Introduction

The 1990s brought a flood of multinational corporations (MNCs) into India. The lure was the prospect of selling consumer goods to a 300-million-strong middle-class that was presumed to be starved of good quality products. After nearly a decade of operating in the Indian market, most companies are pausing to lick their wounds and figure out whether they are making any headway. Today most MNCs, whether they are fast-moving consumer goods (FMCG) majors such as Heinz, Kellogg and Pillsbury, automaker DaimlerChrysler, or consumer durables makers Whirlpool and LG, would agree that they had stepped into unfamiliar territory without even a rudimentary roadmap.

The Problems faced by Kelloggs

It is not as though Kelloggs has been a rank failure in India. According to a report published by the Centre for Monitoring Indian Economy (CMIE) in August 2001, breakfast cereal volumes in the country have increased from 1,090 tones in 1994-95 to 4,380 tones in 1999-2000. And Kelloggs enjoys a substantial 65 per cent share of the market, a fact independent sources verify. But the problem is that the volume growth has tumbled dramatically from between 50 per cent and 70 per cent since launch (admittedly on a small base) to just 6 per cent in 1999-2000. The challenge is to regain Kellogg Indias initial momentum and generate volumes in the first place. And to do that, the company needs to splurge on advertising and communication. Margins can only follow this exercise. The mistakes committed by Kelloggs have been divided according to the marketing mix as follows: 1. Product a) Crispness and taste pallet - The price-value equation also collapsed for a reason Kelloggs should certainly have anticipated Indian eating preferences. Kelloggs flakes can stay crisp only if they are consumed with cold milk. But Indians are well-known to be finicky about cold milk (its mostly considered an antidote for acidity), and instead combined it with hot milk. As a result, Kelloggs flakes turned soggy just like the other cheaper variants. Another issue was the taste. For all its fortification with iron and other minerals, Kelloggs cereal needed a dash of sugar to cut the blandness. But most Indians prefer a savory rather than sweet breakfast. b) Insufficient Marketing - There was no proper market research done which would reveal the taste of habits of the Indian consumers. With its breakfast cereals, Kelloggs didnt just need to address the usual issues of distribution, pricing and so on it had to change ingrained eating habits. As Indians prefer the traditional

food like idli, vadas etc. They tried to challenge the deep rooted Indian food habits. The breakfast table was no different idli-dosa was the staple of the south, dalia and parathas in the north. Moreover, these were considered more substantial and filling than any crispy cereal. That was because Indians, typically, treat breakfast as a lunch-like meal. They went for undifferentiated marketing and were not able to find the right consumers. There was no product testing. They failed to understand the buying psychology of the customer. c) Branded snacks are slotted into two categories - the Western-type snack market and the Indian-type. While the latter is really dominated by the unorganised sector and a few branded commodities, the former offers the opportunity for unique value added products. It is in this sector that Kelloggs is competing - a sector which offers the possibility of significant growth One of the reasons attributed to Kellogg's failure in India brand irrelevance. The products of Kellogg are simply too foreign to have any relevance in the Indian market. There is also the feeling that perhaps Kellogg launched its products too early in the market. The other reason offered for Kellogg's failure is remote management. 2. Pricing a) No competitive pricing - Price was another barrier. When it entered the Rs 4-crore market in 1994, Kelloggs cost nearly double the price of its sole domestic rival: Mohan Meakins Mohun brand of cereals. A 450 gm pack of Kelloggs cost Rs 63; a 500 gm pack of Mohuns cost Rs 33. When Kelloggs introduced a 500 gm pack in 1996, it carried a sticker price of Rs 80. Kelloggs explained this premium to consumers as the price of offering an international quality product the cornflakes were thicker and crisper than the local competition. It chose to reinforce this claim by differentiating its product with some formidably expensive packaging, which, it claimed, kept its flakes extra crisp. Packaging accounted for 45 per cent of the product cost in the early days. Also another small time brand Champion was selling at a price almost half of that of Kellogg. Their target audience was only the premium segment and not the masses. One problem was that the proposition that encouraged high initial trials the socalled international quality turned out to be a hindrance to further purchases among Indias hyper-price-sensitive consumers. d) No estimation - The company failed to estimate the demand for the product so they had no clue as to how much the product should be priced and what price would yield considerable profits to the company. e) Market skimming - They launched their product at much higher prices than their competitors. With a new product ideology, in the market they adopted so as to reap maximum profits they believed in high price high quality. They adopted a wrong approach by literally converting the dollar price to the rupee price and thereby loosing mass consumer.

