Marketing Environment for Breakfast Cereals in India and the UK - Term Paper Example

Outline Outline 1 List of figures 1 An Essay on Kellogg’s India Company 1 Introduction 1 Marketing environment for breakfast cereals in India 1 Consumer behavior in India 2 Marketing environment for breakfast cereals in the UK 3 Figure 1: The Market share for various breakfast cereals companies in the U.K. in 1996 4 Figure 2: Market share of various categories of breakfast cereals in the UK 5 Consumer behavior in the UK 5 Differences between India and UK breakfast market 6 Critical success factors for Kellogg the Indian breakfast market 6 A more significant approach taken by Kellogg was venturing in to food safety and nutrition. The product Iron Shakti was principally meant to address iron deficiency in children and it registered a 17% increase in total sales. Kellogg undertakes fortification of cereals with vitamins and minerals according to the daily requirements of nutrients for Indians therefore boosting its acceptability as the best choice. Innovation and production of new brands and variants has been the benchmark for Kellogg’s success in the Indian market. 7 Kellogg segmentation targeting and positioning within the Indian breakfast food market 7 Figure 3: Illustration of STP 7 Segmentation 7 Targeting 8 Positioning 8 Marketing mix strategies suggested for Kellogg India 9 Conclusion 11 Recommendations 12 References 13 List of figures Figure 1: The Market share for various breakfast cereals companies in the U.K. in 1996 4 Figure 2: Market share of various categories of breakfast cereals in the UK 5 Figure 3: Illustration of STP 7 An Essay on Kellogg’s India Company Introduction Kellogg Company started when the production of Kellogg’s Corn Flakes began at W.K. Kellogg’s newly introduced Battle Creek Toasted Corn Flakes Company in 1906 (Vasudha, 2009). It was established with a view to change the way people eat breakfast all over the world. However, it was not until 1914 that Kellogg began to expand worldwide and in 1951, Kellogg had built plants in Latin America and Asia. Kellogg ventured into the Indian market in 1994 by setting up a factory at Taloja. The first products to be introduced into the Indian market included cornflakes, wheat flakes and Basmati rice flakes. Marketing environment for breakfast cereals in India The marketing environment in India can be categorized as either macro or micro environment. The micro environment encompasses customers, suppliers, labours, business partners, competitors and regulatory agencies. The macro environment includes economic environment factors, political environment and government roles, socio-cultural environment, natural environment, demographic environment, technological environment and the international environment. The demographic environment relates to population and population mix. The people comprise the market which contributes to demand for products as well as providing supply of manpower necessary for production. India has the highest population growth after China which is estimated at 1.17 Billion as per the July 2009 census. The population growth rate is currently at 1.58%. This provides a formidable market for a firm to sell its products. The population mix comprises of youths which has made the firms to position themselves as pro-youth. Household patterns such as large, small or nuclear families also influence the marketing decisions for instance in rural India, there are many large and joint families as opposed to urban India where nuclear families are rampant. India has a GDP of $1.22 Trillion and Per capita income of $2932 hence a potential lucrative market. This has a significant impact on the economic conditions as it determines the availability of infrastructure, the business development and policies. India has a gini coefficient of 0.72 which implies a 72% inequality in income distribution. Consequently, the potential market is limited by these income inequalities and widely controlled by those persons who have the purchasing capability. The cultural and social beliefs also determine the market for a particular company for instance, trading in products that containing beef. Companies which promote and respect the cultural beliefs create customer loyalty easily and can retain them effectively. Laws in India such as the consumer protection act, environmental protection act, Indian contract act and competition law requires that firms comply. Policies such as display of expiry dates, MRP and Green Circle on vegetarian food products influence the marketing decisions. Various special interest groups like NGOs also exist to oppose unethical business practices. Consumer behavior in India When Kellogg ventured into the market, Indian consumers were not used to buying cereals for breakfast. Breakfast was prepared from scratch or from the roadside stalls that sold tea and biscuits. The regional staples food that comprised breakfast included paranthas in the North and dosa or idli in the South. At first, advertising was not effective in capturing the mass market. The international prices of Kellogg’s brands were also discriminative to some segments that did not find the convenience positioning appealing (Dawar and Chattopadhyay, 2000). Recent research by Kellogg has shown that young girls have a tendency of skipping breakfast regularly probably as a weight watch measure and many children go to school with inadequate or without breakfast. Marketing