MBA 5060 - Product Strategy
CEREAL PRODUCTS
 Laurie Baron
 Yvan D’Silva
 Yu-Hsuan Lai
 Carolina Quintanilla Valdovino
 Lalinthip Sriwitanont
 Matthew Van Heel
Friday 30th November, 2007
Agenda
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Industry overview
Environmental trends
Threats & opportunities
New product opportunities
Business Analysis
Proposed launch plan
Q&A
Industry Overview
Global Perspective (Food and Drink Industry)
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Global Revenue Estimate: $7.1T AUD (2005)
EU Industry Revenue Estimate: $1.42T AUD (2005)
Australian Perspective (Food and Drink Industry)
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Australian Revenue Estimate:
$69.8b AUD (2005-2006)
 Australia has a range of climates
and land types, most of which are
used for food production.
 This variety, combined with high
quality ingredients and cutting edge
technology, makes Australia a
reliable long-term supplier to global
markets
Industry Overview
Australian Perspective (Cereal Products)
Revenue
Revenue Growth Rate
Imports and Exports
Industry Overview
Australian Perspective (Cereal Products)
 Breakfast cereals
Product Segmentation
 Pasta
 Milled rice and rice
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flour
Prepared baking
mixes
Meal or offal
Hulled or shelled
oats
Oatmeal for human
consumption
Self-raising flour
Jelly crystals
Custard powder
Baking mixes
8%
Other
6%
Rice
8%
Pasta
16%
Breakfast
cereals
62%
Industry Overview
Australian Perspective (Cereal Products)
Market Segmentation
Geographic Spread of Businesses
WA
7%
Other
5%
Exports
10%
SA
11%
Grocery
wholesalers
43%
NSW
33%
Hospitality
industry and
institutions
16%
QLD
17%
Supermarket
chains
26%
VIC
32%
Industry Overview
Australian Perspective (Cereal Products)
Competitors
 Market Size:
• Total revenue : $2.62
billion, 2.9% higher than
2005
• Total value added: $731.6
million, 4.2% lower than in
2005
Kellogg Australia
Holdings Pty Ltd
17%
Australian Health &
Nutrition
Association Limited
7%
General Mills
Holding (Australia)
Pty Ltd
7%
Other
52%
Nestle Australia Ltd
5%
San Remo Macaroni
Company Pty Ltd
4%
Manildra Group
1%
Goodman Fielder
2%
Green's Foods
Limited
Ricegrowers Limited 3%
2%
Industry Overview
 Demand determinants
 Changing lifestyle
 The variety of substitute products
 Health, nutritional and dietary concerns
 Household incomes
 Population growth
 Changes in the demographic profile of the nation
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Domestic sales were estimated at $ 2.5 billion in 2005-6
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The competition of industry
 Price : the price will be varied by product segments
 Selling and distribution: strong relationship with retailer and manufacturer
 Quality : good quality product enable the firms to charge a premium
Product differentiation and functional qualities
 product innovation and differentiation play a key role
Branding and promotion
 firms have heavily promotion through mass media advertising
The external competition
 alternative breakfast foods ex. Muffins, bread, bagels and take-away stores
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Industry Overview - PLC
Porter’s Five Force
•
•
•
•
Suppliers
• The bargaining
power of supplier is
between medium to
high. (It depends
how large is the
retailers.)
• The importance of
value to supplier is
high because the
margin is not high.
Potential entrants
Medium entry barriers
High capital requirements
Economies of Scale
Proprietary product differences
THE INDUSTRY
Degree of Rivalry
• The larger competitors
• Mature and stable
market (low growth
rate)
• Wide and completed
product line
Substitutes
• Muffin, bread,
bagels
• Take-away foods
• Restaurants
Buyers
• Consumer has high
bargaining power.
• The buyers are
price sensitive.
Environmental Trends
 Political/Legal
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Election 2007
Bilateral agreements between
Australia and the US
Role of ANZFA within the food
industry
Role of the ACCC
 Economic/
Environmental
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Key economic indicators affect
buying habit of consumers
Global economy is on the
tipping point of potentially
slowing down
Australian economy is
continuing good growth
Climate change affecting the
production of key ingredients
used in breakfast cereals i.e.