So far as pricing is concerned, Kellogg has followed the business model that was found to be successful in several countries. Talking about the pricing, the Chairman explains we would rather have a slightly higher price, which enables us to promote, advertise and try to communicate the benefits of our products rather than a lower priced product that limits us from doing these things. We have chosen a target group that can absorb the price and at the same time enable us to carry out brand building and innovative activities." 3. Promotion a) Discrepancy in communication - The message was not properly communicated to the consumers. Some consumers referred rice flakes as rice corn flakes. Kelloggs had moved away from its successful fun and taste positioning adopted in the US to a health product image. b) Public relation - They did not have any public relation strategies to handle the negative media coverage which was generated by the negative feedback of the consumers. c) There were no direct selling strategies adopted such as one to one sales, free samples, sales promotion etc. 4. Physical Distribution a) Distribution Channel - They did not utilize different distribution channels. They just positioned the product for the premium segment. Since Indian consumers buy goods from local retailers they should have used more FMCG distribution networks. b) No Research - The other problem was that Kelloggs didnt research the reason for the initial high trials properly. Instead, encouraged by the successes, the company accelerated its roll-out plans to 60 cities. What it didnt realize was that its successes in the Mumbai market were partly illusory. The six large local distributors in Mumbai, who were responsible for covering retail outlets, including chemists, general stores, grocers and supermarkets in the city, were actually shipping stocks to other cities as well. In effect, then, Mumbai was being over-supplied. So when Kelloggs officially entered other new markets, the local distributors there took over leaving Mumbai distributors with idle stock. Now, Kelloggs packs are bulky and take up a fair amount of retail space, so Mumbai retailers cut back their off-take, leaving the company with a slowdown in its key market. c) Given its dismal performance in the breakfast cereal, Kellogg sought to boost sales by diversifying into biscuits. The success of Britannia seemed to indicate that there is a significant demand for biscuits in the Indian market. Consequently,

it launched Chocos, which was very well received and grew the company's top line significantly. But the problem was that biscuits and cereals involve two very different trade dynamics and approaches. Biscuits require a completely different distribution channel. Also, biscuits served to take away Kellogg's focus away from its main product. It was felt that as an organisation, Kellogg did not have the ability to develop biscuits further. As a result, Kellogg took the tough decision of withdrawing a successful product from the market. Kelloggs problems were heightened by the fact that this was the phase when Mohan Meakins took advantage of its efforts by piggy- backing on a market Kelloggs had created. Suddenly, Mohuns spruced up its packaging and increased its availability on the retail shelves. Since it was cheaper, converts to a lighter breakfast tended to reach for Mohuns instead of Kelloggs.

Rectification of mistakes
In 1996, Kelloggs also realised that it needed to broad base its appeal. First, it decided to cut back on packaging so that it could improve margins. In the first year, Kelloggs flakes came in laminated cartons. Thats no longer the case. The thickness of the cardboard carton has also been reduced. The glossy cardboard packaging was replaced by pouches, which helped in bringing down the price substantially. Even then, it was clear that volumes were not growing fast enough. The problem was identified as one of reach 75 per cent of Kelloggs sales came from top retail outlets. So in 1998, Kelloggs decided to expand its range (cornflakes and wheat-flakes) to chocolate-covered flakes, branded Choco-flakes. In that year, Kelloggs also decided to make the brand even more affordable by diversifying into biscuits. Conceived specifically for the Indian market, the biscuits were priced at a competitive Rs 5 and Rs 10 for 50 gm and 100 gm packs respectively. The logic of the biscuit launch was that biscuits are easier to transport stock and occupy less shelf space. Also, since biscuits tend to move quickly off the shelves, Kelloggs reckoned that this was a good way of keeping its relationship with the trade alive. In August of the same year, Kelloggs also tried to Indianise its offerings with a subbrand of corn flakes called Mazza (Fun). Launched in three flavors mango-elaichi, coconut-kesar and rose a 60 gm pack retailed at Rs 9.50 and a 240 gm pack at Rs 36. Choco-flake volumes are also said to be low though the margins (40 per cent) are higher than those on corn flakes (25 per cent). (Biscuits and chocolate flakes were not the only occasions when Kelloggs experimented with extensions and variants. In 1994, apart from corn flakes, it also had wheat flakes and Basmati flakes. Today, except for corn flakes and a minimal presence of wheat flakes, the Basmati variant has been erased from the menu.) They adopted product modification strategy by adding iron fortification in breakfast cereals. The company introduced packs of suitable sizes to suit Indian consumption

