CONSUMER BEHAVIOR

How can Kelloggs do better in India? What were the mistakes it made?

Report submitted by: - Gaurav Dalvi (FT13328)

Introduction

This project report on the mistakes made by the brand Kelloggs in India its journey since its inception in the Indian market. The journey from 1994 till date has been a rollercoaster ride. Some habits die-hard especially when it is related to Indian eating habits. When the $7 billion cereal company entered the three thousand ton Indian market, it didnt realize the importance of adage. The game plan for Kelloggs was clear, position the brand on the nutritional value of the cereal.

Firms Overview: Kelloggs

Will Keith Kellogg and his brother John Harvey Kellogg in Battle Creek, Michigan, United States found Kelloggs as a Battle Creek Toasted Cornflake company on February 19 1906. The company produced and marketed the hugely successful Kelloggs toasted corn flakes and was renamed the Kelloggs company in 1922. During the period from 1969 to 1977 Kelloggs expanded its business by acquiring various small businesses including Salad foods, Fearn International, Mrs. Smith pies, Eggo and Pure Packed Foods and emerged as market leaders in the ready-to-eat segment in the United States and ventured into markets in 180 countries worldwide. Kelloggs had created a niche brand for itself on the world stage. This was the company that had introduced the world to cornflakes as breakfast. Kelloggs also ventured into markets which were unaware of cornflakes as breakfast and succeeded in converting those countries into cornflakes eating nations over a significant period of time. It had succeeded in establishing that with the right marketing techniques and strategies, markets can be tamed and molded the way corporates wanted.

Kelloggs & The Indian Market

After riding on the success and commanding the 40% of the US ready-to-eat market from its cereal products with a yearly sales of $6 billion and 20 plants in 18 countries Kelloggs understood that the market in US and Europe was stagnant and it wanted to venture into new markets. The market was getting competitive and it was getting tougher for the company to maintain its market share. Its rivals, General Mills was adding onto the pressure with its Cheerios brand. In search of new cereal eating markets Kelloggs zeroed in on India, a country with 950 million plus population (in 1990s) of which 250 million plus 2

consisted of the middle class. This was a completely untapped market with and it presented Kelloggs with an opportunity of which was too good to be left. Kelloggs invested to the tune of $65 million to launch its number one brand corn flakes, three years after the Indian government opened its doors for foreign investors. They planned to replicate their success story of US and Europe in the Indian sub continent. The market potential for Kelloggs in the Indian subcontinent was so lucrative that even if the company managed to capture a mere 2% of market potential, it would still provide access to a customer base bigger than United States. The market size came with its set of challenges. The Indian sub continent wasnt use to having cereal for breakfast. The typical breakfast of an average Indian consisted of sabzi (boiled vegetables with spices) and roti or parathas (wheat bread). This meant that there were very few competitors for Kelloggs in the market but at the same time they had an additional task of promoting its product and more importantly the idea of eating cereal for breakfast. As most of the other new products, the sale of Kelloggs shot up giving it encouraging sales figures. However it was soon analyzed that the purchase of cornflake was one off, novelty purchase and even though they liked the taste the product was expensive. Without conducting further market research Kelloggs continued to launch a range of new products over the following years and the Indian buyers were introduced to Kelloggs Wheat Flakes, Frosties, Rice Flakes, Honey Crunch, All Bran, Special K and Chocos Chocolate Puffs none of which were able to replicate the success of the west. In an attempt to boost its sales the brand tried to Indianize its products, which was a massive failure. The company adopted a new strategy to establish its brand equity in the market by selling biscuits.

Indian Express newspaper covered the brand extension of Kelloggs in depth in 2000 The company has been looking at alternate product categories to counter poor off take for its breakfast cereal brands in the Indian market, say sources. Meanwhile, the Kellogg main stay breakfast cereals has seen frenzied marketing activity from the companys end. The idea behind the effort is to establish the Kellogg brand equity in the market. The company is concentrating on establishing its brand name in the market irrespective of the off take. The focus is entirely on being present and visible on the retail shelves with a wide range 3

of products, explains a company dealer in Mumbai As per the trade, Kellogg India has disclosed to the dealers its intention of launching more than one new product onto the market every month for the next six months. Although Kelloggs tried to be more sensitive to the customer requirements by bringing about indirect alterations in its taste, however the high price remained deterrent in the Indian market. A study conducted in 2010 by PROMAR International, titled, The Sub-Continent in Transition: A strategic assessment of food, beverage, and agribusiness opportunities in India in 2010, the prime factor which will restrict the growth of Kelloggs in India is its price. The report also suggests that while Kelloggs has ushered a change in the breakfast habit of Indians and adapted its line of products to meet the Indian palate, the price of the product restricts consumption to urban centers and rich households.

The Mistakes.

