Kellogg's_Cornflakes__Product_Failure_in_the_Indian_Market

Kellogg’s Cornflakes: Product Failure in the Indian Market | Portfolio: Market Goods & Services Internationally | Jezamin Oelfke OEL00034870 | Contents 1.0: Overview p. 3 2.0: Background p. 4 3.0: Kellogg’s Marketing Strategy p. 4 3.1: Promotion p. 4 3.2: Product p. 4 3.3: Price p. 5 3.4: Placement p. 5 4.0: Summary of Primary Problems p. 5 4.1: Failure to Interpret Research p. 6 4.2: Cultural Factors p. 6 4.3: Product Suitability p. 7 4.4: Failed Pricing Strategy p. 7 5.0: Consumption/Usage Comparison p. 7 5.1: The United States p. 7 5.2: India p. 8 5.3: Introduction of Cereal as a Breakfast Food p. 8 6.0: Comparison Table p. 9 7.0: Kellogg’s Cornflakes vs. Local Competitors p. 10 8.0: Recommendations p. 10 8.1: Sales Measurement p. 10 8.1.1: Regional Sales p. 10 8.1.2: Sales to Target p. 11 8.1.3: Sales Volumes p. 11 8.1.4: Sales Expenses p. 11 8.1.5: Market Share p. 11 8.2: Return on Investment p. 11 8.3: Pricing p. 12 8.4: Product Line p. 12 8.5: Brand Awareness p. 12 9.0: Monitoring and Evaluation Schedule p. 13 9.1: Measurement Table p. 13 9.2: Measurement Table p. 14 10.0: Conclusion p. 15 References p. 16 Bibliography p. 17-18 1.0: Overview The Kellogg’s brand was established in 1906 by W.K Kellogg in Michigan U.S. whilst developing a cereal for the patients at a sanatorium that both W.K Kellogg and his brother Dr John Harvey Kellogg were managing. (Kellogg’s, n.d.) Since its founding the brand has become a leader in the ready-to-eat breakfast cereal market and the brand has been launched worldwide. In the 1980’s Kellogg’s was at its peak within the cereal market, holding “40% of the US ready-to-eat market” (Cashberry, 2006). Kellogg’s had operations in 18 countries worldwide and over 20 manufacturing plants. However, in the 1990’s Kellogg’s suffered a decline in market share within the U.S. This was due to increased competition from products such as Cheerio’s and the opinion within the industry that the management of the company was unimaginative, an opinion which was reflected in the 1997 article ‘World’s Top Brands’ by Fortune magazine. (Cashberry, 2006) The decline in sales prompted Kellogg’s to look to overseas markets to enter into to increase their global market share. With the barriers of international trade lowered in 1991 and a middle class of 200 million, India presented a potentially lucrative business opportunity for Kellogg’s. Kellogg’s entered the Indian market in 1994, launching its signature product, Kellogg’s Cornflakes and investing $65 million in production and manufacturing. When Kellogg’s entered the Indian market their goal was to gain 2% of the breakfast market share, which due to the population in India, would be significantly higher than the entire US market share. The initial sales figures for the launch of Cornflakes were very promising, however as Bsaikrishna states “...it soon became apparent that many had bought Cornflakes as a one off, novelty purchase.”(Bsaikrishna 2010) This resulted in sales of the product plummeting and Kellogg’s achieving less than 20% of their initial sales target for 1995. 2.0: Background India is a diverse nation which currently houses 1.2 billion people, “...it has 17 official languages, six major religions spread throughout 25 states” (Cashberry 2006). In 1994 there were 950 million people in India and very distinct class structures between them. Hill suggests “... food and beverage retailing in India is estimated to be worth US$135 billion per year and growing at about 4-5% per year.” (Hill, 2008 p.128) Many western companies have attempted to launch products into the Indian market only to fail due to the vast differences that are present between the two cultures. 3.0: Kellogg’s Marketing Strategy In 1994 Kellogg’s spent $65 million to launch its main product Kellogg’s Cornflakes in India. Kellogg’s entered the market with the belief that the brand equity they had developed in the U.S. would travel with them making very few changes to their marketing strategy. Kellogg’s focused their marketing on the following areas: 3.1: Promotion Kellogg’s promoted the crispy flakes and the health benefits of cereal in the morning. They aimed to target the health conscious consumer, a strategy which had been successful in the U.S and other western countries. 3.2: Product Kellogg’s packaged the product in glossy cardboard packs which was to appeal to the middle class consumer. The pack sizes were larger than the competitors at 500g. 3.3: Price The product was targeted at middle class families, so as a result Kellogg’s priced the product at a premium. Kellogg’s price was on third dearer than its closest competitors 3.4: Placement Products were sold in high end and middle level retail stores to keep the perception of quality high. This in turn limited the availability of the product to urban consumers in the more affluent areas and alienated the rural consumers. 