Drought, global warming
Industry is being affected by
environmental regulations
Environmental Trends
 Socio-cultural
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Australia’s population is
growing approximately 1.2%
per year
Average household size is
increasing
Aging Population
Increasing multicultural
population
Demand for products with
healthy image due to
increases in obesity
Demand from consumers for
convenient ready to eat foods
 Technology
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Major technological changes
occurring within the industry.
Computerisation has aided
quality control and JIT
manufacturing
CRM Systems
E-Business is allowing
customers to shop from home
GM foods are entering the
market
GE/McKinsey Screening Grid
The Company - Kellogg’s
Kellogg’s - Company Profile
 A wholly owned subsidiary of the U.S. Kellogg Company since
1928
 Kellogg Australia operates manufacturing facilities in Botany
(NSW), Charmhaven (NSW), and Brisbane (QLD).
 Kellogg is the largest player in this segment, with over 43%
market share.
 2006 - Kellogg’s sales revenue reached A$ 470.6m
 Kellogg’s overall market share is gradually falling
Kellogg’s - Product Portfolio
Kellogg’s - Brands
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Corn Flakes
All-Bran
Rice Bubbles
Frosties
Coco Pops
Corn Flakes Crumbs
Variety pack
Froot Loops
Sultana Bran
Special K
Nutri-Grain
Just Right
Sustain
Komplete
LCM’s cereal & milk
bars
Nutri-grain bars
K-time cereal bars
LCM’s shakes
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Mini Wheats
Guardian
LCM’s
Crispix
Kellogg’s Muesli Bars
K-time twists
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Special K bars with
Yoghurt
All Bran baked bars
Special K light muesli
Crunchy nut nutty bars
Coco Pops Coco Rocks
Perceptual Map
High product quality
High price
Low price
Low product quality
SWOT Analysis
Strength
 Market leadership position
 Strong Brand recognition
 - Product variety
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- Nature of products
 - Product positioning
 Kellogg's leads the trend
towards better health and
nutrition
 Consumer trust
 Broad Channel Distribution
- Grocery store,
Supermarket, Convenient
store, etc.
Weaknesses
 High market concentration
 Growth opportunities via
acquisitions are limited
 The product supply chain
depends on many suppliers
such as farms, fresh fruit
providers, etc.
 A great number of variable
costs
SWOT Analysis
Opportunities
Threats
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Increasing awareness on health,
well being and nutrition
Consumption in ready to eat
cereals is increasing
Improved crop production as a
result of GM food technology
Consumer trust and brand
recognition
Largest purchaser of Rice in
Australia
The growth of health-conscious
trend among people across
countries
Busier lifestyle
The continual growth of cereal
market (2.9% increasing from
2006)
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Impact of global warming on
availability of raw materials
(cereals and rice)
Concern over GM food technology
and consumer skepticism
On going effects of Australian
drought on raw material
availability and cost
Growing strength of competitors
(Goodman Fielder, Sanitarium)
Highly competitive industry
Increased food regulation
Increasing cost of raw materials
Alternative choices of breakfast
e.g. rice
New Product Opportunities
 Megatrend:
 Convenience, Health, Taste, Ethical
 Market Opportunity:
 Easy to consume
 Convenient
 Can consume on the run
 Healthy (low fat, sugar content)
 Nutritional (vitamin supplement)
 Tasty
 Environmentally friendly
New Ideas Generation
New cereal flavours
Edible packaging
Milk and
cereal
combination
Space bar breaky (dehydrated &
or microwave)
Products with salt
Screening Criteria
1. Sales/Revenue potential
2. Profit Margin Potential
3. Development Cost
4. Innovation
5. Competition
6. Distribution
Screening Criteria
Concept Testing
 Involves designing and presenting
representations of the proposed new product/s to
a sample of intended customers
 Objective is to estimate market reaction to a
product before committing resources to its
physical development
Concept Testing
2 research methods will be utilized
 Qualitative feedback
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provide information to evaluate the 3 concepts
Profile of the market
Assess likely purchase intentions and position the product
Make improvements to the product
Modifications to be made on the product presentation
 Quantitative Research
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Estimate trial of the product
Compare product with existing buying patterns
Identify barriers / issues in adoption
Concept Testing
Product A – Edible Packaging
Product B – Space Bar
Product C – Combo
A new packaging concept for
breakfast cereals
Inner plastic coated packaging
layer is replaced by an edible
package which forms part of the
contents to be consumed.
