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Kellog's

Kellog's

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Published by api-3730856
Failure of Kellog's in India
Failure of Kellog's in India

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Published by: api-3730856 on Oct 18, 2008
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05/09/2014

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50 Kellogg\u2019s in India

Kellogg\u2019s is, of course, a mighty brand. Its cereals have been consumed around the globe more than any of its rivals. Sub-brands such as Corn Flakes, Frosties and Rice Krispies are the breakfast favourites of millions.

In the late 1980s, the company had reached an all-time peak, commanding a staggering 40 per cent of the US ready-to-eat market from its cereal products alone. By that time, Kellogg\u2019s had over 20 plants in 18 countries world wide, with yearly sales reaching above US $6 billion.

However, in the 1990s Kellogg\u2019s began to struggle. Competition was getting tougher as its nearest rivals General Mills increased the pressure with its Cheerios brand. Kellogg\u2019s management team was accused of being \u2018unimaginative\u2019, and of \u2018spoiling some of the world\u2019s top brands\u2019 in a 1997 article inFor t u n e magazine.

In core markets such as the United States and the UK, the cereal industry has been stagnant for over a decade, as there has been little room for growth. Therefore, from the beginning of the 1990s Kellogg\u2019s looked beyond its traditional markets in Europe and the United States in search of more cereal- eating consumers. It didn\u2019t take the company too long to decide that India was a suitable target for Kellogg\u2019s products. After all, here was a country with over 950 million inhabitants, 250 million of whom were middle class, and a completely untapped market potential.

In 1994, three years after the barriers to international trade had opened in India, Kellogg\u2019s decided to invest US $65 million into launching its number one brand, Corn Flakes. The news was greeted optimistically by Indian economic experts such as Bhagirat B Merchant, who in 1994 was the director

156 Brand failures

of the Bombay Stock Exchange. \u2018Even if Kellogg\u2019s has only a two percent market share, at 18 million consumers they will have a larger market than in the US itself,\u2019 he said at the time.

However, the Indian sub-continent found the whole concept of eating breakfast cereal a new one. Indeed, the most common way to start the day in India was with a bowl of hot vegetables. While this meant that Kellogg\u2019s had few direct competitors it also meant that the company had to promote not only its product, but also the very idea of eating breakfast cereal in the first place.

The first sales figures were encouraging, and indicated that breakfast cereal consumption was on the rise. However, it soon became apparent that many people had bought Corn Flakes as a one-off, novelty purchase. Even if they liked the taste, the product was too expensive. A 500-gram box of Corn Flakes cost a third more than its nearest competitor. However, Kellogg\u2019s remained unwilling to bow to price pressure and decided to launch other products in India, without doing any further research of the market. Over the next few years Indian cereal buyers were introduced to Kellogg\u2019s Wheat Flakes, Frosties, Rice Flakes, Honey Crunch, All Bran, Special K and Chocos Chocolate Puffs \u2013 none of which have managed to replicate the success they have encountered in the West.

Furthermore, the company\u2019s attempts to \u2018Indianize\u2019 its range have been disastrous. Its Mazza-branded series of fusion cereals, with flavours such as mango, coconut and rose, failed to make a lasting impression.

Acknowledging the relative failure of these brands in India, Kellogg\u2019s has come up with a new strategy to establish the company\u2019s brand equity in the market. If it can\u2019t sell cereal, it\u2019s going to try and sell biscuits. The news of this brand extension was covered in depth in the Indian Express newspaper 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 \u2013 breakfast cereals \u2013 has seen frenzied marketing activity from the company\u2019s end. The idea behind the effort is to establish the Kellogg brand equity in the market.

\u2018The company is concentrating on establishing its brand name in the
market irrespective of the off take. The focus is entirely on being present
Culture failures 157
and visible on the retail shelves with a wide range of products,\u2019 explains
a company dealer in Mumbia.

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.

These rapid-fire launches were supported with extensive \u2018below-the-line\u2019 activity, such as consumer offers on half of Kellogg\u2019s cereal boxes. Although most of the biscuit ranges have so far been a success with children, due in part to their low price, Kellogg\u2019s is still struggling in the cereal category.

Although the company tried to be more sensitive to the requirements of the market, through subtle taste alterations, the high price of the cereals remains a deterrent. According to a study conducted by research firm PROMAR International, titled \u2018The Sub-Continent in Transition: A strate- gic assessment of food, beverage, and agribusiness opportunities in India in 2010,\u2019 the price factor will restrict Kellogg\u2019s from further market growth. \u2018While Kellogg\u2019s has ushered in a shift in Indian breakfast habits and adapted its line of cereal flavours to meet the Indian palate, the price of the product still restricts consumption to urban centres and affluent households,\u2019 the study reports.

Kellogg\u2019s tough ride in India has not been unique. Here are some further
examples of brands which have managed to misjudge the market:
lMercedes-Benz. In 1995 the German car giant opened a plant in India to

produce its E-class Sedan. The car, which was targeted at the growing ranks of India\u2019s wealthy middle class, failed to inspire. By 1997, the plant was using only 10 per cent of its 20,000 car capacity. \u2018Indians turned up their noses at the Sedan \u2013 a model older than those sold in Europe,\u2019 reported

Business Week at the time. \u2018Now Mercedes has to reassess its mistakes and
start exporting excess cars to Africa and elsewhere.\u2019
lLufthansa. Germany\u2019s Lufthansa airline joined forces with Indian com-

pany, the Modi Group, to launch a new domestic private airline, Modi- Luft, in 1993. However, three years later ModiLuft had gone bust and Lufthansa filed a lawsuit against one of the Modi brothers, claiming he had used funds obtained from the German company in other ventures. In return, the Modi Group accused Lufthansa of charging too much and of producing defective planes.

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