Kellogg's Indian Experience: A Failed Launch CASE STUDY

Use product mix matrix for Kelloggs as a whole , identify how you do line stretching in any one of its product line. (10 marks)

In April 1995, Kellogg India Ltd. (Kellogg) received unsettling reports of a gradual drop in sales from its distributors in Mumbai. There was a 25% decline in countrywide sales since March1995, the month Kellogg products had been made available nationally. Kellogg was the wholly-owned Indian subsidiary of the Kellogg Company based in Battle Creek, Michigan. Kellogg Company was the world's leading producer of cereals and convenience foods, including cookies, crackers, cereal bars, frozen waffles, meat alternatives, piecrusts, and ice cream cones. Founded in 1906, Kellogg Company had manufacturing facilities in 19 countries and marketed its products in more than 160 countries. The company's turnover in 1999-00 was $ 7 billion. Kellogg Company had set up its 30th manufacturing facility in India, with a total investment of $ 30 million. The Indian market held great significance for the Kellogg Company because its US sales were stagnating and only regular price increases had helped boost the revenues in the 1990s.

Launched in September 1994, Kellogg's initial offerings in India included cornflakes, wheat flakes and Basmati rice flakes. Despite offering good quality products and being supported by the technical, managerial and financial resources of its parent, Kellogg's products failed in the Indian market. Even a high-profile launch backed by hectic media activity failed to make an impact in the marketplace. Meanwhile, negative media coverage regarding the products increased, as more and more consumers were reportedly rejecting the taste. There were complaints that the products were not available in many cities. According to analysts, out of every 100 packets sold, only two were being bought by regular customers; with the rest 98 being first-time buyers. Converting these experimenters into regular buyers had become a major problem for the company. By September, 1995, sales had virtually stagnated. Marketing experts pointed out various mistakes that Kellogg had committed and it was being increasingly felt that the company would find it extremely difficult to sustain itself in the Indian market.

The Mistakes

Kellogg realized that it was going to be tough to get the Indian consumers to accept its products. Kellogg banked heavily on the quality of its crispy flakes. But pouring hot milk on the flakes made them soggy. Indians always boiled their milk unlike in the West and consumed it warm or lukewarm. They also liked to add sugar to their milk. or lukewarm. They also liked to add sugar to their milk. When Kellogg flakes were put in hot milk, they became soggy and did not taste good. If one tried having it with cold milk, it was not sweet enough because the sugar did not dissolve easily in cold milk. The rice and wheat versions did not do well. In fact, some consumers even referred to the rice flakes as rice corn flakes. In early 1996, defending the company's products, Managing Director Avronsart said, "True, some people will not like the way it tastes in hot milk. And not all consumers will want to have it with cold milk. But over a period of time, we expect consumer habits to change. Kellogg is a past master at the art, having fought - and won - against croissant-and-coffee in France, biscuits in Italy and noodles in Korea." A typical, average middle-class Indian family did not have breakfast on a regular basis like their Western counterparts. Those who did have breakfast, consumed milk, biscuits, bread, butter, jam or local food preparations like idlis, parathas etc. According to analysts, a major reason for Kellogg's failure was the fact that the taste of its products did not suit Indian breakfast habits. Kellogg sources were however quick to assert that the company was not trying to change these habits; the idea was only to launch its products on the health platform and make consumers see the benefit of this healthier alternative.

Another mistake Kellogg committed was on the positioning front. The company's advertisements and promotions initially focused only on the health aspects of the product. In doing this, Kellogg had moved away from its successful fun-and-taste' positioning adopted in the US. Analysts commented that this

positioning had given the brand a health product' image, instead of the fun/health plank that the product stood on in other markets. (In the US for instance, Kellogg offered toys and other branded merchandise

for children and had a Kellogg's fan club as well.) Another reason for the low demand was deemed to

be the premium pricing adopted by the company.

At an average cost of Rs 21 per 100 gm, Kellogg products were clearly priced way above the product of

its main competitor, Mohun's Cornflakes (Rs 16.50 for 100 gm). Vinay Mohan, Managing Director, Mohan

Rocky Springwater & Breweries, the makers of Mohan's cornflakes said, "Kellogg is able to cater only to

the A-Class towns or the more affluent consumers whereas Mohun's caters to the mass market." Another

small-time brand, Champion was selling at prices almost half of that of Kellogg. This gave the brand a

premium image, making it seem unattainable for the average Indian consumer. According to one analyst,

"When Kellogg tried a dollar-to-rupee pricing for its products, the company lost out on getting to the

mass consumer." Even the customers at the higher end of the market failed to perceive any extra benefits

in Kellogg's products. A Business Today report said that like other MNCs, Kellogg had fallen into a price

trap, by assuming that there was a substantial latent niche market in India for premium products.

In most Third World countries pricing is believed to play a dominant role in the demand for any product.

But Kellogg did not share this view. Avronsart said, "Research demonstrates that to be well accepted by

consumers even the most nutritious product must taste good. Most consumers view quality as they view

taste, but with a very high standard. We approach pricing on a case-to-case basis, always consistent

with the total value delivered by each product." He also said, "Local brands are selling only on the price

platform. We believe that we're demanding the right price for the value we offer. If the consumer wants

quality, we believe he can afford the price." Thus, it was not surprising that the company went ahead

with its plans of increasing the price of its products by an average of 28% during 1995-98. Before the

product was made available nationally in March 1995, the demand from Mumbai had been very

encouraging. Within a year of its launch in Mumbai, Kellogg had acquired a 53% market share. Following

this, the company accelerated its national expansion plans and launched the product in 60 cities in a 15-

month period. However, Kellogg was surprised to see the overall demand tapering off considerably. A

Mumbai based Kellogg distributor explained, "Why should somebody sitting in Delhi be deprived of the

product? So there was considerable movement from Mumbai to other parts of the country." As the

product was officially launched countrywide, the company realized that the tremendous response from

the Mumbai market was nothing but the disguised demand' from other places being routed through

Mumbai.