A new product category
Dehydrated cereal in a small
snack bar size that consumed
directly or re-hydrated by adding
milk and consumed as a
traditional breakfast
A new product category
Disk shaped cereal that
consumed directly or by adding
milk and consumed as a
traditional breakfast using
patented technology
Consumer need
Environmentally friendly
Nutritional and low fat
Consumer need
Convenience
Nutritional and low fat
Time effective
Substitute for snacks
Consumer need
Convenience
Nutritional and low fat
Time effective
Substitute for snacks
Benefits
Size/packaging
Nutritional and low fat
Added health benefits
Convenient / no preparation
Quality / flavor
Easy to consume
Benefits
Size/packaging
Nutritional and low fat
Added health benefits
Convenient / no preparation
Quality / flavor
Easy to consume
No preparation
Benefits
Environmentally friendly
Reduce packaging waste by up
to 40%
Nutritional and low fat
Vitamin supplement
Enhanced flavors & taste
Convenient / no preparation
Fresh mint flavor (Oral hygiene)
Research Results
Qualitative Research
Edible Packaging
Would you be interested in a cereal where the inside package was part of the cereal?
Interested in the idea
“I’m interested in any thing that reduces waste and is environmentally friendly so I would be
interested in finding out more”
Found the product credible
“I’m not surprised that with the rate of technological change they can come up with cereal
packaging that can be eaten with the cereal”
Not interested in the idea
I don’t believe it is possible and I don’t fancy eating paper of any sort” (35-55)
“How do you transport the product”?
Conclusion- Most interest in younger ages group (13-25) Most skeptical (45+)
Qualitative Research Results – Adolescents and Young adults most interest
Research Results
Qualitative Research
Space Bar
Would you be interested in a cereal which is very small and can be either
eaten has a snack bar or re re-constituted and consumed as a traditional
breakfast
Interested in the idea
“I really like the convenience facto r- I can sit down and eat it as traditional cereal or
if I’m in a hurry I can eat it on the run and still get the same nutritional value”.
“ it small enough to be carried around a snack food which is not junk food”
Found the product credible
“they have been doing this sort of stuff in the space program and the military since
the 60’s so the technology should be well advanced”.
“It can be eaten on the”
“It would fill you like a regular breakfast”
Conclusion- Interest across all age groups (13-55)
Qualitative Research Results - Adolescents and Young adults and adults
Research Results
Qualitative Research
Combo
Would you be interested in a cereal where it can either be eaten as a
traditional cereal or a snack on the run?
Interested in the idea
“I really like the convenience facto r- I can sit down and eat it as traditional cereal or
if I’m in a hurry I can eat it on the run and still get the same nutritional value”.
Found the product credible
“Because it has the additional additives it can be eaten without milk and you still get
all of your calcium intake”
Conclusion- Interest across all age groups
Not interested in the idea
(I don’t believe it is possible and I don’t fancy eating paper of any sort” 55+)
Qualitative Research Results – Adolescents, Young adults and adults to 50+
most interest
Research Results
Quantitative Research
Edible Packaging
Consumed breakfast cereal in the last month
Consumed breakfast cereal in the last week
Believe it is possible to make edible packaging
Said they would try if available
Would pay a 20% premium for an environmentally friendly package
Space Bar
Consumed breakfast cereal in the last month
Consumed breakfast cereal in the last week
A cereal that can be re-constituted with or without milk interests me
Would try if available
Would pay a 20% premium for re-constitutable cereal
Believe that this would provide an alternative nutritional breakfast when on the go
Combo
Consumed breakfast cereal in the last month
Consumed breakfast cereal in the last week
A cereal that can be consumed with or without milk or on the and is available in
convenient snack size interests me
Would try if available
Would pay a 20% premium for combo cereal
Believe that this would provide an alternative nutritional breakfast when on the go
75%
80%
33%
15%
5%
85%
83%
55%
40%
10%
80%
65%
85%
75%
80%
18%
80%
Kellogg’s New Product
 Kellogg's Kompact Disk
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Breakfast cereal eaten on its
own as biscuit or with milk
Healthy snack
Vitamins and minerals added
Added value - to be discussed
New Product Development
IP - Bonding agent
MBA – Mono-Bythen-Apyte
Lactose
New Product Development
IP - Bonding agent
Lactos
MBA – Mono-Bythen-Apyte
New Product Development
IP - Bonding agent
Added Value!!