patterns and purchasing power. Kellogg introduced a 500gm family pack, which brought down the price per kg by 20%. In April 1997, Kellogg launched The Kellogg Breakfast Week, a community oriented initiative to generate awareness about the importance of breakfast. The company also tied up with Indian Dietetic Association (IDA) to launch a nation wide public service initiative to raise awareness about iron deficiency problems. This program was in the line with the companys global marketing strategy. Kellogg increased its focus on promotional activities by inducing people to try their product by targeting schools, housewives by offering free sachets. They also offered certain free gifts with every pack like pencil boxes, water bottles, etc. Kellogg identified distribution as another major area by increasing the number of outlets. Also the company started outsourcing its marketing. This is something most multinationals did, but in Kelloggs case many experienced sales people left and the new ones took time to learn the crucial issue of category building. Kelloggs is trying to expand its market once again. In April 2001, the company started test marketing a fighter brand called Sunrich in Kolkata, a market that is considered a Mohun stronghold. Priced at Rs 65 for a 500-gram pack, this carry bag costs Rs 2.50 less than the similar-sized Mohun pack. And propelled by the Iron Shakti gains, the company has decided to focus on two brands cornflakes and Chocos and target children because food habits are less set among this age group. Earlier, its communication for basic cornflakes used to address mothers who were affronted by the suggestion that the elaborate breakfast they prepared for their families was unhealthy. And cereals account for 80 per cent of the Kelloggs Indias turnover. Of this, cornflakes alone notch up revenues of 40 per cent.

Ranks given to various strategies, which can be followed:

As per the stages of decision-making process, we have analyzed the decision criteria and allocated weights to each criterion. The reason for allocating weights is that it will help to formulate the flow of strategies and will also help to enhance smooth decision-making process.

(1) LAUNCH OF NEW PRODUCTS/ PRODUCT EXTENTION /

PRODUCT MODIFICATION (2) DIFFERENT PACKAGING / MORE VARIETY IN SIZES (3) CHANGE IN ADVERTISING STRATEGY/ PROMOTION (AWARENESS PROGRAM) (4) IMPROVEMENT IN DISTRIBUTION CHANNEL (5) PRICING DEVELOPMENT OF ALTERNATIVES (1) PRODUCT: Mango Elaichi, Coconut Kesar and Rose Extension- Choco biscuits Added iron content to emphasize on nutritional value (2) PACKAGING Pouches replaced cardboard packing. Introduction of various/ different sizes (eg. 500 gm family pack, 60 gm. Pouches) (3) ADVERTISING Tie up with IDA Indianized the campaign Promoted as nutritious diet Promotional activities (free samples) Discounted rates at petrol pumps, airports, supermarkets, etc Sponsorships for events (4) DISTRIBUTION CHANNEL FMCG channel Provide incentives to retailers (5) PRICING No competitive pricing 8 7 9 5 1

