The Kellogg Company - Essay Example

? MARKETING RESEARCH TABLE OF CONTENTS 0 Executive summary 2.0 Introduction 3.0 Contents 4.0 Conclusion 5.0 Bibliography 0 Executive summary The Kellogg Company, founded by W.K.Kellogg in 1906, is, today, the world leader in cereal production. It also produces a whole range of convenience foods including cookies, crackers, snack foods and veggie foods. Known for its highly innovative spirit, Kellogg’s proudly showcases around 500 brands worldwide (Kellogg’s 2011). New product development is an activity loaded with high risks. Not only it calls for huge amounts on investments in terms of time and money, it is fraught with an abysmal success rate. One of the easier methods of new product development is brand extensions. In 1980, the company launched cornflakes in the UK market. Buoyed by its huge success, it has been regularly expanding this market through the strategy of brand extensions. Crunchy Nut clusters launched in 2003 was followed by Crunchy Nut Bites which hit the market in 2008. All these brands have been hugely successful for Kellogg’s. This paper traces the success story of Kellogg’s. It outlines the importance of marketing research, provides for a critique on the four-stage research process at the company and also presents the salient findings from marketing research undertaken for the Crunchy Nut Bites and the new Coco Pops brand. 2.0 Introduction Kellogg’s is a world leader in the cereal market. With nearly 500 successful brands in its portfolio, it believes in a domineering market presence through the all-important strategy of innovation complemented by marketing clout. Truly, a transnational corporation, it has manufacturing facilities in 18 countries which enables it to cater, far and wide, to over 180 countries, globally. Kellogg’s introduced Crunchy Nut Cornflakes in the UK market in 1980. Over the next two decades, this brand generated huge sales of around ?68 million. In 2003, Crunchy Nut Clusters, a product extension, was launched in two varieties – Milk Chocolate Curls and Honey and Nut. This strategy was highly successful as it enabled Kellogg’s to garner annual revenues of ?21 million. Riding on this success, in 2008, Crunchy Nut Bites, arrived in the market. Achieving a record of nearly ?7 million in its very first year of full sales, the newest launch was also a major hit. The most critical factor in the success of Kellogg’s new product initiative is its elaborate, marketing research. Research is, unfailingly, undertaken for every single step of the way right from idea generation to market commercialization. Primary as well as Secondary research is carried out. Both forms of research, namely, qualitative and quantitative research is given due importance. A unique four-stage approach commencing with discovery and leading onto selection of the best product idea, is followed by transforming the idea into a complete new product and concludes with a forecast of sales for the new product. This comprehensive research framework has stood the company is very good stead, over the years. It enables it to maintain constant interaction with the most important stakeholder of any organization, irrespective of form, nature and size, the consumer. This consumer-marketer interaction and interface enables Kellogg’s to regularly tap the consumer’s pulse and identify their wants and needs. This mode of consumer empowerment translates into strong consumer advocacy of the Kellogg’s brand and goes beyond customer satisfaction leading to consumer delight. Consequently, consumer retention becomes easier and new customer attraction is also facilitated through product promotions and other marketing efforts. In days of reduced market research spending (Quelch 2009), its reliance and stress on the need and efficacy of marketing research, has paved the way for a sustained competitive advantage (Porter 1965), for Kellogg’s. 3.0 Contents Innovation refers to creation or introduction of something new. Though innovation and creativity is used synonymously, innovation is greater than creativity and is aimed at the commercial realization of creativity. New product categories (Kotler 2000) include cost reduction, re-positioning of existing products, improvements/ revisions, additions to existing lines and new to the world products. New product development is of vital importance since it not only benefits the company, but also, the society at large. For the company, it means diversification and spread of business risk, replacement of fading products and increases in sales revenues. To the society, it fosters competition, creates more and better jobs and improves the standard of living among the people. However, empirical studies put the new product failure rate at an alarming 95% and 90% for US and UK respectively (Kotler & Keller 2006). New product development process (Kotler, Bowen and Makens 2006) is an eight step process, as shown hereunder. It is a comprehensive, time-consuming process commencing from idea generation to commercialization. Section 1 Organizations vary in their orientations of business philosophy. Product-orientation focuses on producing and making available the best quality of product in the market place and regards product quality as the quintessence of business success. The thinking is that good quality will sell itself and demand conditions will be created. Market-orientated organizations, on the other hand, take a holistic approach to marketing with the customer as the major driving force. This philosophy creates a prior demand and a market for the