Product of MBA combined with Lactos
Fat Globules
Business Analysis (preliminary)
Sales Forecasting
Market size = 12,910 tones
Potential Market size (35g servings)
% aware of product in the market
% who try the product
% who like the product for re-buy
% who will switch to competitors products
% Market Share
Predicted 35g servings consumed
unit cost @ 80% of initial RRP of $0.40 ($)
Annual Sales Forecast Revenue ($,000)
Population growth rate (2007)
Inflation food (Sep 06 -Sep 07)
31-Dec-08
31-Dec-09
3,688,571,429
70%
12%
40%
0%
3.4%
123,936,000
0.28
34,702
1.5%
1.8%
31-Dec-10
3,743,900,000
75%
16%
45%
0%
5.4%
202,170,600
0.29
57,627
31-Dec-11
3,800,058,500
80%
20%
50%
5%
7.6%
288,804,446
0.29
83,803
http://www.abs.gov.au/ausstats/abs@.nsf/mf/3101.0/
http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0/
31-Dec-12
3,857,059,378
85%
25%
50%
10%
9.6%
368,831,303
0.30
108,950
31-Dec-13
3,914,915,268
85%
25%
50%
15%
9.0%
353,565,785
0.30
106,321
Business Analysis (preliminary)
Profitability Analysis
Corporation tax rate (30%)
Net Sales Value
Fixed Costs
Plant and equipment
Project Management and Management
Variable Costs
Materials (per unit)
Direct Labour (per unit)
Warehouse and storage (per unit)
Storage and Distribution (per unit)
Total Variable costs (per unit)
Annual Variable Cost
Marketing Costs
Profit before tax
Corporation tax rate (30%)
NPAT
NPAT%
Award Inflation Rate
Inflation rate
Tax rate
31-Dec-08
500
200
1,500
(2,200)
(2,200)
4%
5%
30%
31-Dec-09
34,702
Figures in $,000
31-Dec-10
31-Dec-11
57,627
83,803
31-Dec-12
108,950
31-Dec-13
106,321
200
50
100
-
100
-
100
-
100
-
0.06
0.03
0.02
0.02
0.13
16,112
2,000
16,340
4,902
11,438
33.0%
0.06
0.03
0.02
0.02
0.13
26,501
2,000
29,026
8,708
20,318
35.3%
0.06
0.03
0.02
0.02
0.13
38,174
1,000
44,529
13,359
31,170
37.2%
0.06
0.03
0.02
0.02
0.13
49,165
1,000
58,686
17,606
41,080
37.7%
0.06
0.03
0.02
0.02
0.13
47,533
500
58,188
17,457
40,732
38.3%
Business Analysis (preliminary)
Break Even Analysis
Break Even Analysis
45,000
40,000
35,000
NPAT ($,000)
30,000
Break Even
Q1 2009
25,000
20,000
15,000
10,000
5,000
31-Dec-08
(5,000)
31-Dec-09
31-Dec-10
31-Dec-11
Year Ending
30-Dec-12
30-Dec-13
Business Analysis (preliminary)
NPV Analysis
Year
A. Fixed assets
Marketing costs
Investments in new product development
Investments in plant & equipment
Project Management and Engineering
CF, invest. in fixed assets
B. Working capital
Working capital
Change in working capital
CF, invest. in wk capital
C. Operations
Revenue
Expenses (Variable costs)
Depreciation
Pretax profit (ignoring fixed costs)
Tax
Profit after tax
Cash flow from operations
D. Project valuation
Total project cash flow
Discount factor
PV of cash flow
Net present value
Discount rate (IRR)
Acct receiv. as % of sales (60 days payment)
Inven. as % of expenses
Tax rate
Figures in $,000
31-Dec-10
31-Dec-11
2
3
31-Dec-08
0
31-Dec-09
1
31-Dec-12
4
31-Dec-13
5
1,500
300
500
200
-2,300
2,000
2,000
1,000
1,000
500
200
50
-2,200
100
0
-2,100
100
0
-1,100
100
0
-1,100
100
0
-600
2,417
2,417
-2,417
9,759
7,342
-7,342
15,331
5,572
-5,572
21,342
6,011
-6,011
25,288
3,947
-3,947
17,720
-7,568
7,568
-
34,702
16,112
70
18,520
5,556
12,964
13,034
57,627
