Marketing Plan for Rejuvenation of the Coco Krispies Brand of Kelloggs Co - Case Study Example

Marketing Plan for Rejuvenation of the Coco Krispies Brand of Kellogg’s Co. Executive Summary With 2008 sales of more than $ 12 billion, Kellogg’s is the world’s largest producer of cereal products and the one of the largest in the convenience products industry. Their products are almost iconic and have been around for decades. The company’s marketing and brand identity prowess has been credited for changing the mindset of entire generations of people. Today, Kellogg faces the most difficult operating environment that it has faced since its inception. The entire world has slumped into a slowdown, with every other newspaper speaking of job losses and pressure on expenditure. In addition, rising input prices are adding pressure to the company’s bottom-line and threatening to erode profit margins. Moreover, its competition that continuously dog its presence has tried to erode their market share time and again. In spite of this, the company has posted a healthy growth of 8% in 2007 and an operating profit growth of 3%. The specific brand that we are dealing with in this marketing plan is Cocoa Krispies. Introduced in 1954, the product is a high-sugar cereal famous for its mascots. It is part of the high market share brands of Kellogg’s and contributes to nearly 7.5 % of total worldwide revenue to the company. Table of Contents Introduction and Situation analysis Cereal Industry Market Competitive Analysis Customer Analysis Macro-Economic Trends Technological Changes Goals and Objectives Target Markets and Segmentation Marketing Strategy Product Place Promotion Pricing Distribution Budgets Implementation Evaluation of results Conclusion Introduction and situation analysis Kellogg’s is a global multinational company that strives to build long-term growth in volume and profit and enhancing its worldwide position by offering products that are nutritious and are of superior value. In Phillio and McLuddy’s (2009) brief on the company, they say that as a company its organization revolves around leadership in product innovation, strengthening its seven large cereal markets, accelerating the growth of the convenience foods business, and developing a more focused organization. In addition, for product markets, the company indulges in constant innovation of its products to introduce them to existing customers and also those that fit new customer’s needs. Cocoa Krispies is a breakfast cereal produced by Kellogg’s and it’s a cocoa flavored version of Rice Krispies. The cereal was introduced in the United States in the year 1958 and is now available across Kellogg’s global operations under various names. Cereal Industry Market The cereal industry market size has sales of nearly $22.2 billion in the Ready-To-Eat Market in 2008. The industry has posted a compound annual growth rate (CAGR) of 2.9% for the period spanning four years since 2004. Some of the well-known brands in the kids’ cereal brands are GM lucky charms, GM Count Chocula, Post Marshmallow Alphabits, Q Marshmallow Safari and Rice Krispy. In terms of competition, the marketplace is quite crowded as sales have been flat and low-priced imitation products have eaten in to the market shares of Kellogg’s and General Mills. The prediction for the market is that it will grow at a rate more than 15% a year, for the next 5 to 7 years and a sign of slowing is expected only at the end of this term. The credit for growth in the overall kid’s food market can be given to gains in cereals. (Phillip and McLuddy, 2009) The heat in the marketplace can be felt by the fact that seven breakfast cereal marketers have allocated more than $2.2 billion advertising and marketing spends for the year 2008. General Mills has, in fact announced that they would increase their marketing spend by almost 20% for the coming year to about $840 million. The market follows the 80:20 rule, when 70% of the market is controlled by – Kellogg, General Mills and Philip Morros – three food giants. Some of the challenges that the industry facing today can be divided into four aspects – new products that are dominated only by line extension and product promotion with little innovation in the nature of the product; private labeled cereals gaining popularity as branded products costs higher; demand for health food markets & products and finally health claims increasingly becoming prevalent. Competitive Analysis Intensity of Rivals According to Michman and Mazze (2007) in their book The Food Industry Wars the market is the true example of an oligopoly where a few members, here four in number, dominate a large part of the market. Competition, naturally, is extremely intense between the players who sell products at inflated prices. Moreover, the growth rate over the years has remained constant. Threat of a Substitution The growth of the supermarket and need to drive innovation has necessitated them to venture into private label products and the easiest segment is the cereal industry segment. Companies, such as Kellogg’s, have invested heavily in creating markets and changing people’s food tastes over the decades and these entities are mainly riding on this readily available market. This has made substitution a very significant competitor and has in turn, caused our other competitors to lower their prices. The low switching costs offered by these private labels have made over a third of a thousand shoppers move over to private labels. This phenomenon is responsible for making buyers more powerful than ever. (Michman and Mazze, 2007) High Barriers to Entry In the breakfast cereal market , there is essentially only one major entry barrier, which is the cost factor. This can be subdivided into four major cost facts which are as below: Manufacturers who are established are better off with Product Development as