new product. Research, has its roots in the words meaning, to search again. Marketing research searches for information again and again which can be translated into inferences and insights in relation to a product or service. Marketing research (Burns and Bush) uses information to find answers to marketing problems. The regular customer-marketer interface works for mutual benefit. Valuable inputs vis-a-vis the five elements (Kotler 2000) of the marketing mix, namely the product, price, place, promotion and packaging, are facilitated. This enables drawing up of detailed marketing action plans both over the short and long term. Unnecessary and needless trial and error and experimentation is avoided which can translate to faster to market product introductions and savings in research and development costs. A better identification of the present as well as future customer needs is possible. Since the consumer is involved right through the new product development activity, easier consumer acceptance of the product can be expected. While both, qualitative and quantitative research, are empirical, they differ greatly in nature and scope. The major differences are highlighted in the table shown below. Feature Qualitative research Quantitative research Type of research Exploratory Descriptive / Causal Sample size Small Large Methodology Experiments Observations, Surveys Data quality Subjective Objective Inferences Inductive Deductive Data analysis Analytical Statistical Section 2 Kellogg’s marketing research framework consisted of a four-stage process – discovery, best idea selection, conversion of idea to product and forecasting sales. The first stage looks at identification of new product and flavor ideas. Primary research was obtained through the use of focus groups. This was complemented by secondary research. This provided valuable insights into consumer expectations and idea screening. The second stage showcased select product ideas to a larger consumer audience with a quantitative focus. Rating scales on consumer likes and dislikes provided the data base for statistical inferences and the best product idea selection. Conversion of the selected idea into a product concept was the next challenge. The research findings were used to develop prototypes of four new product recipes for Crunchy Nut Bites. Packaging models were also tested out with a representative group of consumers. The culmination of this unique process is development of sales forecasts for the new product. This is preceded by the Kellogg’s “In home usage test” where the consumers are asked to test out the new product in their homes. At the end of the trial period, respondents fill out survey questionnaires which helps Kellogg’s to make sales forecasts based on which the new product is given the final go ahead for launch and manufacture. Crunchy Nut Bites was launched in September 2008 and proved to be a highly successful brand extension with a sales value of ?6.9 million in its first year. This makes for a very strong case for marketing research in new product launch success. It needs to be pointed out that both quantitative and qualitative research has paid rich dividends to Kellogg’s. Quantitative research takes centre stage during the latter half of the marketing research process under stages III and IV. The initial two stages of discovery and best idea selection are hugely dependent upon qualitative research. Obviously, the marketing research process at Kellogg’s is quite comprehensive and successful. All forms of research – qualitative and quantitative, primary and secondary – are put to good use. The involvement and participation of consumers throughout the entire new development process, is worthy of emulation. Also, the size of the test panel of consumers increases at every stage, so that a larger and more representative sample is tested. This ensures a high level of awareness and consumer acceptance prior to new product launch. Benefits of this model also accrue in terms of reduced expenditure on marketing promotion and other related costs. This process can be enriched by using other agencies such as internal employees for idea generation using brainstorming and psychological methods. There is a lack of marketing strategy development and business analysis, before prototype development is taken up. Test marketing via the “In home usage test” is undertaken in a smaller scale. Kellogg’s can benefit through better use of technology to test out the prototypes with a larger consumer audience. This can result in quicker and wider acceptance from the target market group. It is only upon the successful completion of the last stage of sales forecasting that Kellogg’s initiates efforts on production and other infrastructure development such as budgeting and supply chain networks. This can lead to a possibly huge time lag before trial production commences. It is here that marketing and business strategy development, immediately after idea screening, may greatly help. Section 3 5 customer needs/ wants/expectations/ trends For over a century now, the world over, breakfast has been considered as the most important meal of the day. Breakfast cooked at home was considered ideal and people were not very conscious of the taste of the food served. Over the next four to five decades, cereals entered the breakfast domain and uncooked food started making way. Taste and flavor were also being considered important. Breakfast slowly became an all-family affair. Easy to prepare, convenience and time saving became priorities. No cooking, no mess and no cleaning became the norm. People became highly brand- conscious and moved towards supermarket shopping. This led to the entry of own brands or labels by major super marketers in the food industry. Children became gullible victims of advertising and promotion blitzes of the major brands which forced regulators in the western countries to impose legal restrictions and sanctions on advertisements targeted at children. 