26,501
80
31,046
9,314
21,732
21,812
83,803
38,174
90
45,539
13,662
31,877
31,967
108,950
49,165
100
59,686
17,906
41,780
41,880
106,321
47,533
110
58,678
17,604
41,075
41,185
-4,717
1.00
-4,717
3,492
0.87
3,037
14,141
0.76
10,692
24,856
0.66
16,343
36,834
0.57
21,060
48,153
0.50
23,941
50
70,355
15%
17%
15%
30%
Business Analysis (preliminary)
Fixed Asset Expenditure
Fixed Asset Expenditure
Marketing costs
2,500
Expenditure ($,000)
Investments in new product development
Investments in plant & equipment
2,000
Project Management and Engineering
1,500
1,000
500
0
2008
2009
2010
2011
End of Year
2012
2013
Product Testing
Product Testing
Product Testing Results
Commercialization
Production Plan
 Modification to the existing production line
 New tooling for Kompact DisK Shape
Launch Strategy and Marketing Plan
 Roll Out Strategy
 Test marketing (second half of 2008, before official launch)
- Nutri Grain, Just Right
- Geographic region: Sydney
 Customer Segmentation, 4 P Strategies, IMC Plan
Launch Strategy and Marketing Plan
Launch target: Q1/2009
Offering Summary:
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Brand: Kellogg Kompact Disk (Special KK)
Product: Combo breaky with additives
Attribute:
 Attractive shapes of cereal bar
 3 product categories: 1) Sport/Energy, 2) Kids, 3) Health-conscious
Benefits:
 100% Australian products
 Convenient, tasty, fun, healthy, assistance in
weight reduction.
Key competitors:
 Direct Competitors: Uncle Toby's, Nestle, Sanitarium,
Weight-watchers
 Indirect Competitors: Restaurants, Take-away food,
Fast food, hot breakfasts (substitute products)
Target Customer
Demographic
 People on the go
 People with varying needs for breakfast timing
 People who like breakfast to be interesting
 People who are concerned about their weight
Psychological
 Attitude and Belief
 Health-conscious, Convenience-driven and Energy-driven
 Brand preferences
Lifestyle
 Have the habit of eating breakfast
 Busy lifestyle
 Lazy lifestyle
 Traditional lifestyle
Marketing Objectives
(SMART Objectives)
 To increase 75% brand awareness among target
customer by the end of 2010.
 To achieve annual sales volume of
“Kellogg’s Kompact DisK” > $50 million by end of
2010
 To increase market share by 5% by the end of 2010
 Marketing Strategy: Roll Out
Product Strategy
 Product strategy
– Positioning as “health, convenience and intriguing”
– Product differentiation with “new technology of
versatility, health element and unique shape”
– Packaging : Various varieties will be tested during
market testing (individually rapped in packages of 14,
jumbo packs etc)
Price Strategy
 Pricing strategy
The price of “Kellogg Kompact Disk” is higher than other similar
product because it is emphasized on health and convenience.
Brand
Weight
(standardised)
RRP /Unit ($)
Kellogg’s Kompact Disk
35g
0.40
Kellogg’s std ready to eats
35g
0.35
Uncle Toby’s Plus
35g
0.30
Uncle Toby’s Vita Brits
35g
0.25
Uncle Toby;s OT bars
35g
0.28
Sanitarium Premium
35g
0.44
Channel Distribution

The manufacturing facilities of Kellogg cereal at Botany, on the train line and near
to the wharves for convenient shipping of products around Australia and into the
Asia-Pacific region.

