KELLOGG: POP TARTS

GONE NUTTY
BY: Kotra Subhadra Rucha

Q1) What brand development strategy is Kellogg

undertaking?
Ans: A brand development strategy is the long-term plan to achieve
a series of long-term goals that ultimately result in the identification
and preference of your brand by consumers.
Here, the brand development strategy used is brand extension.
Brand extension or brand stretching is a marketing strategy in which
a firm marketing a product with a well-developed image uses the
same brand name in a different product category. The new product
is called a spin-off. Organizations use this strategy to increase and
leverage brand equity.
As Kellogg’s are best known for the invention of the famous
breakfast cereal corn flakes, they have used their brand name
“Kellogg’s” for the launch of a new product, “Pop tarts gone nutty”.
The consumers of Kellogg’s have already associated the brand name
with corn flakes. Hence, this helps the consumers to associate the
brand name with their new product, “Pop tarts gone nutty”.
Thus, we can clearly see that Kellogg’s has used the strategy of
“Brand Extension” where an already successful brand, “Kellogg’s has
established a new product and it is trying to increase its sales by
familiarizing its name in the minds of consumers.
Q2) Assume the company expects to sell 5 million
packages of Pop-Tarts Gone Nutty! in the first year after
introduction but expects that 80 percent of those sales will
come from buyers who would normally purchase existing
Pop-Tart flavours (that is, cannibalized sales). Assuming
the sales of regular Pop-Tarts are normally 300 million
packages per year and that the company will incur an
increase in fixed costs of $500,000 during the first year to
launch Gone Nutty!, will the new product be profitable for
the company?
Ans: So, here we can see that the average sales of pop tarts is
300 million packages and the expectation of the pop tarts
gone nutty is 5 million packages. Here, 80% percent of the
sales comes from the buyers of Pop tarts Gone nutty, hence
from the given sales if we assume that the expectation of 5
million comes from Pop tarts gone nutty, then the profit shall
be calculated as:
Profit = Total Sales – Fixed Cost
Sales per unit (new product) = $1.20+$0.55
= $1.75.
Total Sales = 5000000 * Sales Per unit
= 5000000 * 1.75
= $8750000
Fixed Cost = $500000
Profit = $8750000 - $500000
= $8250000
The profit earning capacity will be $8250000. Thus, if the
profit earning is expected to be $8250000, then the product
is a very profitable company.
The product has a potential capacity to earn quite a large
profit despite being in the initial stage. Owing to the brand
name, within a short span, the product can mark its own
name in the market just like Kellogg’s cornflakes.