Kellogg's Indian Experience: A Failed Launch

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
March 1995, 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. 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. Avronsart remarked,
"Kellogg India is not here to change breakfast eating habits. What the company proposes is to
offer consumers around the world a healthy, nutritious, convenient and easy-to-prepare
alternative in the breakfast eating habit. It was not just a question of providing a better
alternative to traditional breakfast eating habits but also developing a taste for grain based
foods in the morning."

Another mistake Kellogg committed was on the positioning front. The company's
advertisements and promotions initially focussed 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 importance of iron in the diet."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.

The Results

In 1995, Kellogg had a 53% share of the Rs 150 million breakfast cereal market, which had
been growing at 4-5% per annum till then. By 2000, the market size was Rs 600 million, and
Kellogg's share had increased to 65%. Analysts claimed that Kellogg' entry was responsible
for this growth. The company's improved prospects were clearly attributed to the shift in
positioning, increased consumer promotions and an enhanced media budget. The effort to
develop products specifically for the Indian market helped Kellogg make significant inroads
into the Indian market.

However, Kellogg continued to have the image of a premium brand and its consumption was
limited to a few well-off sections of the Indian market. The company had to face the fact that
it would be really very difficult to change the eating habits of Indians. In 2000, Kellogg
launched many new brands including Crispix Banana, Crispix Chocos, Froot Loops, Cocoa
Frosties, Honey Crunch, All Bran and All Raisin. Kellogg also launched ‘Krispies Treat,' an
instant snack targeted at children. Priced on the lower side at Rs 3 and Rs 5, the product was
positioned to compete against the products in the ‘impulse snacks' category. According to
some analysts, the introduction of new cereals and the launch of biscuits and snacks could be
attributed to the fact that the company had been forced to look at alternate product categories
to make up for the below-expectation performance of the breakfast cereal brands.
ANSWER ALL QUESTIONS

1(a)Based on your understanding of the case study, explain what are the major failures that
Kelloggs has made in India’s market (15 Marks)

The first major failure that Kellogg had made in India is wrong positioning of the
products. At Indian, Kellogg’s product only focusing on the health aspect, moving away from
“fun and taste” positioning. This is very different with the positioning of Kellog in US in
which it offered toys and branded merchandise for children and even establish Kellogg’s fan
club. This usual positioning which did not stand out from its rivals, making it uncompetitive
at India.

The second major failure of Kellogg was it fail to understand socio-cultural aspect under
Indian’s marketing environment. This socio-cultural aspect is the fundamental belief of the
local Indian which will affect their preferences and behaviours. According to the case study,
it was known that Indian always boil milk and add sugar to milk. However, Kellogg neglect
this culture and introducing the same products as US in the Indian market. Due to the
incompatible of products (hot milk with Kellogg) which results in soggy texture and weird
taste, India customers reject the taste and this results in negative media coverage. This further
lower down Kellogg’ s brand image. Other than that, it is noted that the average middle-class
Indian family did not have breakfast on regular basis like the West. Thus, this incompatibility
in culture further reduce Kellogg’s sales in India. This further reimburse the concept
“Customer is King”. Thus, Kellogg should cater India consumers’ needs to provide highest
customer’s perceived value.

The third major failure is the premium pricing charged by Kellogg. While trying to make
niche marketing, Kellogg failed to demonstrate satisfaction of specific market needs in which
almost similar quality can be offered by its main competitor- Mohun with cheaper price.
Other than that, Champion which is another competitor offered almost half price of Kellogg’
s price, penetrating the mass market. This results in poor customer retention of Kellogg as
explained by the case study in regards of low number of regular customers.

The forth major failure is the lost of the brand equity. Appearing as world leading
producer of cereals and convenience foods, Kellogg abandon it well known logo - rooster in
its advertisement in India. Thus, the brand awareness is not there as India consumer might not
be able to aware of the brand through the advertisement. This had further reduce Kellogg’s
competitive edge by not introducing the points-of-difference to the consumers.

(b) A business organisation should depend more on the customers to decide what they need
and want, as customer is its source of profit. Thus, the ability to cater these needs lead to
customer value, satisfaction and loyalty . Differentiate between need, want and demand and
relate it to this case. (15 marks)

Need is basic human requirement. In this case, need is referred as food. In India, taking
cereals as breakfast is not the common practice, especially for middle-class Indian family
who do not have habit to take regular breakfast. Thus, Kellogg as world leading producer of
cereals and convenience foods, its products are not a need for India market. India, being
recognized as third world country, are having about 20% population under poverty line. In
order to survive, most of the Indian will choose something make them feel full in stomach
like rice and potatoes instead of cereal which is considered as light meal.

Want is a product desired by customer. It is not essential in order to survive. However, it

should be noted that, wants will change according to people, time and location. Indian
preferred hot and sugary milk. For them, they preferred to take some products which can be
added with hot and sugary milk due to their culture. Other than milk, their want for breakfast
are biscuits, bread, butter, jam or local food preparations such as idlis and parathas. Other
than that, India consumers preferred to have different retail packs of cereals such as family
pack. These are the wants for India consumers in this case study. They need these wants, but
without it, they still can survive in this world.

Demand is the consumers’ desire and capability to own a product. Demand is different
with individuals. In India, the more affluent consumers’ demand is Mohun which offer
cornflakes as well. With the higher disposable income, higher affluent customer group able to
consume Mohun as this is a symbol of status. Apart from that, the less affluent India
customers’ demand is Champion which was selling at half price of Kellogg’s cornflakes.
Other than that, after the anemia campaign launched by Kellogg, there is a demand for
healthy and iron-rich breakfast for India consumers after they realize the importance of taking
nutritious breakfast and the consequences on having low level of iron in body.
 Thus, in this case, Kellogg should try to understand India consumers' needs and wants
and try to convert them to demand for its products.

c) Standing out from the crowd is essential to any sales. How did Kelloggs manage to
position itself in India’s market after several failures (20 marks)

Brand positioning is very important in an organization as successful brand positioning

will place the brand to stay in the mind of its targeted customers. After several failures,
Kellogg able to position itself successfully in India’s market.
The first strategy of Kellogg is to position its product as healthy and nutritional breakfast
as compared to biscuits, bread, butter, jam or local food preparations such as idlis and
parathas which are comparable oily and less nutritious. This is very crucial as the number of
non-communicable diseases such as diabetes, hypertension and hypercholesterolemia are
caused by unhealthy eating habits. Besides that, Kellogg position its cornflakes which can
help to lower down the anemia problem in India which was caused by unhealthy eating
habits.
The second strategy of Kellogg is to position its products as affordable products as
compared to its competitors such as Mohun and Champion. It brought down its price and
introduced different pack size to cater for different needs. As instance, “Krispies Treat”, an
instant snack is priced from Rs 3 and “Mazza” in 60gm pouches was introduced at the price
of Rs 9.50. These products are found to be more affordable than previously which can cater
most the the needs of the India market.

Other than that, Kellogg positioned itself as breakfast which can give energy for families
with indianising flavors - “Mango Elaichi”, “Coconut Kesar” and “Rose” which suit to the
local culture. “The Kellogg Breakfast Week” had generated the importance of breakfast in the
heart of Indian consumer which are not much emphasize on it before. In addition, Kellogg
did not position itself as breakfast only, it also position itself as healthy instant snack which is
a substitute of junk food for children. Commonly, junk food is produced with lots of
flavouring agents, colouring agents and monosodium glutamate (MSG) which is detrimental
in children’s growth. All these agents may lead to hyperactive, allergy or even cancers.