From the factories, the finished products are distributed directly to wholesalers,
supermarkets, convenient stores, grocery stores.

Possible New channel distribution: “Vending Machine”
which suits students and busy people.
Wholesalers,
Supermarkets
Supermarkets
Botany
Factories
Convenient stores
Vending Machines
Export
Consumers
Promotion
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Integrated Marketing Communication (IMC) is a key communication tool to
create brand recognition and trigger purchase intention

Utilizing both above-the-line and below-the-line media to effectively enhance
target customers’ demand
 ATL: TVC, Radio, Outdoor, Interactive media
 BTL: In-store media, Point-of-purchase media, sampling distribution

Focusing on “Pull strategy” to directly create demand and apply the most
efficient media in the right program to reach target audience

Stakeholder relationship management to manage the relationship with
important company’s stakeholders
Communication Strategy
SMART communication objectives
Communication
objective
Brand awareness
Brand attitude
Brand loyalty
SMART objective
Increase 70% awareness of "Kellogg Compact DisK " in the
existing target market within the first year of launch
Convince 12% of the target group to consume
Kellogg’s Kompact DisK within the first year of positioning.
Build a strong relationship with consumers to make
Kellogg Compact Disk becoming the first choice of our target
consumers’ evoked set after one year of launching
Kellogg Kompact Disk .
Communication Strategy
Marketing Communication Objectives and media
Key
Communication
Objectives
Product
differentiation
Consumer trust
and brand
recognition
Best MC
Function
MC Objectives
Brand
awareness
Brand loyalty
Healthy image of
Brand attitude
cereal products

Advertising

Sales &
promotion
Vouchers
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
Advertising
Packaging
Promotion
Rationale
Create the new product image
and brand awareness
Reach the target customers,
enhance the brand image and
introduce new product
Reach a large amount of
audience, associate product
with a sense of healthiness
through advertising,
sponsorship and packaging.
IMC Launch Plan
Task
2008
Dec
Product Launch (Market Testing)
OFFICIAL LAUNCH
Above-the-Line Media Launch
TVC
Radio
Outdoor
Interactive
Below-the-Line Media Launch
Sampling distribution
In-store promotion
In-store media
Point-of-purchase Media (Vending
machine)
2009
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Communication Strategy
IMC Schedule and timeframe
Priority of media option:
High
Medium
(The number represents frequency)
Marketing tactics & Media options
Low
TV Commercial in 5 cities*
Ch 7 - Australian Got Talent
Ch 7 - 7 Sport
Ch 9 - Mornings with Kerri-Anne
Ch 10 - Are You Smarter Than A 5th
Grader?
Ch 10 - The Biggest Looser (Aus)
Radio
Fox FM (101.9 FM)
MIX FM (101.1 FM)
Family FM (96.5 FM)
Outdoor advertisement in 5 cities*
Billboard
Bus/Tram shelters
Community pillars at train stations
Internet
Online advertisement
Email updates to consumer
Sales & Promotion
In-store Media
Point-of-purchase Media
Packaging
Jan
4
4
6
Feb
4
4
4
Mar
2
2
4
10
4
19
10
10
10
6
6
19
6
6
6
6
4
5
6
6
5
2
4
2
2009
Apr
May
4
Jun
Jul
4
4
4
4
4
0
0
4
0
Aug
2
Sep
Oct
4
2
2
0
Nov
Dec
2
2
2
0
2
0
6
4
0
5
38
20
43
16
16
16
8
14
7
4
5
94
69
37
8
0
Note: Launching into 5 cities: Melbourne, Sydney, Perth, Adelaide, and Brisbane
Freq.
12
16
26
8
12
10
4
6
2
6
IMC Budget
Roger’s Five Characteristics
Roger’s Five Characteristics
Kellogg’s
Kompact Disk
Relative Advantage

Compatibility




Complexity
Divisibility
Communicability
MBA 9050 - Product Strategy
CEREAL PRODUCTS
Questions ?
Friday 30th November, 2007