Entry Strategy of Kellogg India - Case Study Example

Global Marketing Analyse the entry strategy of Kellogg India both initially and during the later planned expansion. Kellogg India was planning an entry into India during September 1994. Its initial entry strategy included offering consumers in India, breakfast cereals, comprising of corn flakes, wheat flakes and Basmati Rice Flakes. The company had planned for an high profile media coverage to put the product in the market. It originally planned the launch only in Mumbai metro to be extended subsequently after the trial marketing to the rest of the country. The company also felt that if the quality of the product is good then people would not mind paying a premium price for a premium product. Therefore, they more or less stuck to their pricing levels in US and tried to bring in quality and technology to ensure that the product tasted better and was more nutritional. The re-entry in case of Kellogg was in terms of price. The war in the middle class consumer products is over the price. Kellogg had to compete with Mohun which has been in the market prior to Kellogg's entry. Mohun and another of the competitors, Champion were both pricing their products at a much lesser price compared to the one Kellogg did. Kellogg however, was sure of the strategy and continued with the same pricing strategy of being the premium brand among corn flakes. Though of course, the other two offered by Kellogg, the wheat and the rice flakes did not do well in the market and had to be slashed down. On analysis of the first two to three years of Kellogg business in India, it is seen that the company has not spent enough efforts in understanding the consumer preference in the market. A large percent of the upper and middle class consumers will not be having their breakfast. In addition to this, most of the people who do take breakfast would like to have something that 'fills' the stomach. More likely Indian alternatives like idli and vada dominated the breakfast scene in most houses rather than any other. The cereal breakfast concept did not just pick up and was viewed mostly as a health issue. Only those people who were either sick or otherwise not healthy would go for cereal food. Therefore, number of people who would be continuous or regular buyers of corn flakes was becoming lesser. As their study shows only 2% of the buyers were regular buyer which is not what Kellogg wanted to have. Kellogg had launched during its re-entry, the chocos which is corn flakes coated with chocolate. This was a roaring success and the market immediately picked up. Kellogg could corner nearly 57% of the market share in the Indian market. In addition to this, Kellogg had other products in the pipe line to suit the taste of the Indian consumer. Indian consumers want their breakfast to be filling, nutritious and less costly. It was not expected to be fun. But when the Chocos was introduced with a fun element to it, it immediately appealed to the kids and it took over the morning breakfast from the noodles and idlis for the children. Kellogg therefore had to ensure that the fun factor in the breakfast cereals continued. In line with this, Kellogg further went ahead and released the biscuits with the same brand, the Chocos and another line of special corn flakes primarily aimed at the growing Indian breakfast eaters. It had the mazaa in it; special flavours exclusively developed for the Indian market. On analysing further the status of the corn flakes market, it could be seen that the company was aiming at improving their continued domination of the market and might better their share. But the market itself if small and has to be increased to ensure that there is adequate growth for the company in real terms. This was taken care of in the third approach that Kellogg had. They planned to educate the people and distributed free samples to the students and the target customers so that they might get converted. In the course of time, the effect could be felt. Kellogg was intent on weaning the people who starved away the morning and then slowly introduce them to the breakfast cereals concept. This was pushed aggressively by insisting or letting the people know the healthier aspect of the cereals and the ease with which it could be prepared. This has been done through a series of campaigns and educational seminars. This was aimed at both students and office goers. This would ensure that the people realise the importance of a morning breakfast and also try to take them away from their idli and vada. 2. Analyse Kellogg's efforts to revamp its marketing mix. The market in India for the breakfast cereal was already pretty low. The reasons were primarily one of taste and that of being a filling one. Most of the Indians who tool break fast wanted it to be tasty and a filling one at that. It was not just the nutritional value that the people were looking for. In order to ensure that the people in the country took to the new breakfast, Kellogg had to bring in a change in their perception to increase the sale of the cereal food. But this is not something that could happen fast and the company was willing to standby and allow time to bring in the change. Kellogg instead addressed the issue of taste. This would ensure that the