developing product in Omani market
Kellogg must consider the future change in consumers taste and trends that could potentially
affect the product.

Question 2

Answer:

Kellogg faced several issues with regards to achieving its marketing objectives that lead to
decline it’s in its marketing shares from 1980s to mid-1990s. the company’s market shares
declined from 42% to 35% till 1994. The following are the key challenges the company faced in
domestic market during this timeline
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a)

 Reaching marketing objectives and leading industry

The company had the market objective of increasing market shares while maintaining the high
prices and presenting its products as premium products and achieve customer loyalty. However,
the company, which were doing phenomenal till 1989 faced hard time for few years till 1994 as
its market shares declined significantly.

 Maintain profit margin

Another major challenge was to be maintaining good profit margins, as the company wanted to
keep the prices high and sell products through promotions such as buy one get one free and the
coupons. However, it failed to do so as it lost on the market shares when prices were increased.

 Increase stock prices

Another key challenge was to increase the stock prices. The company wanted more investments
to explore new markets and this investment could be achieved through increasing stock prices,
however it badly failed.

b)

There are three major reasons and mistakes that Kellogg made in terms of its domestic marketing
strategy that lead it to decline market shares.

 Product price increase accompanied by heavy reliance on promotions

The company believed that it had good base of loyal customers who would be willing to pay any
prices given the good quality, so it continued increasing prices and focused more on promotions.
However, as soon as the promotions and coupon strategy ended the sales started decreasing. It
raised prices six times that was too significant in the presence of competitors.

 Increased competition
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Another major mistake was to misconceive the competitors, the company did not effectively
react to the increasing competition in cereal markets who started selling on lower prices. Even
after having the advantage economy of scale, Kellogg did not go after its competitors in terms of
its prices.

 Lack of appealing new cereals

Other mistakes were to rely too much on the existing product portfolio and not focusing much on
exploring new cereals such as there was this trend of oats cereals and the company was too late
to enter the market. This mistake costs the company sales drop which led to decreasing market
shares.

c)

Recommendations

Following are the recommendations that could avoid the decrease in market shares

Price strategy:

The company should re-strategize the pricing of its different products. Since there is growing
competition in the domestic market, the company should decrease the price to increase sales and
maintain customer loyalty. In the meantime, it should keep focusing on occasional promotions
and coupon offers.

Diversification:

The company should focus on diversification and product innovation. The company needs to
explore new products to widen its portfolio and it proactively needs to recognize the consumers
taste and trend and plan accordingly.

Question No. 3
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Answer:

a).

Before 1994, Kellogg used high pricing strategy followed by price-promotion spending. Kellogg
kept on increasing the prices of the products in order to enhance the overall profitability of the
company. In order to increase the sale of its high-priced products they extensively followed price
promotion strategy thereby giving discounts and promotional offers such as buy one get one free
etc.

b).

The facts presented in the case gives a clear signal that the pricing strategy that Kellogg
followed was not feasible as Kellogg observed a steady decline in its share prices till up to 1994.
The reasons of the pricing strategy not to be feasible could be manifolds, some of which are
described below:

 All of its major competitors such as General Mills and Ralston Purina were following a
low-price strategy. They were selling the cereals at lower prices than Kellogg was and in
the last three years preceding 1994, they kept on decreasing the prices of the cereals. This
lower price strategy followed by competitors gave them competitive edge over Kellogg
and caused a shift of customers from Kellogg to the competitors.
 The price promotion strategy works best for the products, which are being introduced in
the market. Most of the products of Kellogg were in its maturity phase. Therefore, Price
Promotion strategy was not a feasible solution to increase the sale of these products.
 Excessive discounts in order to achieve short-term goals influence the long term goals of
the company. Customers starts to believe low price as the value proposition of the
company. As the value proposition of Kellogg is providing quality products, the pricing
strategy could contradict the ultimate long-term goal of Kellogg.
 In addition, discounts increase the sale but simultaneously decrease the profit margin on
sales. Kellogg must have to sell huge volumes in order to offset the impact of decrease in
profit margin by the sale promotions.

c).
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From 1994 onwards, Kellogg decided to adopt a price maintenance strategy. The management
decided to maintain the current prices at the existing level and decided to spend more on
advertising. Kellogg also decided to cut coupons and discounts.

d).