4.0: Summary of Primary Problems The initial introduction of Kellogg’s Cornflakes into the Indian market, highlighted the companies need to adapt culturally when moving into a new marketplace. Kellogg’s failed to consider whether Cornflakes would be adopted into the Indian culture. The primary focus of Kellogg’s appeared to be the potential market in India due to the large population. Kellogg’s failed to understand that even the middle, to high class are budget and value conscious the attempt to market their product as a premium product resulted in one off status buys, not repeat customers. Ultimately, the interpretation of the research was overstated and did not equate to the initial sales volumes that Kellogg’s had hoped to achieve. 4.1: Failure to Interpret Research Kellogg’s attempted to break into the middle, to high class market, believing that this would be the most lucrative strategy for them in India. However, this may have been a result of misinterpretation of figures as Cashberry states “...a study conducted by the Indian National Council on Applied Economic Research in Delhi found that the sub-continent’s ‘consumer class’ numbers are around 100 million people at the most…”(Cashberry, 2006) These figures indicate that although there were 200 million people classified as middle class, the number of actual consumers only made up half of that number. This indicates the target market was not actually as large as originally thought and possibly not condensed to the areas where they had placed the product for sale. Another important factor that Kellogg’s research failed to recognize is that “Only 2% of food production in India is processed reflecting a strong preference for traditional food products…” (Hill et al, 2008 p.128) This highlights that the Indian culture is still leaning toward fresh produce as opposed to processed food. The palette of the Indian consumer is quite different to that of their western counterpart; the cultural preference at breakfast is for fresh prepared meals as opposed to packaged cereal. 4.2: Cultural Factors Indian consumers prefer a hot breakfast of vegetables, bread and boiled milk. Facegroup states “Kellogg’s failed to understand that in India breakfast is a religion! It is freshly prepared in the morning predominantly hot and spicy…” (Facegroup, 2010). This was a cultural barrier Kellogg’s could not overcome with its western product developed for western tastes. Kellogg’s faced the task of introducing a new product into the market as well as trying to introduce a new way of eating which was foreign to the consumer. 4.3: Product Suitability Another issue that was present was with the product itself. Indians prefer boiled milk however, when hot milk was added to the Cornflakes, the flakes went soggy. This meant that one of the main selling points of the product, being “crispy flakes”, was no longer valid to the consumer. 4.4: Failed Pricing Strategy The premium pricing on the product and the 500g package size meant it was more likely to be a status buy rather than a regular purchase. By pricing the product so much higher than its local competitors Mohan and Champion, Kellogg’s effectively put the product into an unattainable price range for the average Indian household. The Indian consumer did not see the value in the high priced product, which was one third dearer than its closest local competitor. This meant the customer was more likely to buy the local product as opposed to Kellogg’s Cornflakes as it was better suited to them in price and taste. 5.0: Consumption/Usage Comparison 5.1: The United States The ready to eat cereal market is huge in the United States, Bruce suggests “In terms of dollar value breakfast cereals are the third most popular product sold at supermarkets, after carbonated beverages and milk.” (Bruce et al, 1997) According to the 2000 census, there were 298,444,215 people in the US (Falci, 2006) and in 1997 49% of those people consumed cereal for breakfast. (Bruce et al, 1997) Falci states “...the average American consumes about 10 pounds or 160 bowls of cereal per year or about 4.5 kilograms.” (Falci, 2006) These numbers show that cereal is a part of breakfast culture in the US, with nearly half of the population eating cereal every morning. 5.2: India The percentages were very different for India, when Kellogg’s launched itself into the Indian marketplace only 3% of Indians consumed cereal for breakfast. (Vignali, 2001) Although the population was 950 million in 1994, Kellogg’s had established their target market was the upper to middle class which consisted or around 200 million people. Even if Kellogg’s had captured their desired figure of 2% of the market, they numbers would not have matched that of the US market of which they had hoped to exceed. The Indian middle class market predominately consumed a hot breakfast consisting of chapattis and dosas, this meant that not only were Kellogg’s launching a new product into the market but they also had to change the eating habits of the consumer. (Vignali, 2001) 5.3: Introduction of Cereal as a Breakfast Food Cereal has been a part of the American culture for many years. Dr John Kellogg first produced Cornflakes in 1902, although at that time the Americans were mainly eating heavy breakfasts such as eggs and sausages. In the 1930’s manufacturing started to increase due to developments in the industrial sector