people who started with the product stuck to it rather than try out and drop. They brought in the chocolate crispy coated corn flakes called Chocos. Chocos was an instant success and the company felt that the new products and the line that they were creating were improving the sales performance. In addition to this, the sale was also increasing the market in India for breakfast cereals. The size of the market itself was gradually going up and Kellogg converted the health and nutritional value of the Chocos to 'fun' product. They started attaching gifts to the kids along with Chocos. This created an ongoing and fixed clientele in kids who just took to the taste. This made Kellogg to come in with further varieties and tasty options for the Indians specifically made for them. They also launched Frosties soon after the launch of Chocos. Though not as successful as Chocos, Frosties did attract the attention of the people and Kellogg continued to rule the breakfast cereal market in India. By April 1997, when Chocos were launched Kellogg itself was surprised at the nature of response that they obtained. In the course of the work that followed, Kellogg felt that they can expand and garner more market. This made them launch the Chocos Biscuits which was not as successful as the Chocos flakes. However, this could bring in a share of market for the chocolate biscuits to itself. The Mazaa flavour that was launched to the taste of the Indians, Mango Elaichi, Coconut Kesar and the Rose, all were received with welcome hands but still sales did not pickup drastically as was expected at Kellogg. The primary reason for the slowing down of the sale after the initial romp is because of the fact that there were very little repeat buyers. The concentration on the taste of the cereal found its target and people took to the new taste that has come up. After tasting success with the launch of new flavours for the cereal food, Kellogg went on to create further varieties. It launched the honey crunch, all bran, all raisins and a number of other varieties to give the consumer varieties to choose from and a taste that they would love to have. This had the desired effect to some extent, in the sense that the company helped the market to grow into Indian Rupees 150 million market where almost nothing existed earlier. People have started using it and Kellogg has to stay for a longer period to get any results out of this. Though Kellogg did not have any major principle constraints, it does have the need to meet some of the social objectives of the government like indigenisation of the entire process. However, this was not a major constraint that Kellogg needs to worry about. None of the other principle constraints like legal or labour law were found to hurt Kellogg. Continuing with the analysis of the status of Kellogg and its actions applying the framework for international trade as suggested by the United Nations trade promotion, we come to the following conclusions. The size of the market has been analysed but then the need for the breakfast cereal has not been ascertained early on. Instead when the failure to break the market and finding later that the required targets in off take was not met, the analysis is being done only to realise that the country has a different methodology of approaching the morning breakfast. While nearly 5% of the total population and nearly 20% of the target upper middle and upper class will not have a breakfast, was a surprise for Kellogg. Corn flakes that Kellogg was selling were targeted not at the people in the lower or lower middle class but at the people in the upper middle and upper class of the society. This was so because the pricing of the product was premium. Secondly, corn flakes itself is a product that is not targeted at the masses. It is not a cheap food. Therefore, the idea of roping in a large market for breakfast cereals is just not going to happen immediately. The market growth rate was not really in line with the growth that the company expected. The market was in its nascent stage and had to be built in order to ensure that the company got its business. The distribution of corn flakes was initially done only in Mumbai and later on in major metros and cities. It was not expected to reach all the corners of the country but instead only major centres where the purchasing power of the people is very much available and the people go on to buy it from the nearest departmental store. Additionally, the company did not appoint every departmental store either to deal with the product. Instead, the company was choosy and the buyer can expect the corn flakes only in specific stores. This also led to a reduction in the availability of the goods when needed by the customers resulting in loosing the sale. During the review this was strengthened and the distribution system was further strengthened so that people could walk into their neighbourhood departmental store and could obtain their favourite corn flakes without any hassles. Kellogg did employ appropriate manpower and technology to implement the project and tried to make the best margins out of the existing scenario. Kellog had pumped enough amount of money in their only plant in Maharastra that would help them meet the country's requirements. In the course