In this market there is a significant market leader indicating high brand loyalty towards Kellogg Co, this is a problem because the dominance of Kellogg Co would make it more difficult to enter the market.
The price of a Kellogg Co cereal is significantly higher than a shop’s own brand e.g. Kellogg Frosties cost £2.48 for a 1kg packet, whereas Tesco’s Frosted Flakes cost £1.10 for a 1kg box (actually 55p for a 500g packet). This shows that Kellogg Co is a market leader and has high brand loyalty for people to pay over £1 for the same product (source - ). This information would also be useful when pricing my new product, because if you price a product at a similar price to other similar existing products (price taking) then consumers wouldn’t pass on the cereal because it is priced differently, or alternatively if it was priced lower than the rest it wouldn’t maximise the possible revenue for the company however it would depend on how price elastic the product was.
Market growth
It is important to know whether the market is growing in direct proportion to inflation or not, because then I will be able to see if the market is growing independently or because of inflation. If % growth is higher than % inflation then the market is growing and launching the product would be a good idea.
The following bar chart shows % growth by value of the cereal market against the % inflation.
I worked out % growth by value by:
E.g. Value for 1997 – Value for 1996 = % growth between 1996/7
Value for 1996
(Mintel report, February 2002, and Snapshots UK)
Inflation is a rise in price levels, which causes the market to grow in value, even if there is no extra volume in sales. The graph shows % growth to be less than % inflation, but the graph is misleading because it gives the impression that the market is shrinking whereas in reality it is growing, just at a slower rate than inflation. This also indicates that the market is saturated, and the only reason that the market is growing by value is because prices are increasing alongside inflation. This would be a problem for CTB because if the market is saturated then it would be harder to gain market share and technically they would be immediately launching either a Cash Cow or a Dog according to the Boston Matrix.
Market size
It is useful to know the size of the market by both value and volume because you can see if the market is adequate in size e.g. if the cereal market is large it is likely that the product will generate significant profit even with a low market share.
The cereal market relies mainly on pricing strategies and tactics. The market value for cereals has increased steadily from £1100m in 1997 to about £1300m estimated for 2002(Snapshots UK Breakfast Cereals report 2002). The volume of the market however has remained static at about 350 000 tonnes of cereal consumed each year since 1997(Mintel report, February 2002).
The market size by value and volume is shown in the table below from 1997 to 2002 (2002 is an estimate – Mintel report, February 2002)
(Mintel report, February 2002, and Snapshots UK)
The graphs show that the RTE cereal market is likely to experience steady increase in size by value but a relatively static size for volume. This will be a positive and a negative finding – it shows that if CTB gain a small market share and keep it then they will still have a large revenue (1% market share is about £13m), but because the volume of the market is constant it would be difficult for CTB to encourage general sales for cereal.
New competition
It is important to know how much new competition there is going to be around the time of launching a new product, because it shows how many contenders there will be for a small market share at one particular time e.g. if there was no new competition then it would be easier to gain a substantial market share, especially for a company with such high brand loyalty as CTB.
There are not usually any new brands trying to enter the cereal market, however existing brands are constantly releasing new types of cereal, this means that there is a good chance for CTB to gain a good market share because there isn’t a lot of new competition fighting to claim market share. There is however a lot of new products being launched by existing brands e.g. the new Kellogg’s Sporties endorsed by Michael Owen.
Distribution
The information collected about the main placed of distribution is important because you can see where to distribute products in proportion to how many cereals are sold at specific places, and also to see where to promote the new Cadbury cereal.
The following chart shows the main places of distribution for cereals:
(Snapshots UK Breakfast Cereals report 2002)
It is a huge advantage to CTB that the main distribution channel is multiples, this is because CTB will already have links with all of the multiples because they will all stock some of the products produced by CTB. This would be better than a new company trying to break into the cereal market because the sales reps for CTB know how to persuade the multiples into stocking the product, and could also afford to also.
Target market
It is important to know the target market when launching a new product because the advertising and promotion can be aimed appropriately e.g. advertising a children’s cereal during a children’s TV show (e.g. CITV).
People would immediately associate Cadbury with chocolate, so until they have established status as a cereal manufacturer they could manufacture chocolate flavoured cereal. The main target for CTB would be children of all socio-economic groups because chocolate cereals are normally targeted at children. After time in the cereal market it may be advisable to target adults with healthy cereals containing bran and fruit, or maybe even expanding into the hot cereal market along with the RTE market.
The chart below shows the split of the market for cereals:
(Mintel report, February 2002)
Lifestyles and Health Issues
There has been an increase in sales of ‘functional-foods’ such as breakfast cereals, energy drinks, and low-fat foods over the last few years, and the market is to carry on growing as more people opt into the ‘functional-food’ lifestyle as Britons attempt to be more healthy this prediction has been made due to despite sales of functional-foods increasing the overall food market has remained flat (Mintel report according to ). There are health benefits also from eating cereals, the reason that eating breakfast is important is because it kick starts our metabolism, also if breakfast cereals especially are missed in the morning it will lead to snacking on higher fat foods throughout the day to feed the hunger of missing breakfast.
Breakfast cereals also contain vitamins and minerals, as does the milk they are served with. Also it is scientifically proven that some of the vitamins and minerals contained in cereals are to be linked with concentration and IQ.
Conclusion
From analysing the secondary research into the cereal market I have found that:
Positive findings
- CTB is such a large company with such high brand loyalty they could use their brand image towards a new line of products.
- The cereal market is enormous (£1300m).
- There is only a sole market leader (Kellogg Co – 40.7% share) with a number of other smaller manufacturers of cereal so it may be easier to get a good market share.
- There is very little new competition in the cereal market there are only the same few manufacturers.
- With the market being so large it would only need a small market share to secure large revenue.
- CTB already have links with multiples so it may be easier to persuade them to stock the new products.
- There are actually no other chocolate firms producing cereal so the CTB product would be unique, and would reduce competition from their main rivals (Mars and Nestle)
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If CTB created a brand loyalty in the cereal market then they could charge a higher price with people willing to pay the higher price e.g. People may rather pay £2.48 for a kg box instead of £1.10 for a 1kg box of an own brand cereal (for Frosties – source ).
Negative findings
- The main competition to CTB would be Kellogg Co with a 40.7% market share (£320 million), which means that if they feel threatened they could challenge CTB with a massive advertising campaign.
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Kellogg Co – the market leader – has a strong brand loyalty behind it. People may rather pay £2.48 for a kg box instead of £1.10 for a 1kg box of an own brand cereal (for Frosties – source ).
- The RTE cereal market is growing slowly, only about 3.5% per year by value, and has remained static by volume for a number of years.
Overall conclusion
Looking at the positive findings and comparing them with the negative findings that I have concluded from my secondary research the information suggests that with the company in question being CTB with a high brand loyalty and annual revenue of about £1.5 billion it may be feasible for CTB to launch a cereal because if challenged by the likes of Kellogg Co they could be able to counteract the advertising campaigns, unlike a smaller company hoping to make it into the cereal market where it is more likely that they would fail.
The secondary data collected can be classed as inconclusive and not as accurate as required. This is because the data from which secondary research is derived may not be updated regularly. Also the data you obtain may not be tailored to suit your specific requirements and needs. To get full reliable data of the market that is specific to the requirements of the company it would be essential to conduct primary research. This should be in the forms of questionnaires and other techniques. Only then can a decision be made to launch a product into the cereal market.