and cereal became a part of the American breakfast, steadily growing in consumption numbers up until present day (Falci, 2006). It had taken Americans 30 years to culturally adopt breakfast cereal and the concept was just as foreign to the Indian consumer. Culturally, Indians prefer a hot breakfast, so cold milk on cereal was not palatable and hot milk made the cornflakes go soggy. Cornflakes in US market Cornflakes in India Market * All classes targeted * Americans eat cereal with cold milk for breakfast * 49% of Americans eat cereal for breakfast * Cereal is a routine buy * Approx 289 million people in US in 1994 * Target market approx 289 million * 1.35 Billion kg of cereal produced each year * Middle to upper class target market * Indians eat hot breakfast with boiled milk * 3% of target market eat cereal * Cereal is a status or one off buy * Approx 950 million people in US * Target market approx 200 million * 250,000kg of cereal produced each year 6.0: Comparison Table 7.0: Kellogg’s Cornflakes vs. Local Competitors When Kellogg’s entered the Indian market cornflakes had been available in India since 1960. A local company Mohun, whom was best known for its production of alcoholic beverages, had been producing cornflakes as a side product since that date. (The Indo-Italian Chamber of Commerce, 2006). In 1994 cornflakes had only been produced in India at a rate of 250,000 kg per year as opposed to the US production of 1.35 billion kg per year (Falci, 2006). Another player in the Indian market was Champion, who was relatively unknown until Kellogg’s entered the market. The introduction of Kellogg’s into the market, created interest in local breakfast cereals which resulted in Mohun and Champion’s sales increasing, whilst Kellogg’s sales remained stagnate (The Indo-Italian Chamber of Commerce, 2006). Kellogg’s priced their product at a premium and packaged it in glossy cardboard packaging, where as the local competitors sold larger sacks of the product at a much lower price, which for the Indian consumer represented better value for money. (The Indo-Italian Chamber of Commerce, 2006). Unfortunately, the consumers who initially purchased Kellogg’s cornflakes changed to the local brands the next time they purchased as they offered better value. 8.0: Recommendations The need for monitoring and evaluation was present in this case. The recommendations for analysis put forward are as follows: 8.1: Sales Measurement 8.1.1: Regional Sales By measuring the monthly sales of each region/store Kellogg’s could have established which areas were succeeding in sales and which areas were not. This would have allowed them to increase or decrease stock in certain areas or withdraw from that region altogether. 8.1.2: Sales to Target By measuring the sales targets monthly, Kellogg’s could have implemented changes in sales strategies to combat poor sales, as opposed to charting these targets annually. 8.1.3: Sales Volumes By measuring the volume of sales Kellogg’s could have implemented changes to their packaging and pricing at an earlier stage, when it was first identified that the sales volumes were declining. 8.1.4: Sales Expenses By measuring the sales expenditure, Kellogg’s could have established whether the venture was profitable and adjusted spending accordingly. 8.1.5: Market Share By measuring the market share monthly via sales reports, Kellogg’s could have ascertained which marketing strategies were working and which were not. This would have enabled them to adjust their marketing mix in order to achieve their desired market share target. 8.2: Return on Investment By measuring their sales growth, asset growth, stock turnover, cash flow, expenses and profit margins via sales reports and profit and loss sheets, Kellogg’s could have established whether they were getting a return on the $65 million they had invested in production and distribution in India. 8.3: Pricing By measuring the variance to competitor pricing and competitor sales, Kellogg’s could have ascertained whether their pricing strategy was correct for the region. 8.4: Product Line By establishing consumers opinions on package size satisfaction, product satisfaction, quality satisfaction and value perception via qualitative research methods on a quarterly basis, Kellogg’s could have established early that the consumers were unhappy with the product and pack size and adjusted it accordingly. 