The first and foremost issue, which Kelloggs faced, was the fact that the cereal had to be consumed with cold milk. However in the Indian household there was a habit of serving hot milk for breakfast. Cornflakes when served with hot milk became soggy and spoiled the taste of the cornflakes. When the cornflakes were tried with cold milk it wasnt sweet because sugar didnt dissolve with cold milk. The rice and wheat versions didnt do well in the market as well. In defense of the company the Managing Director, Avronsart said, True, some people will not like the way it tastes in hot milk and not all consumers will like to have it in cold milk. We expect the consumer habits to change over time. Kelloggs is a past master of art, having fought and won against croissant and coffee in France, biscuits in Italy and noodles in Korea. A typical Indian middle class family didnt have breakfast daily like their western counterparts. Indians usually preferred biscuit, bread, butter, jam or depending on geography the staple food of the region. A major reason for the failure of Kelloggs, according to analysts, was the fact that the taste of Kelloggs products didnt suit the Indian consumers breakfast habits. The company was quick to clarify that it wasnt trying to change the eating habits, but it was only launching its products on a health platform and make consumers see an healthier alternative for their breakfast. Avronsart remarked, Kellogg India is not here to change the breakfast eating habits. What the company proposes is to offer consumers around the world a healthy, nutritious, 4

convenient and easy to prepare alternative in the breakfast eating habit. It was not just a question of providing a better alternative to traditional breakfast eating habits but also developing a habit of eating grain based food in the morning. Another mistake that Kelloggs committed was the positioning of its products. The advertisements concentrated on the health aspects and hence it was branded as a health product rather than its fun and taste positioning adopted in the US markets. In the US markets it provided toys and other branded merchandise and also had a Kelloggs fan club that attracted children. In addition to this the premium pricing adopted by Kelloggs contributed to its failure. In third world countries pricing plays a dominant role in the demand of its product. At an average cost of Rs 21 for 100 gm. as compared to its competitor Mohan Cornflakes which was priced at Rs16.50 for 100 gm. Kelloggs was looked upon as a premium brand by the average Indian consumer and virtually unattainable. The average Indian customer failed to see the extra benefits attained by consuming Kelloggs products. The company believed that quality came at a price and that the user is ready to pay the price. Last but not the least Kelloggs decided to focus its distribution only on the premium and middle level retail stores. The company believed that it couldnt maintain a uniform quality of service if it offered products in larger shops. In the process the company overlooked the fact that this decision put a large sections of the population out of its reach.

Steps towards success

In order to capture the Indian market Kelloggs take the following steps, Market Research: In addition to the below mentioned activities its important that the company carries out a thorough market research, analyze it and then enter the market. Price Reduction: As mentioned earlier in third world countries the success for any product is on the price it sets for its product as compared to its competitors. Hence Kelloggs should reduce the price to cater to the middle class and lower middle class population as well. Packaging: It should reduce the family size packs and introduce lower size packs including pouches etc. Moreover it can use alternate materials for packaging that will in turn help in price reduction. Advertising: The Company should modify its existing advertising campaign and connect with the average Indian identity. It should get celebrity endorsements done attributing their health and fitness success to the brand. It should also start giving alternatives to milk with which an individual can enjoy cornflakes. This will address its basic problem of supplementary ingredients.

Promotion: Kelloggs should hold promotional events and activities to generate awareness about the importance of breakfast. It should also educate the masses about the various vitamins and minerals necessary for a body to maintain fitness. In addition to this getting expert opinion in advertising will help the cause. Target new customers: Kelloggs should target the schools and colleges and hold promotional activities for the school students. This will make them aware of the cereal breakfast and thereby help them develop taste for cornflakes. In addition to this they should start door-to-door promotional activities by giving free samples to housewives. Since in India the wife is the decision maker in the family when it comes to grocery shopping it will have direct impact on sales. Dont Underestimate Local competition: Although the local players are worried about international competition, the international players shouldnt take them for granted. The trick is not to be too big. MNCs shouldnt treat India as a barren land and then start business. Customizing the strategy to the market: Its important that Kelloggs customize its strategy to suit the Indian market. After its initial failure it should re-strategize to ensure success. In addition to this Kelloggs should introduce some more local flavors as done by many pizza companies to succeed.

Conclusion

Kelloggs is in India for the long run. Hence its important that the company caters to the various points mentioned to reach out and capture more market share. It should also take into account the consumers wants and likes when its developing a new strategy. The success of the company will lie in how it tackles the habit barrier as well as the price barrier. 6

BIBLIOGRAPHY

http://www.docstoc.com/docs/77760913/Kellogg-Indian-Case-Study http://chatbhandaar.brainmaalish.com/marketing-mishap-kelloggs-a-failure-of- a-brand/ http://books.google.co.in/books?id=_LPKDUsTc1MC&pg=PA116&lpg=PA116&d q=Kelloggs+a+brand+failure&source=bl&ots=kkRvpDBOQ5&sig=95HwB3jVMoN 7JExem2ZOaMrpUqI&hl=en&sa=X&ei=ZbzFUN- YBo_RrQeL74Bg&redir_esc=y#v=onepage&q&f=true http://vaibhavgnnugupta.files.wordpress.com/2012/01/marketing_sem1_group 11_kellogs_final1.pdf BRAND FAILURES - MATT HAIG.