of the plan too, the company did rope in some of the local talents who would understand the local market and would be able to help the company in ascertaining the target market, product appropriateness and the market size. The company also went on to identify the nature of competition it had; which it found to be meagre and can certainly beat them. This fully fitted into the strategy of Segmentation, Targeting and Positioning (STP) (Jorge A Restepo, 2006). Kellogg identified the segment that had to sell to start with. The product was positioned as a premium product and was aimed at selling to the upper and upper middle class markets in the country. This was clearly targeted in all its campaigns. Secondly, the segmentation of the market was initially for the entire class and then, it went on to further segment this by age when it launched Chocos. The kids were targeted but the taste was liked by everybody in the house. Children continued to be the target in their further launches of varied tastes though there were other mazaa products that it launched which was targeted at the grown ups. The positioning of the product in the market of breakfast cereals continues to be that of a premium brand. The continued presence in the market for a stretched period would ensure that the product starts moving and the company will be able to break through the nascent market of breakfast cereals in India. However, the brand does not appeal to everyone in the country specifically the mass market. It is not one brand, one product and one strategy style of marketing (Mercedes M Cardona, 21 June 2004). Kellogg could achieve targeting of their products after identifying the segments that are important for them. The company could subsequently position the products one after the other to ensure that the targeted segment is fully covered with respect to the breakfast cereals. The company launched the corn flakes, followed it up with wheat and basmati flakes. Since the product was to be in India, it is important that the tastes of the Indian consumers are taken into consideration. The entire stretch of the morning cereals requirement for the segment was totally met by Kellogg. This ensured that the company's share of the market went beyond 60%. When the company decided to extend the chocos brand to biscuits they were trying to capitalise on the 'fun and taste' brand that they have established. This is specifically addressing the requirements of the children. The company saw a major turn around in their earnings when this was done. However, over a period of time, there was a continuing slackness in the business and Kellogg decided to hold fort until the attitudes of the people changed. Unless this happens, there may not be a major improvement in the market condition. Therefore, this can be termed a wait-and-watch game rather than any other marketing strategy as of now. But this in itself is a strategy. The longer the company stays in the country, more trustable and stronger it should become. This goes well with the concept of marketing mix (Neil H Borden, 1964). The 4 P's (Jerome McCarthy, June 1994) of marketing mix, Product, Price, Place and Promotion, have all been taken care of by Kellogg's strategy. Though of course, on closer analysis there is certain lacuna that drove their business down. Product: Product is positioned as a break fast cereal. But then in a country where break fast is not a regular habit, this certainly could not get going. What Kellogg wanted to do was to make a change in the way people behaved and their habits, which is going to be a very major exercise and cannot happen over night. This is possibly the major error of judgement in the entire exercise. However, with the launch of other products like Chocos, it is possible to see that the markets responded not as a breakfast cereal but as a snack and for the taste that it offered. Though the brand name support was very much there, styling, quality, packaging and all other factors were in line, it was not possible for the product to establish itself because of this issue. Price: In the price war between the competition and Kellogg, there cannot be many questions to the fact that Kellogg came out with flying colours. Their strategy of sticking to the same price line and targeting at an upper class market added up to their market share over a period of time, value wise as well as quantity wise. In addition to this, Kellogg's profit continued to rise because of this stable pricing strategy. Kellogg at no point offered a reduction of price to the end consumer though the gifts that were introduced by Kellogg had a large fan following. Place: The distribution was started in Mumbai where it was a success and this continued to be emulated in other centres as well. The large scale increase in the number of distributors ensured that Kellogg kept increasing its market share much more than what they were originally planning. This reflected specifically when the new versions of their flakes were launched and they could meet the market demand. A good and supportive inventory management, distribution centres, strategic warehouses, transportation and appropriate coverage of the market all added to the success of the product penetration. Promotion: Kellogg had the best promotion managers possible in that region. They could move the media to bring them into the focus and it was launched with a massive fanfare. However, when things did not go well with the acceptance of the product, the initial euphoria slowly receded. But when the taste varieties like chocos and others were launched it was found that this media support came very much in hand and produced the results Kellogg was expecting. Ample sales promotions, publicity, advertising and effective marketing communication could see them through when the going was good. However, this does not meet up to the targets Kellogg has set for itself to achieve in India. 