2

Primary & Secondary Issues

Measuring Marketing Mix Effectiveness: To best allocate the 1991 marketing budget,
management must determine which marketing programs are most productive at generating sales
lift. Management must consider the competitive context and any inter-dependencies that enable
a program to be successful. Given POSTs declining sales volume and budgetary constraints, this
issue is of high importance, and high urgency.
Decreasing Sales Volume: POSTs sales have decreased 12% in the first two quarters of 1990.
This may be a result of increased competitive pressure or an inefficient marketing strategy.
Determining and addressing the cause of the decreasing sales volume is vital to the continuation
of this product line. In the short term, this issue is of high importance and high urgency to POST.
Limited Budget: As a percentage of revenue, POSTs marketing budget is smaller than its
competitors. Increased funding has the potential to enhance and improve the marketing mix.
While this issue is of high importance, it is not urgent. A budget increase may not generate a lift
in sales, and instead may erode contribution margins.
SWOT Analysis
POSTs well-established brand is a key strength. Kraft and its major competitor,
Kelloggs, are co-leaders in the childrens cereal product line with over 80% of the market share.
Hence, there is low threat of new entrants. Following Philip Morris merge of Kraft and General
Foods, the brand (KGF) has potential for continued success. In addition, Kraft is financially
strong, claiming the highest profit of a packaged goods company with $222 million in 1990.
POST childrens cereals have three strong brands, HONEYCOMB, SUGAR CRISP, and ALPHA-
BITS, that each have at least 8% brand share. POST childrens cereals not only appeal to
children, adults often associate the cereal with positive memories from their childhood.
3
POSTs key weakness is a 12% decline in sales volume for the first two quarters of 1990
compared to the previous year. Without the ability to assign sales volume to a specific marketing
program, POST is unable to effectively evaluate its marketing mix. POST also faces marketing
budget constraints. This makes it difficult to improve or maintain the full suite of existing
marketing programs.
POST is able to exploit many opportunities for growth. This includes leveraging their
profitable product lines and substantial market share, to provide immediate deep discounts and
increase sales volumes. An increase in the marketing budget to $20 million will allow POST to
regain market volume by the end of 1991. Also, it will allow POST to develop a strategic plan
that helps identify the most profitable marketing mix.
Emerging threats include Kelloggs aggressive volume growth strategy and increased
marketing expenditures. This program has led to a decrease in Krafts sales. Also, changing
consumer preferences have challenged many of the assumptions that underlie the strategy behind
Krafts current marketing mix.
4Ps - Marketing Mix
Product: Focus on HONEYCOMB and SUGAR CRISP in advertisements, as these products
will reach a greater audience due to wider target ages and a combined 20% market share.
Price: Since cereal typically has a high margin, Janet should obtain the desired retail support by
increasing the depth of the discount on trade deals to regain lost sales volume.
Promotion: Even though young children tend to get less exposure to television, KGFC should
focus on strong TV advertising as children do not typically get any other type of media exposure.
Place: KGFC should increase trade deals to four with steep discounts to encourage retailers to
place its products on end-of-aisle displays. KGFC should ensure its products are on lower
shelves near the beginning of the cereal aisle to capture the attention of children.
4
Alternative 1: Keep approximately the same number of marketing programs
Advantages: KGFC currently runs three advertising programs for the childrens cereal product
line: advertising, trade deals and in-pack premiums. The marketing department cannot quantify
the success or attribute sales to an individual program. By retaining all existing marketing
programs, KGFC does not risk eliminating an effective program and jeopardizing its associated
sales. If one program proves to be more successful at driving sales, management retains the
flexibility to re-allocate budget to that program.
Disadvantages: By continuing with all three marketing programs, KGFC will have difficulty
attributing sales directly to each program. To remain competitive POST must allocate its budget
to the most effective program. For example, for trade deals, the total dollar value of the program
is less important than the value relative to competition. Only the most lucrative offers within a
category merit retailer promotion and inferior bids generate much less value. By spreading the
budget over several programs, KGFC diminishes its ability to offer competitive trade deals.