Since 1994, Kellogg has adopted a price maintenance strategy. The existing maintained prices of
Kellogg’s products are still higher than the prices set up by most of the competitors. Most of the
people in Oman prefer traditional Arabian dishes in their breakfast. They also prefer to have
fresh fruits and vegetables in their breakfast. In such a food market, where traditional foods
dominate and people prefer fruits and vegetables, there is no incentive for these people to buy
ready to eat cereals of Kellogg. Therefore, Kellogg must reduce the price in Oman in order to
penetrate in the market. In addition, they must also invest more on advertising of their products
so that the attention of people could be diverted from traditional foods to the products of
Kellogg.

Question No. 5

Answer:

a).

The major issue that Kellogg faced while implementing its expansion strategy in different
countries was the dominance of traditional foods consumption in the breakfast. The culture that
existed in different parts of the world, excluding the old British Empire, did not welcome the
consumption of ready to eat cereals in the breakfast. The average cereal consumption in most the
countries were very low. Some countries either had not the inherent preference of consumption
of milk, a complementary product to be used with Kellogg’s products, or they did not have the
facilities to store milk. This also inhibited the penetration of Kellogg’s product in the food
markets of these countries. Thus, the food culture that existed in these countries was a major
barrier for the expansion of Kellogg in these countries.

b).
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Unlike all other companies, which followed product diversification in order to achieve successful
expansion, Kellogg heavily focused on the marketing of cereals. In all the countries, where the
Kellogg’s products were not culturally accepted, although the product penetration was very low,
however Kellogg always had the first mover advantage. Kellogg decided to target only the youth
segment of the customers in these regions. They heavily invested in the advertisement of their
products in these countries with primary focus on the young generation. The ads of Kellogg were
designed with the aim of developing the perception of convenience that Kellogg’s products offer
among the young generation. Kellogg also started to customize its cereal products according to
the cultural needs of pertinent regions. For example, the introduction of Genmai Flakes, made
from whole grain rice, was customized as per the tradition of Japan where fish and rice made
traditional breakfast. Moreover, in order to offer more value to the customer, Kellogg, in a sense,
enhance its products features thereby increasing the amount of vitamins in its cereals. All these
strategies helped Kellogg to successfully implement its expansion strategies in different parts of
the world.

c).

There is no doubt that the people of Oman prefer traditional foods to ready-to-eat-cereals in their
breakfast. This means that Kellogg will face the cultural barrier in the penetration of its products
in Oman too just as it faced in other countries, excluding old British Empire. Therefore, the
strategies that Kellogg used in other countries for successful implementation expansion strategies
will be the guiding principle for the expansion of Kellogg in Oman. Therefore, the suggested
strategies for Kellogg to expand in Oman are as follows:

 First, Kellogg should specify the young generation to be their target customer in Oman.
This segment of customer is ready to accept new and innovative ideas in their daily
routines of life. In addition, this segment is more adaptive to change and always look for
convenience in their repetitive daily life activities. The task of molding the preference of
this particular segment form traditional foods to cereals will be easier than other older
segments of customers.
 Kellogg should heavily focus on the advertisement of its products among the generations.
The ultimate aim of these ads should be to instill the idea of convenience that Kellogg’s
products offer in the minds of the targeted customers. Different channels of
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advertisement such as TV, print media social media, and most importantly word of mouth
should be used.
 Kellogg should also focus on the customization of products as per the traditional food
culture that existed in Oman. An example could be introducing the flavor of some Arabic
dish in its cereals.
 Although Kellogg would have the first mover advantage in Oman, still it must reduce its
prices and offer some discounts in order to have a deeper penetration of its cereal
products within the market.
 Kellogg should also add some extra features in the form of added proteins or vitamins in
its cereal products in order to provide a value addition to the customers.
 As the people of Oman have a general preference to have fruits in their breakfast, a
customization in the cereal products could also be implemented here by adding some
flavor of different fruits in its cereals.