8.5: Brand Awareness Through market research Kellogg’s could have established the perception of the brand amongst consumers which would have enabled them to adjust certain marketing strategies to increase the brand awareness. This could be achieved by measuring factors such as brand image/perception, brand preference, value and quality, product line ranking, target market penetration, brand loyalty and advertising awareness through qualitative and quantitative methods. Another factor to measure is repeat purchase. This measurement can be achieved by value offers such as ‘send in barcodes from 2 packs to win…’ By running promotions like this Kellogg’s could have measured whether consumers were repeat purchasers or not. 9.0: Monitoring and Evaluation Schedule: 9.1: Measurement Table Description | Sales Measurement | Sales | Jan | Feb | Mar | Apr | May | June | July | Aug | Sept | Oct | Nov | Dec | Target | Status | Regional Sales |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Region 1 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Region 2 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Region 3 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Region 4 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Region 5 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Region 6 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Regional Sales Total |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Sales to target % |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Sales Volume |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Sales Expenses |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Indicates when measurement required. Status: Exceeding target Within 10% of target More than 10% below target. 9.2: Measurement Table Description | Measurement | Return on Investment | 1st QTR |   | 2nd QTR |   | 3rd QTR |   | 4th QTR |   | Total |   |   |   | Target | Status | Sales growth % |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Asset growth % |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Stock turnover $ |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Cash flow $ |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Expenses $ |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Profit margin $ |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Pricing | 1st QTR |   | 2nd QTR |   | 3rd QTR |   | 4th QTR |   | Total |   |   |   | Target | Status | Competitor pricing variance % |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Competitor sales variance % |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Product Line Analysis | 1st QTR |   | 2nd QTR |   | 3rd QTR |   | 4th QTR |   | Average Achieved |   |   |   | Target | Status | Package Size Satisfaction |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Product Satisfaction |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Quality Perception |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Value Perception |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Indicates when measurement required. Status: Exceeding target Within 10% of target More than 10% below target. Conclusion When Kellogg’s entered the Indian the market there was the opportunity for real growth. However, because they did not profile their market correctly, their marketing strategy benefited their competitors. Kellogg’s also didn’t take into account the cultural differences between India and the US. They expected high sales volumes immediately, but seeming to forget that it took 30 years before cornflakes became a way of life in breakfast culture in America. When Kellogg’s entered India, they took a western approach when marketing the product. Kellogg’s had a strong focus on the marketing mix, however they did not establish whether their desired target market actually had a need or want for their product. Even though the product has a high perception of quality in India, consumers were more likely to buy the local products, not because of brand loyalty, but because of price and package size. In India it is apparent that brand preference goes to whoever is cheaper, not to the product with the best packaging. Kellogg’s failed to connect with their target market when first entering the market, as a result, the increased media marketing opened up a market for their local competitors and consumers moved away from the Kellogg’s products resulting in a failed product launch for the company. References Bruce, S, Crawford, B, Amazing Cereal Statistics, Adapted from Cerealizing America: The Unsweetened Story of American Breakfast Cereal; A no-bowls-barred look at the cereal industry, viewed 19th August 2010 Bsaikrishna 2010, Brandalyzer, Kellogg’s in India, viewed 17th July 2010, . Cashberry, 2006, Brand Failures- and Lessons Learned, Brand Culture Failures, viewed 19th August 2010, Facegroup 2010, Innovating For Emerging Markets & How Co-creation Can Help, viewed 22nd July 2010, < http://www.facegroup.co.uk/innovating-for-emerging-markets-how-co-creation-can-help>. Falci, L, Mass of US Breakfast Cereal Consumption, viewed 19th August 2010 Hill, C, Cronk T, Wickramasekera, R, 2008, Global Business Today An Asia-Pacific Perspective, McGraw-Hill, North Ryde, NSW. The Indo-Italian Chamber Of Commerce and Industry, 2006, Biscuit and Bakery Products, viewed 19th August 2010 http://images.to.camcom.it/f/UfficiEstero/In/India_Bakery_2006.pdf Vignali, C, 2001, Kellogg’s – Internationalisation versus Globalisation of the Marketing Mix", British Food Journal, Vol. 103 Iss: 2, pp.112 – 130, viewed 19th August 2010 Bibliography Bidwai, P 1995, The Multinational Monitor, July/August 1995, Volume 16, Numbers 7&8, India: Open for Business, Making India Work-For the Rich, viewed 31st July 2010, http://multinationalmonitor.org/hyper/mm0795.04.html>. Bsaikrishna 2010, Brandalyzer, Kellogg’s in India, viewed 17th July 2010, . 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