Alternative 2: Decrease the number of marketing programs
Advantages: Eliminating an existing marketing program would allow KGFC to spend more on
trade deals, and increase the level of retailer promotion. Since there are a limited number of POS
promotions within any given category, increasing KGFCs presence will decrease competitors
share. With fewer programs, KGFC could establish metrics to evaluate its marketing programs.
Disadvantages: By eliminating a marketing program, KGFC is at risk of losing an effective
program that contributes to sales volume. Since the POST childrens cereal product line has
already experienced a decrease in sales volume this is a high risk.
Alternative 3: Ask for a further budget increase
Advantages: This would permit KGFC to allocate more funds to each marketing program. A
budget increase may allow the organization to defend its market share while retaining all of its
5
programs. This would eliminate the risks associated with discontinuing a marketing channel.
Disadvantages: Since POST childrens cereal product line only accounts for 2.68% of KGFCs
sales (see Exhibit 1), the marketing team would have a difficult time convincing management to
support the strategy. Increased spending may have an inverse effect on the categorys
contribution margin. Marketing programs may reduce the expected retail price if competition
forces brands to offer more lucrative trade deals, resulting in a smaller margin.
Recommendation
To identify the best alternative, each alternative is weighed against predetermined criteria
selected in accordance with the key issues to formulate a decision matrix (see Exhibit 6).
Based on this matrix, KGFC should eliminate its in pack premiums. From 1986-1987, KGFC
increased premiums as a percentage of marketing expenditure from 8% to 14%, but only
experienced a 0.7% increase in sales (see Exhibit 5). This shows that higher spending on
premiums does not necessarily increase sales. KGFC should reallocate the existing budget as
follows: 61% to advertising, and 39% to initiate additional trade deals (see Exhibit 2). POST
should match Kelloggs current spending on advertising as a percentage of factory sales and
increase its media weight level from 70 to 100 GRPs. This translates to an additional $2,528,400
spent on advertising for a total of $8,628,400 (see Exhibit 4). Developing an additional trade deal
for each of POSTs childrens cereal brand will account for the remainder of the budget at
$1,951,600 (see Exhibit 2).
Implementation Plan
A six-phase implementation plan will occur between July 1990 and December 1991. Delegated
responsibilities and timelines are outlined in Exhibit 7.
Phase-out in-pack premiums: The marketing team will be restructured such that the in-pack
6
premium team is re-assigned to work on other marketing programs; this process involves the
necessary training and integration into a new role.
Advertising pre-launch meetings: Confirm procedures for TV advertising in 1991: frequency of
advertisements, target TV stations, product promotions, discussion of desired outcomes, and
agreement to measure effectiveness of the advertisements.
Trade deals pre-launch meetings: Maintain relationships with retailers and increase trade deals
to four across all brands. Offering deep discounts to retailers in exchange for exposure will create
cost leadership in the childrens cereal market to gain market volume.
Trade deal & Television advertising launch and maintenance: A continued relationship with
retailers and advertising companies to ensure the success of smooth running programs.
Evaluate programs: Quarterly results will be used to measure the effectiveness of trade deals and
advertising programs. At the end of Q2, the effectiveness of the marketing strategies will be
evaluated using sales volume. The program will either continue or be replaced by the
contingency plan. Success is indicated by a sales volume increase of 12%+ in the first two
quarters of 1991 and increased market share.
Future year budget planning: A new budget allocation will be done at the end of Q2 based on
the effectiveness of the current program, market trends, and competitor strategies for 1991.
Contingency Plan
A contingency plan will be implemented if sales volume does not meet its 12% target by Q2 of
1991. If the target is missed, a 50% budget increase will be requested from senior management in
order to restructure the marketing program (see Exhibit 2). The first step of the restructuring
program includes the development and manufacturing of a series of collectable gender-neutral
in-pack premiums based on current entertainment trends. The collectable nature of the premiums
will work encourage brand loyalty.