Kelloggs Full Study printed from The Times 100 website: www.tt100.

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Kelloggs
Using new product development to grow a brand
1. Introduction
In a rapidly changing and competitive business environment, it is not easy to predict: future trends in consumer tastes and preferences competitors actions market conditions. Creating new products or making changes to existing brands can be expensive. It involves making investment decisions now, in the hope of making a return later. Weighing up future returns against an investment is a crucial part of a managers job. It always involves an element of risk, because the future is never certain. Managers previous experience, together with market research information helps them to predict future events and outcomes. However, all business activities involve some element of risk. There is often said to be a link between risk and return. The more you risk, the higher the likely returns (or profits). However, a balance must be struck. It follows from this that decisions about a brand, (e.g. whether to develop it, maintain it, allow it to decline, or even kill it off) involve much discussion. In deciding to develop a brand, managers have to decide how much investment to make and to forecast the likelihood of a successful outcome. Brand managers aim to develop a long-term strategy to meet a range of objectives such as: growing market share developing a unique market position creating consumer or brand loyalty generating a targeted level of profit. This case study describes a major investment in Kelloggs Special K. It illustrates how the companys investment in new product development served to strengthen a global brand.

2. Kelloggs and the marketing mix

With annual sales of more than 4.5 billion, Kelloggs is the worlds leading producer of cereal
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Kelloggs Full Study printed from The Times 100 website: www.tt100.biz products and convenience foods, such as cookies, crackers and frozen waffles. Its brands include Corn Flakes, Nutri-Grain and Rice Krispies. Kelloggs is a global organisation. Its products are manufactured in 19 countries worldwide and sold in more than 180 countries. In an uncertain world where the organisations strategy is to focus on products and brands that are either the market leader or in a strong second position the company believes that this focus upon core and successful products enables it to provide consistent and reliable returns and rewards for its stakeholders.

The need for change

When a company like Kelloggs is investigating a change in its marketing it can consider four elements. These are known as the marketing mix or 4Ps: Product This element relates to how the company offers meets the changing needs and wants of customers. The growth in healthier lifestyles creates opportunities for Kellogg's to increase the number of products for this segment. Price The amount a company charges for its product is important in determining sales. Superbrands like Kelloggs can charge a premium because of the strength of the brand and product quality. Place Where customers can purchase the product is also an important factor in determining sales. If a brand like Special K is not stocked in supermarkets where most purchases are made, sales will be lost. Promotion Communicating the availability of a product is essential for sales to be made. Kelloggs uses above the line promotion like TV advertising as well as below the line promotion like on-pack promotions and sampling. In considering Special K, the company concentrated on changing the product through new variants. Although Special K was already a well-established brand, its full potential had never been reached. It was viewed as a stand-alone product, and Kelloggs had not created any variants or brand extensions to develop the core product. Managers can decide when to make key changes to a core product by analysing its position within the product life-cycle. Life-cycle analysis accepts that products have a finite life, and analysts chart a products performance through several phases, from its launch through various phases of growth until it reaches maturity and eventually decline.

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Kelloggs Full Study printed from The Times 100 website: www.tt100.biz A products life cycle may last only a few months (e.g. with a fad, or craze) or, as with Special K, for many years. Although it was a successful product, Kelloggs recognised the opportunity to stretch the brand by investments that would: revitalise it extend and further develop its growth phase help to delay the onset of the maturity phase. Kelloggs was convinced that such investment would help to maintain the brands strength in a rapidly changing market place.

3. The product life-cycle

Diagram The traditional product life-cycle shows how a product goes through 4 stages during its life in the market place. At each stage in the product life-cycle, there is a close relationship between sales and profit so when a product goes into decline, profits decrease. When a product is introduced to the market, growth is slow due to limited awareness. As the product is establishing itself, sales will start to increase during the period of growth. As the product reaches maturity, the company needs to inject new life into the product, either by creating brand extensions or variants otherwise the product will reach maturity and start to decline. Before taking any investment decisions, Kelloggs undertook market research. It wanted to answer these questions: What changes taking place in society are likely to affect the product? How might new technologies affect our business? What are likely to be the future market trends? Where are the opportunities within the market place? What new categories would appeal to the target market? How far do consumers think the brand could stretch into the market for different product categories?

Kelloggs had to understand how the product could be extended into a series of variants which would keep the core product strong, but grow the brand as a whole. Manufacturing capability is another key issue. If launches of new products are successful in global markets, Kelloggs must have the manufacturing capacity to meet consumer demand as well as the

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Kelloggs Full Study printed from The Times 100 website: www.tt100.biz supply chain necessary to reach those consumers.

4. Special K - cereal
Initial developments came from Kelloggs in France, who introduced red berries into the cereal. This new product performed well. Market research in the UK, including consumer tests, also identified a real opportunity within the UK market. In October 1999, Kelloggs launched Special K Red Berries in the UK. From the outset it performed well, with very little damage to the core brand: most sales were additional and above expectations; consumers did not swap the old product for the new variant. Evaluating the launch revealed further scope for product development. It was, however, important to ensure that any new products tasted different from the original Special K and the Special K Red Berries, so as not to harm their sales. Extensive product development research was carried out by food technologists. Kelloggs then tested the product with quantitative research. Kelloggs launched Special K Peach & Apricot in February 2003.

5. Special K bars
Kelloggs already knew that women who are keen to watch their weight and shape seek a range of solutions throughout the day - not just at breakfast. With the help of both users and non-users of existing Special K products, market researchers undertook further quantitative tests of product ideas across a range of food categories. The research identified that cereal bars offered the strongest opportunity to develop Special K as a healthy snack. The brief was then developed and the Special K bar was launched in July 2001, with significant television coverage. Consumers were also able to sample the bar through specific promotional activity. The Peach & Apricot variant was added to the portfolio in February 2003.

6. Growing the brand

Kelloggs soon came to realise that the variants were responsible for a huge growth in the Special K brand, without a drop in sales of the core cereal product. New product development had transformed the brand within the UK. This in turn gave a great opportunity to roll-out other developments in other markets, including the USA, Australia and Canada. Product research showed that the UK products could be adapted to meet the individual tastes of consumers within those markets. The Kelloggs strategy was truly global; it developed an idea in Europe which it then adapted and applied worldwide. Within the space of 2 years the extensions to the brand had achieved global coverage, and were providing not only significant developments in sales value and volume of Special K products, but also a huge boost to the
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Kelloggs Full Study printed from The Times 100 website: www.tt100.biz brands equity. Supporting such expansion was not always easy for Kelloggs UK. Initially it produced all the Special K variants sold within Europe. The UK company had to increase its manufacturing capacity and also refine supply chain management processes to ensure that the product would be available at the point of purchase. It had opened a portable foods plant at Wrexham, to produce bars. Other capacity was created by commissioning the production of Special K cereal in Spain.

7. Creating a stronger position

When contemplating long-term investment decisions, brand managers face two key questions. 1. 2. In what projects should the company invest? What level of investment should be approved?

For the Kellogg company, market research suggested that using funds to develop variants on Special K looked like a comparatively low risk project that offered the prospect of a good rate of return. This was largely because it involved developing and extending a brand that already enjoyed huge consumer support in ways that could be adapted to the market place worldwide. The judgement has proved to be correct, to the benefit of the company and its many stakeholders.

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