Kellogg had also decided to focus only on the premium and middle-level retail stores. This was because

the company believed that it could not maintain uniform quality of service if it offered its products at a

larger number of shops. What Kellogg seemed to have overlooked was the fact that this decision put

large sections of the Indian population out of its reach.

Disappointed with the poor performance, Kellogg decided to launch two of its highly successful brands

- Chocos (September 1996) and Frosties (April 1997) in India. The company hoped to repeat the global

success of these brands in the Indian market. Chocos were wheat scoops coated with chocolate, while

Frosties had sugar frosting on individual flakes. The success of these variants took even Kellogg by

surprise and sales picked up significantly. (It was even reported that Indian consumers were consuming

the products as snacks.) This was followed by the launch of Chocos Breakfast Cereal Biscuits.

The success of Chocos and Frosties also led to Kellogg's decision to focus on totally indianising its flavors

in the future. This resulted in the launch of the Mazza series in August 1998 - a crunchy, almond-shaped

corn breakfast cereal in three local flavors - Mango Elaichi,' Coconut Kesar' and Rose.' Developed after

a one-year extensive research to study consumer patterns in India, Mazaa was positioned as a tasty,

nutritional breakfast cereal for families. Kellogg was careful not to repeat its earlier mistakes.

It did not position Mazza in the premium segment. The glossy cardboard packaging was replaced by

pouches, which helped in bringing down the price substantially.

The decision to reduce prices seemed to be a step in the right direction. However, analysts remained

skeptical about the success of the product in the Indian market. They pointed out that Kellogg did not

have retail packs of different sizes to cater to the needs of different consumer groups. To counter this

criticism, the company introduced packs of suitable sizes to suit Indian consumption patterns and

purchasing power. Kellogg introduced the 500gm family pack, which brought down the price per kg by

20%. Also, Mazza was introduced in 60gm pouches, priced at Rs 9.50.

Kellogg's advertising had not been very impressive in the initial years. Apart from Jago jaise bhi, lo

Kellogg's hi,' the brand had no long-term baseline lines. Later, Kellogg attempted to indianise its

campaigns instead of simply copying its international promotions. The rooster that was associated with

the Kellogg brand the world over was missing from its advertisements in India. One of its campaigns

depicted a cross section of individuals ranging from a yoga instructor to a kathakali dancer attributing

their morning energy and fitness to Kellogg. The advertisement suggested that cornflakes could be taken

with curds, honey, and banana.

In April 1997, Kellogg launched The Kellogg Breakfast Week,' a community-oriented initiative to

generate awareness about the importance of breakfast. The program focussed on prevention of anemia

and conducted a series of nutrition workshops activities for both individuals and families. The program

was launched in Chennai, Delhi and Mumbai. The company tied up with the Indian Dietetic Association

(IDA) to launch a nation-wide public-service initiative to raise awareness about iron deficiency problems.

Nutritionists and dieticians from the country participated in a day-long symposium in Calcutta to

deliberate on the causes and impact of anemia caused by iron deficiency. This program was in line with

the company's global marketing strategy, which included nutrition promotion initiatives such as

symposiums, educative programs and sponsorship of research.

Emphasizing Kellogg's commitment to nutrition education, Avronsart remarked, "Product modification,

particularly the addition of iron fortification in breakfast cereals is how Kellogg responds to the nutritional

needs of the consumers. In this spirit, Kellogg India is taking a major step to improve the nutritional

status of consumers in the country, the specific opportunity being iron fortification for which we have

undertaken major initiatives to promote the awareness of the

Kellogg also increased its focus on promotions that sought to induce people to try their product and

targeted schools across the country for this. By mid-1995, the company had covered 60 schools in the

metros. In March 1996, the company offered specially designed 50 gm packs free to shoppers at select

retail stores in Delhi. This was followed by a house-to-house sampling exercise offering one-serving

sachets to housewives in the city. The company also offered free pencil-boxes, water bottles, and lunch

boxes with every pack. Plastic dispensers offering the product at discounted rates were also put up in

petrol pumps, super markets, airports etc.

Kellogg identified distribution as another major area to address in order to increase its penetration in

the market. In 1995, Kellogg had 30,000 outlets, which was increased to around 40,000 outlets by

1998. Avronsart said, "We have increased our reach only slightly, but we are now enlarging our

coverage." Considering that it had just one plant in Taloja in Maharashtra, the company was considering

plans to set up more manufacturing units.

Kellogg's also began working towards a better positioning plank for its products. The company's research

showed that the average Indian consumer did not give much importance to the level of iron and vitamin

intake, and looked at the quantity, rather than the quality, of the food consumed. Avronsart commented,

"The Kellogg mandate is to develop awareness about nutrition. There is a lot of confusion between

nourishment and nutrition. That is something that we have to handle." Kellogg thus worked towards

changing the positioning of Chocos and Frosties - which were not positioned on the health platform but,

instead, were projected as fun-filled' brands.

Kellogg then launched the Chocos biscuits, claiming that cereals being a narrow category,' the foray into

biscuits would create wider awareness for the Kellogg brand. Biscuits being a mass market product

requiring an intensive distribution network, Kellogg's decision to venture into this competitive and

crowded market with stalwarts like Britannia, Parle and Bakeman, was seen as a bold move not only in

India, but also globally. Avronsart said, "We are ready to develop any food based on grain and nutrition

that will satisfy consumer needs."