it is easier for them to duplicate products and as new products involve investment in R&D. Another major contributor is Distribution, with generally high promotional fee expense, high slotting, low availability of shelf space, and the requirement to generate retail demand. The end of the line is made up by marketing, essential due to the extent of competition and brands that have established themselves over the years through large advertising, and High Capital costs for the establishment of different types of equipment and plants. (Michman and Mazze 2007) Power of Supplier The industry has now moved to a buyer’s market, due to the deluge of suppliers in the segment. Similar products that available in a particular range have allowed buyers to purchase cheaper products from private labels. This has reduced the power of the supplier to a very large extent. Customer Analysis Cocoa Krispies Buying Criteria Some of the key equity drivers of the brand can be classified into chocolate taste, Coco the monkey, snap, crackle and pop. In addition, the creation of a fun and colorful packaging tend to capture the attention of children and the target audience. The product itself is very sweet, colorful and nutritious. The buyers or purchases of Cocoa Krispies are generally parents and older adults, though the consumption pattern reveals that people who consumer them are generally in the range between 4 to 18 years, in age. Our target market is specifically kids between 8 and 11 years, and kids are the major influencer to the purchase of the product. The product is purchased roughly 18 times in a year and has the distinction of being the tenth fastest-moving product in the supermarket. Grocery stores have been the primary driver of cereal sales, with close to 99% being sold here. Macro-Economic Trends The current downturn due to the sub-prime mortgage debacle has rendered many people homeless and a huge loss in the number of jobs. The unemployment rate has never been so high in the last few decades. The downturn has taken its toll across industries and sectors across the globe and some of the major ones too. The impact of the slowdown on the cereal industry is going to be minimal if not, none. People will still have to eat breakfast and habits that have been established over generations is something that is hard to break. We don’t see that much of an impact on this sector than what it has done to other sectors such as the Banking and Financial industry of the Information Technology industry. Technological Changes A SWOT analysis of Kellogg and the segment that we are dealing with, reveals the following aspects: Strengths Kellogg as an organization controls approximately 42% of the global market for Pre-sweeter cereal. This is more than three times the market share of the nearest competitor. In addition, the organization has the strongest advertising recall and brand recognition among all the cereal manufacturers. Weaknesses In the last four years, there has not been an aggressive push for the development of new cereal lines. Moreover, there has been a gradual erosion of their U.S. market share in the past few years. Kellogg’s has always been follower in pricing strategy. Opportunities The next growth opportunity for Kellogg’s looms itself large in the from of international expansion and penetration into high-growth markets such as the Brazil, India, China and Russia nations, collectively known as the BRIC nations. To increase profitability, Kellogg’s needs to increase their diversification, though remaining focused on their core business areas. The need to focus on a better pricing strategy may not be necessarily only form driving the prices down. A pressure to drive prices down, will naturally be the result of bringing down costs of manufacturing. Threats The main strategy of Kellogg’s major competitors, viz. General Mills, Post, and Quaker Oats, are to use lower pricing and product proliferation in a bid to eat into Kellogg’s share of the market. Extremely low priced imitation cereal brands have so far been successful in impacting the sales of premium brands in commodity markets. Goals and Objectives The primary objective of our upcoming campaign will be to increase the strength of our kids consumer base. To support this, Kellogg’s must ensure that they increase market share continuously in the sub-segment and increasing volume share to about 60% by directly focusing on competitor brands such as General Mill’s Cocoa Puffs and Post’s Cocoa Pebbles. The time frame to execute this will be a period of four quarters, ending in the first quarter of 2010. To proliferate brand presence in the market, extension of line brands will be introduced in the coming quarters. These new line extensions will enhance the ‘ultimate multi-sensory food experience’, which will be achieved by the addition of more attributes, which will finally aim at satisfy consumer needs. The plan is to introduce at least three new extensions in the near term of three to six months and an additional six extensions in the longer term of six to nine months. In addition to all of the above, there is an urgent need to target different target groups. Target Markets and Segmentation As the U.S markets saturate and mature, the growth geographies are currently noticed as Brazil, Russia, India and China, collectively referred to as the BRIC nations and the Latin American region. Each country is posting an annual GDP growth of approximately 6% and is growing in its affluence. Moreover, our presence in these markets over the last few years has contributed to a significant growth in the revenues of the regions. In the next four quarters which is by the first quarter of 2010, we would like to ensure that 40% of the revenues are generated in high-growth markets such as the four above and others in the Asia-pacific and Latin American region. This target will