environment for breakfast cereals in the UK The UK has the highest per capital consumption of cereal at 7.62kg. Approximately 95% of the population eats cereal. The market for breakfast cereals if partitioned into two main sectors: the ready-to-eat (cold cereals) and the hot cereals sectors. The ready-to-eat sector consists of staples, corn flakes and wheat biscuits while the hot cereals sector consist of cereals that require some preparation such as porridge. The ready-to eat cereal are more dominant than the hot cereals. The period between 1993 and 1996 recorded substantial growth at 13% which was attributed to the growing market share of ‘Private label’ product. There are three top cereal manufacturers in the UK who hold up to 70% of the total market share. These are: Kellogg, Cereal Partners (an alliance between Nestle and General Mills) and Weetabix (Rodionoff and Fletcher, n.d). These companies have channeled a lot of resources in marketing, building brands and developing new products. The figure below shows the U.K. market share for different companies. Figure 1: The Market share for various breakfast cereals companies in the U.K. in 1996 (Source: Rodionoff and Fletcher cited in Euromonitor Research Report 2000) Weetabix is the top selling ready-to-eat (RTE) cereals, followed by Kellogg’s Corn Flakes, Crunchy Nut Corn Flakes and special K. Nestle Shreddies take the fifth spot. Due to increased health awareness, many smaller companies are targeting niche markets such as organic, premium and gluten-free products. Alternative breakfast products such as cereal bars and breakfast biscuits are a threat to the expansion of the breakfast cereals market. Cereal bars is the second largest sector generating an additional £1.33 a year on the sector. The number of customers has also increased by 123,000. More than 50% of the population purchased a cereal bar every six weeks. Purchases of instant porridge increased by approximately 615,000 in 2007. However, porridge oats have been static in the market (Riley, 2008). Figure 2: Market share of various categories of breakfast cereals in the UK (Source: Riley, 2008 cited in TNS Panel, year to August 2007) Breakfast cereals in the UK continue to dominate the grocery market with 52.1% of adults having consumed them. The key trend that continues to drive the market is the prioritization of healthy eating. Dorset cereals recorded a 16% increase in turn-over between 2008 and 2009. Forecasts show that the value of UK breakfast cereals market will increase by 15.1% between 2011 and 2015. The hot cereals sector is expected to grow slightly faster than the ready-to-eat sector over the same period, with growth of 15.5%. Consumer behavior in the UK In the UK, the cereal market is well established. Kellogg has therefore grabbed the opportunity of the high price and quality product varieties and hence placed its product in view that consumers in the UK have a long well known tradition in eating of cereals as their breakfast. The target of Kellogg’s products has been on all demographic groups (Aaker, Brumbaugh and Grier, 2000). Differences between India and UK breakfast market Kellogg entry in to the Indian breakfast market was faced with very many challenges such as the presence of low cost local products and the mindsets of the clients. Flesh players, like Nestle, Heinz and ITC also established themselves and revived competition. However in the UK customers have a long tradition of eating cereals as their breakfast. Unlike India, the breakfast cereal market in the UK is extremely competitive, with high level of promotional expenditure and product activity. The Indian consumers have a high preference for hot breakfast cereals unlike in the UK where the cold ready-to-eat cereals are predominant. Critical success factors for Kellogg the Indian breakfast market Kellogg has uniquely identified the various segments that exist within the breakfast cereal market in India and developed various products targeted at the segments. There are three distinct segments: the kids’ category having products such as Chocos, Chocos Duet, Fruit loops, Planet and Stars, the all family segment which includes cornflakes and its six variants, the adult segment containing products such as Special K, wheat flakes, Extra muesli and Oats. A more significant approach taken by Kellogg was venturing in to food safety and nutrition. The product Iron Shakti was principally meant to address iron deficiency in children and it registered a 17% increase in total sales. Kellogg undertakes fortification of cereals with vitamins and minerals according to the daily requirements of nutrients for Indians therefore boosting its acceptability as the best choice. Innovation and production of new brands and variants has been the benchmark for Kellogg’s success in the Indian market. Kellogg segmentation targeting and positioning within the Indian breakfast food market Kotler (2008) emphasizes that segmentation, targeting and positioning (STP) is the essence of strategic marketing. STP can be clearly visualized as shown in the illustration below: Figure 3: Illustration of STP Segmentation Segmentation is the practice of creating subdivisions in the market, based on some specific customer characteristics, with the sole aim of delivering services that are best suited to the needs of the markets. Segmentation as a process includes identification, selection and market mix creation for the market segments targeted (Art, 1987). The segmentation process should yield market segments which have the following; group identity, systematic behaviors and efficiency potential. At first, Kellogg embarked on ‘mass marketing’ in an effort to get markets for its breakfast cereals. In this case, all the consumers receive similar treatment and no effort to satisfy particular groups is made. Kellogg began by introducing and promoting its crispy flakes which were meant for cold milk much to the distaste of the Indians who prefer hot milk. Further, the cost of a 500gm package of Kellogg’s was higher than that of its rivals hence discriminating the low earning and price sensitive consumers. Kellogg also overlooked the cultural practices of the Indian consumer which proved a daunting task to convince consumers on the high nutritional content of their cornflakes. Targeting Targeting involves directing effort and resources to a segment or a chain of segments, done after market segmentation (Kurtz et al., 2009). Kellogg has segmented the consumers on demographic basis where age and gender have been the main factors. It has produced products that suit different genders and ages alike. Cornflakes are regarded as an all-family breakfast cereal while Chocos and Honey Loops are meant to be used by kids for afternoon snacks. The Iron Shakti, which is rich in iron, is also targeted at children to reduce iron deficiencies. Moreover Special-K is targeted at women as a cereal to help manage weight while Heart to Heart Oats, which is a hot breakfast cereal, targets adult men. Positioning Positioning entails image creation. It revolves around the perception by the consumers about a product. It includes five major elements which are pricing, service, quality, distribution and packaging (Sarvary and Elberse, 2006). Kellogg India has identified positioning as one of its competitive strategies. Kellogg has positioned its cereals as health products. Its product pricing was prohibitive in India hence no major sales were recorded as their demand was low. The average cost of 100gm packet was Rs21 which was higher than that of its main competitor, Mohun Cornflakes at Rs16.50 for 100gm. Kellogg did not strive to be customer intimate and was not elaborate in serving the specific needs of the customer. This gave Kellogg a premium image which was way beyond the average Indian consumer. Marketing mix strategies suggested for Kellogg India Marketing mix involves the four basic elements of a marketing plan. They are also regarded as the ‘Four P’s’ and these are price, place, product and promotion. These are the four most important marketing decision variables (Kotler et al., 2008). In order to realise full growth potential, Kellogg needs to re-evaluate the prices of its products with a view to implementing price cuts and reductions. This will make their products accessible to the price sensitive and low income customers. Different sizes of retail packs needs to be introduced in order to cater for the needs of different consumer groups. Kellogg should consider brand repositioning so as to re-introduce its products as tasty nutritious foods. Its products should not be positioned as premium products so as to increase sales by increasing access to a wider consumer group. There is also a need for Kellogg to Indiniase its products. Promotion should be undertaken to increase market awareness. This will be effective through giving free samples in schools and to housewives. Conclusion This report has analysed the market environment for breakfast cereals in India and the UK and suggested the various marketing mix strategies that can be adopted by Kellogg in order to prevail over the increased competition from other cereal manufacturers. Recommendations Kellogg management should adopt the Porter’s 5 Forces model in order to properly identify specific elements of the industry structure that needs to be addressed. The model is as illustrated below: (Source: Porter, 1985, p.6) References Aaker, J., Brumbaugh, A., and Grier, S., 2000. Non-target Markets and Viewer Distinctiveness: The Impact of Target Marketing on Advertising. Journal of Consumer Psychology, 9(3), p.127. Art, W., 1987. Market segmentation: using demographics, psychographics, and other niche marketing techniques to predict and model customer behavior. Oxford: Oxford University. Dawar, N. and Chattopadhyay, A., 2000. Rethinking marketing Programs for Emerging Markets. [Online] Available at: [Accessed 28 July 2011] Kellogg’s, n.d. Company History. [Online] Available at: [Accessed 22 July 2011] Kotler, P., 2008. Marketing Management. 12th US ed. New Jersey: Pretice Hall. Kotler, P., Wong, V., Saunders, J. and Armstrong, G., 2008. Principles of Marketing. 5th European ed. Harlow: FT Prentice Hall. Kurtz, L., Mackenzie, F. and Snow, K., 2009. Contemporary Marketing. Stamford: Cengage Learning Porter, M., 1985. Competitive Advantage. New York: The Free Press. Riley, J., (2008). Kellogg’s - Insights into the UK Cereals Market. [Online] (Updated 10 March 2008) Available at: [Accessed 21 July 2011] Rodionoff, K. and Fletcher, R., n.d. Know thy competitor. [Online] Available at: [Accessed 20 July 2011] Sarvary, M., and Elberse, A., 2006. Market Segmentation, Target Market Selection and Positioning. Harvard Business School Notes – Ref: 9-506-019. Vasudha, M., 2009. Kellogg India’s Growth Strategy: A Bid to Sustain Leadership Position. Bangalore: Amity Research Centers HQ: ECCH. Ref: 310-131-1(12 pages). Read More