Push strategy/ penetration

Analysis of Alternatives
After considering each criterion, we have listed various sub criterias and allocated the weights to each of them. After that step, the weights of each sub - criteria is multiplied by its respective criteria, which will eventually help in choosing the systematic plan of action. Product (8) Packaging (7) Advertising (9) Distribution Channel (5) Pricing (1) Different flavors (6) = 48 Modification (7) = 49 Tie Ups (8.5) = 76.5 FMCG channel (8.5) = 42.5 No competitive pricing (8) =8 Product extension (5) = 40 Different sizes (8) = 56 Indianised campaign (6) = 54 Incentives to retailer (7) = 35 Push strategy (7) =7 Nutrition Value (7) = 56

Projected as nutritious diet (6) = 54

Free Samples (8) = 72

Discounted Sponsorship Rates (7) = 63 (8) = 72

Selection of Alternatives: On the basis of our analysis, we have selected the

following parameters and under each parameter, which options should be selected first: 1) Product - Nutrition Value 2) Packaging - Different sizes 3) Advertising - Tie Ups 4) Distribution Channel - FMCG channel 5) Pricing No competitive pricing

Implementation:

Implementation should be done in accordance to the analysis. Continuous monitoring and evaluation should be done for successful achievement of the objectives.

Selling to India: Lessons for an MBA graduate

FOREIGN companies that entered India lured by visions of a "250-million strong middle-class market" are beginning to realise two key characteristics of the Indian market: India is a low-income market and while it might have millions of consumers, each individually consumes little. Many foreign companies selling branded consumer products and services have been compelled to alter their strategies in line with these two characteristics. To succeed in the Indian market for both products and services, foreign companies have come to realise that it is necessary to make the products affordable, address the right segment, widen their offerings and adapt their product to Indian needs, and to promote community rather than individual usage. Make the product affordable: Foreign companies are beginning to realise that affordability of a product holds the key to increasing consumption. The experience of several foreign firms underlines the importance of the price factor. The most striking use of price as a weapon to increase sales has been demonstrated by Mr. Kabir Mulchandani of Baron International. Like many MNCs, Coca-Cola and PepsiCo failed to realise that product prices needed to be affordable if the Indian market had to be expanded. Low-margin and high-volumes is the most successful business model for India as has been successfully demonstrated by Hindustan Lever. Instead, both Pepsi and Coca-Cola raised prices and, what is worse, introduced the 300 ml bottle, which made the product even more expensive. Of course, the high price was blamed on India's excise duty structure. Coca-Cola and Pepsi did not realise how price-sensitive cola consumption is in India. In 1999, both Pepsi and Coke raised prices by a rupee in May, only to see sales slipped badly during the year. Wisdom finally dawned in 2002. Coca-Cola and Pepsi realised that an affordable price point can drive huge volumes and expand distribution in virgin markets. Last year, Pepsi and Coca-Cola re-introduced the 200 ml bottle and reduced prices to Rs 5 for a 200 ml bottle, Rs 7 for 300 ml bottle (from Rs 10), Rs 40 for a 2-litre bottle. Coca-Cola's growth strategy now centres around the affordable 200 ml returnable glass bottle at Rs 5. Product can also be made affordable by innovative packaging. A smart marketer of the Chik shampoos increased his sales several-fold by offering shampoos in Re 1 sachets. This set off a stampede and products ranging from chewing tobacco to shampoo and cosmetic lotions are available in sachets. Even direct marketer, Amway, whose personal and home-care products are considered expensive because of the large bottle size, has been exploring the option of offering shampoos in sachets.