take six quarters to achieve. Currently, these geographies contribute close to 14% of revenue. The current market segmentation for the Coco Krispies brand is in the age group between 8 and 11 years. We will add two more segments of 5 to 8 and 11 to 14 to these segments. Keeping the above segmentation in mind, the target that we have set for the brand to perform is $ 1 billion. The current revenue for the brand is in the region of $750 million. Marketing Strategy Product Though the U.S market and other mature markets has generally gone into a health conscious and low-sugar content food offerings, the same is not so true for younger age groups. Research has shown that high-sugar content breakfast meals increase the memory of children and teenagers. There are many such research available that have shown that it is fine to have high-sugar breakfasts. What we are proposing is that the Coco Krispies line be reintroduced with a fresh outlook, new mascots and a renewed positioning. The product will have nine new extensions by the end of the year. Place As we market the new version of Coco Krispies with renewed branding, in the U.S, we would still like to place in the traditional areas of purchase, the grocery store. The grocery store accounts for 99% of all cereal purchases. In addition, we would be taking advantage of our existing relationships with distributors and retailers to ensure shelf space, promotions and so on. In addition, Promotion Marketing of Coco Krispies, in terms of tactics, will largely depend on the geography in question. For most part, we will utilize both in-store and out-of-store promotions. Since there is a renewed packaging and a fresh look, our primary focus with promotions will be to capture the attention of customers in order to stimulate their purchase of the cereal. One of our primary promotions will be to distribute in-store samples in both grocery stores as well as wholesale retail chains. Sampling will assist in enticing people to purchase and increase product sales and they begin to see the health benefits of Coco Krispies. Another form of promotion will be a lucky draw with coupons next to the sampling counters and other coupons for repeat purchases. Sampling through local newspapers is another way in which we hope to stimulate interest. Pricing Preserving Coco Krispies brand image, pricing will be relatively closer to the original Coco Krispies. However, looking at our strategies, we have decided to lower the price and keep it in between that of our large competitors and the private labels as per the below matrix: The specific prices will vary depending on the geographic location. Delhaize Group Kroger Safeway Cocoa Pebbles (General Mills) Cocoa Puffs (Post) $0.25/ounce $0.28/ounce $0.25/ounce $0.27/ounce $0.15/ounce $0.21/ounce Cocoa Krispies (Kellogg’s) $0.22/ounce $0.23/ounce $0.17/ounce Private Labels $0.23/ounce $0.13/ounce n/a Distribution Grocery stores across the country and in most parts of the world are responsible for an overwhelming 99% of cereal sales. Which is the reason why in the U.S we will be choosing the following as our partners. Each geography will be egged to select their best partners in order to push the products. Major players: Kroger Delhaize Group Safe Way Budgets The global budget for the previous year was approximately $65 million. This year the budget will increase by approximately 20%, which is primarily due to the rebranding expenses across the globe. Due to the current recessionary trend, we have been able to considerably drive down advertising costs and spend to the extent of nearly 28%. Budget Head Expense (in $ million) Rebranding efforts 12 Advertising for brand (TV, print and so on) 35 In-store promotion 18 Misc. expenses 2 Implementation As with every project, once the strategy is set, the dependence on execution and implementation is tremendous in order for it to be a success. We have divided the marketing execution into four different phases – Internal communication and acceptance; preparation of individual and geographical specific plans; commencement of geographical execution; evaluation of results and tweaking. The timelines for each of the Above phases are as below: Internal communication and acceptance: 2 weeks Preparation of individual plans: 3 weeks Commencement and execution: three to six months Evaluation of results: beginning of execution Evaluation of results Based on the current projections, our quarterly revenue should be to the tune of $250 million. Our current revenue is around $200 million. The bulk of the additional of $50 million will be primarily driven by high-growth markets, where the markets are still immature. These will be monitored regularly to ensure that we are posting growth quarter-on-quarter to meet the targets. Conclusion The nature of the growth and revenue prediction largely depends on the macro-economic scenario. The rising food and energy costs and the slowdown are adding pressure to expenditure across the globe including high-growth markets. Though we are largely insulated from the slowdown in mature markets, the challenge is to be relevant in the growth markets as the contribution during these tough times is going to be high from here. References Michman, Ronald. D., and Mazze, Edward, M.,. (2007). The food industry wars: marketing triumphs and blunders, 48 – 85. Kellogg’s Company Annual Report 2007 and 2008 McPhillip, Vincent, and Luddy, Michael,. (2009). Google Finance Business Report on Kellogg Nicolas,. (2009). Top Global Food and Beverage Companies Strategies for Success Note: I won’t be able to check the message board for next few hours but I will have access to my email from my mobile phone. So if you want any revisions please send it directly to netlineglobal at gmail.com. Also if you have a positive feedback then also notify me so that I can start working on other orders. Read More