3. Comment on Kellogg's initiative to extend its brand and products to biscuits and snacks. The entire market for breakfast cereals was at a Rs 600 million after the development of the market by Kellogg. But still this is too small even if the entire industry is dominated by them. The market was just not enough for the growth of the company and its targeted profits. It was essential that the company sought out more and better markets. On the successful launch of Chocos, the company was surprised at the swift acceptance of the product in the market. Much more important was the fact that chocos was being used as a snack by some of the people. This led the company to launch a separate line of snacks both sweet and hot into the market with a new set of tastes. The products could stabilise in the market swiftly. The product was well positioned and the marketing activity was continued (Martin Payne, Autumn 2001). Similarly, looking at the success of chocos, the company decided to launch a biscuit of chocolate in the name of chocos. The brand was already well known and the company could manufacture and distribute through the same network a biscuit of the same quality (Crossguard, 2006). This enabled the company leverage a developed brand and also use the existing distribution to the advantage of increasing the company's worth. This helped the company maximise its earnings. Extending its product line and the brand to biscuits and snacks helped the company build on its earnings. Brand extension does not work always. It appears as a leveraging exercise of the existing strengths of the company. But in many cases it works to the negative. For instance, in the case of Kellogg itself, the biscuits did not fair as much as what was expected out of it. It was an exercise that did not provide Kellogg neither the kind of leverage that it expected nor the required turnover to the company. Biscuits and snacks was not like the breakfast cereal. It was a market that was already dominated by companies like Britannia, Parry's and others. To break into the market the company has to exert itself a lot unlike what it is with the break fast cereal market. In the case of corn flakes, there was hardly any competition for Kellogg. This made it very easy for Kellogg to corner more than 60% of the Indian market with in a span of three years. But that is not the case with biscuits or with snacks. Kellogg had to contest with seeded players who would not yield ground that easily. This meant that Kellogg had to withdraw its biscuits over a period of time and had to go slow on snacks market as well. In addition to this, brand extension does not provide the required returns in all the cases. As a matter of fact, it provides negative effect on the existing products if the new line is not good. The brand gets diluted and over a period of time, people tend to stop linking the brand to the product. It is therefore, essential that the brand should be tied to it rather than dilute the brand by creating disconnected products (Shi Zhang & Sanjay Sood, June 2002). Though chocolate is the common base for Chocos and the biscuits launched, it is still trying to create a new line of products for the brand which would dilute the brand. The other side of the brand extension is the brand strengthening. If the brand is extended with an appropriate set of products the franchisees are strengthened and the turn over out of the brand also increases. This would further strengthen the confidence people have on the brand. The return on the brand is higher for the company and the perception of the public is also better for the brand. The return for the franchisee also increases resulting in a better brand image building. References 1. Crossguard, 2006, Brand Extension, available at: http://www.crossguard.info/topics/brand-extension.html 2. Jerome McCarthy, June 1994, Basic Marketing, Richard d Irwin, ISBN: 025616651X. 3. Jorge A Restepo, 2006, Segmentation - Targeting - Positioning, Eureka Facts - the smart Marketing Information, available at: http://www.eurekafacts.com/STPArticle.pdf 4. Martin Payne, Autumn 2001, Maintaining the Brand Health, Through the Loop, No.16. available at: http://www.poolonline.com/archive/issue16/iss16fea4.html 5. Mercedes M Cardona, 21 June 2004, Mass Marketing meets its maker; McD's chief espouses 'brand journalism' approach, Advertising Age, Vol 75, i25, p1. 6. Neil H Borden, June 1964, The Concept of Marketing Mix, Journal of Advertising Research, pp 2-7. 7. Shi Zhang & Sanjay Sood, June 2002, "Deep" and "Surface" Clues: Brand Extension Evaluations by Children and Adults, Journal of Consumer Research, Vol 29. Read More