5 Product attributes Product attributes began playing a major role in the marketing mix. Initial processed foods were sugary catering to the taste buds of children. Cornflakes were also required to be crunchy. The empty calorie awareness movement caught the major food producers by surprise and this led to a drop in the sugar and salt content of breakfast and other foods. Healthy foods were in demand and producers brought it more value addition. Breakfast foods became fortified with nutrients, vitamins and minerals. Good and attractive packaging became instant hits and led to the development of the food packaging industry. Self medication by people in their homes, though ill advised, forced manufacturers to offer good quality and valued added foods with more grain, less fat and high fiber content. 5 Advertising/ Marketing planning activities Kellogg’s was the first company to advertise its products in a big way. The power of the printed word was fully appreciated by Kellogg’s founders and marketers and they used it to telling effect. Monstrous amounts of money were splurged in product launches and advertising campaigns. Most of the time, Kellogg’s advertisement budget was more than the budgets of all their competitors put together. The first advertisement media used was the Magazine format. Other forms of print media like newspapers soon followed. The advent of Radio opened up a whole new media for Kellogg’s. Slogans and jingles had a better reach than the printed word. The wide reach of the Television was also exploited to the hilt. Animal characters and imagery were high popular. Celebrities from the entertainment and sports industry coupled with the audio-visual benefits proved to be a huge hit with the masses. Kellogg’s also launched the Music revolution in the West and gained tremendous reach and mileage, thanks to this phenomenon. 5 Kellogg’s brands Good branding has always been a key factor in Kellogg’s success and prosperity. The first brand launched was the Kellogg’s Cornflakes which marked Kellogg’s entry into the food industry. Kellogg’s All bran was a wheat bran cereal was rich in the goodness of wheat and was packed with high fiber. The natural good taste of bran was the unique selling proposition. Kellogg’s Special K is a cereal with high protein and low carbohydrates. With the crispy, crunchy taste intact, its low sweetness fortified with vitamins and minerals made for a healthy breakfast serving. Nutri-Grain cereal bars were packed with the wholesome goodness of wheat, milk and soy ingredients. This was, essentially, a meal on the go, aimed at people who skipped breakfast due to time and other constraints. Coco Pops Choc and Roll is a whole grain cereal with less sugar and saturated fats. This product launch is the latest in the Kellogg’s cereal portfolio and was intended to make big brands become massive. 3 Marketing research techniques Marketing research at Kellogg’s is an ongoing activity encompassing primary and secondary research as also quantitative and qualitative research. Focus groups have been used in a big way. This is a technique in which six or seven consumers discuss the new products in all its dimensions with a moderator directing and guiding the customer-marketer interaction, along desired lines. Quantitative research through questionnaires is also widely practiced. 7-point rating scales on the like/dislike factor etc. facilitate better consumer responses. The In home usage test, a test marketing tool, is unique to Kellogg’s and works for mutual benefit. Consumers get to use and experience the real product while the company benefits in terms of enriched feedback and better insights into consumer behavior. 4.0 Conclusion Kellogg’s owes its rich legacy of marketing and branding success to its rightful import and focus on elaborate marketing research. It helps them to strike a wonderful rapport with the end consumers which translates to better bonding and a highly beneficial customer loyalty base. Gains also come in the form of highly reduced new product development costs as well as lower promotion costs. Further, the success rate of new products at Kellogg’s continues to be very high. Consumers feel respected and therefore volunteer and complement the research efforts of Kellogg’s. Customer relationship management has taken new dimensions at Kellogg’s. 5.0 References Kellogg’s 2011, Avaiilable from http://www2.kelloggs.com/ [20 May 2011] Quelch, J 2009, Improving market research in a recession, HBS working knowledge, Available from < hbswk.hbs.edu/item/6183.html > [20 May 2011] Kotler, P & Keller, K 2008, Marketing Management, Prentice Hall, 13th edition. Kotler, P & Bowen & Makens 2006, Marketing for Hospitality and Tourism, Pearson Education, 4th edition. Sarantakos, S 1998, Social research, Macmillan Education, Australia. Pauuuuul Hage 1988, A practical guide to market research, Grosvenor House Publishing Ltd. Porter, ME 1985, Competitive Advantage: Creating and Sustaining Superior Performance, Available from www.quickmba.com/strategy/competitive-advantage/ [20 May 2011] Burns, AC & Bush RF 2010, Marketing research, Pearson Education, 6th edition. Read More