Pre-paid cards have done for the cellular phone market what sachets did for the shampoo market. Faced with a stagnant market, cellular operators launched the prepaid card. It reduced the entry barrier where there were no rentals or security deposits. Further, there was no billing problem for the customer and no bad debts for the operator. Prepaids have driven the rapid increase of the subscriber base of cellular phones to over 11 million. The cellular phone has become so affordable that more cellular phones are now being added then fixed phones! Address the right market segment: Most foreign companies entering India end up addressing only the high-priced premium segment. Instead of focusing on large volumes by attacking the belly of the market, they fall prey to the temptation of skimming the market, settling for small volumes but large margins. This was the strategy of Lacoste, Levis, Reebok, Adidas, Benetton, several car makers and all the private operators of cellular mobile services. Not surprisingly, all of them have tended to price themselves out of the low-income market. The most striking example of the need to choose the right market segment is afforded by the differing fortunes of two car makers Hyundai Motor and Ford Motor. Both were late entrants in India's already crowded car market and chose to set up their plants near Chennai. In 2001-02 Hyundai sold 87,822 cars raking in revenues of Rs 3,403 crore and net profit of Rs 210 crore. In contrast, Ford Motors sold just 15,131 cars and its accumulated losses has wiped out its net worth. The main reason is that while Hyundai began by daring to take on the well-entrenched Maruti Udyog in the small car segment and thereby aim at large volumes, most foreign car-makers, including Ford, were content to launch products for the miniscule mid-segment (1,200-1,800 cc) and were thereby condemned to small volumes and high costs. The cellular mobile operators made the cardinal mistake of promoting call phones as a lifestyle product for the status conscious and charging obscenely high airtime rates of Rs 16.80 per minute. Not surprisingly, there were few subscribers and the operators were compelled to beg the government to relieve them of their licence fee commitments. Widen the product offerings: Foreign firms have been compelled to recognise that while the potential of the Indian market may be enormous, it is often not for the company's traditional product. Thus, to realise the market's potential, the company would have to cater to Indian needs by widening its offerings and developing or modifying products to suit the Indian consumer. Coca-Cola began its Indian innings with an exclusive focus on carbonated soft drinks. It took it some time to realise that its competition was not Pepsi its traditional rival in other markets but water, tea, coffee and fruit juice. Finding that the market for carbonated soft-drinks was not growing fast enough, the company has been compelled to widen its product range to non-alcoholic commercial beverages. The company now wants to become a complete beverage company and has been churning out a series of new products. Taking advantage of its vast distribution reach, it

entered the packaged water business with Kinley and met with unexpected success Kinley is now the largest packaged water brand. Next, it launched Sunfil powder nationally. In November 2002, it launched its ready-to-drink Georgia brand of tea and coffee through vending machines. Not surprisingly, Pepsi has also followed a similar strategy. It introduced its Aquafina branded bottled water and several new drinks. Some MNCs have even been compelled to introduce products that they do not sell elsewhere in the world. Kellogg's provides the most striking example. Reebok was compelled to introduce a shoe without frills suitable for just walking or jogging (not many people in India require air cushioned shoes for special sports). Reebok had to offer shoes in dark colours, including black, as buyers in India shied away from white shoes as they easily got discoloured with dirt. Promote community usage: Foreign companies are only now beginning to realise that to increase usage of a product or service, the consumer need not own it and only needs to have access to it. The first success story in the privatisation of telecommunication services is payphones, because it did not require users to have a phone but easy access to it. India now has over 45 million phones but the average revenue per direct exchange line is around Rs 6,000-7,000 per annum. On the other hand, payphones are used intensively and the average revenue per payphone exceeds Rs 30,000 per annum. While thousands of payphone operators have benefited form this, Zip Telecom has tapped into this business opportunity. Zip manages about 13,000-ranchised Zip Fone payphones in Maharashtra and Madhya Pradesh, apart from Delhi. An Indian entrepreneur, Dr Bindeshawari Pathak, has made a success of community pay toilets that are operated and maintained for a fee. In a country where most public services come free, the public pays for using the toilets. Audit your marketing: Evaluation of all aspects of marketing periodically is important to keep your brand in good shape. Marketing audit involves thorough evaluation of all elements of marketing. The assessment is enabled by a comparison with the objectives and targets, set not only in terms of sales but in parameters such as the ratio of advertising to sales, percentage of awareness, percentage of household penetration, performance of the sales force and promotional programmes. After this, it is crucial to summarise the findings and bring about the most value-added contribution during the marketing audit process. This is the stage of interpretation of the findings, which helps in correcting the course in terms of structure, systems and awareness at the consumer level, trade, sales force and overall organisation process.

It is important to regularly check, assess and evaluate your marketing and brands process and systems to ensure awareness, trials, repeats, higher sales growth, marketing share and profits for your brands.