1. 1
Index
Chapter Number Titile Page Number
1 Various Methods adopted for entry in International market 3-4
2 Franchising 5
3 Origin Of Franchising 6-7
4 Obligations in franchising 8
5 Reasons for Franchising 9-10
6 Franchising in India 11
7 Kellogg’s
16-19
8 Kellogg’s – the India Story 19-25
9 Kellogg’s Marketing Lessons from India 26-28
10 Kellogg’s extending product life cycle 29-32
Conclusion 32-34
Appendix 35
Webliography 36
2. 2
Index of Figures
Figure Number Name of the Figure Page Number
Figure1.1 Methods for entry in international markets 3
Figure 7.1 SWOT analysis of Kellogg’s considering Indian market 23
Figure 10.1 Product Life Cycle of Kellogg’s 29
Figure 10.2 Ansoff’s matrix of Kellogg’s 31
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CHAPTER 1: VARIOUS METHODS ADOPTED FOR ENTRY IN INTERNATIONAL MARKET
Figure 1.1: Methods for entry in international markets
Source: www.learnmarketing.net
1) Direct Export
The organisation produces their product in their home market and then sells them to customers overseas.
2) Indirect Export
The organisations sells their product to a third party who then sells it on within the foreign market.
3) Licensing
Another less risky market entry method is licensing. Here the Licensor will grant an organisation in the
foreign market a license to produce the product, use the brand name etc in return that they will receive a
royalty payment.
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4) Franchising
Franchising is another form of licensing. Here the organisation puts together a package of the ‘successful’
ingredients that made them a success in their home market and then franchise this package to overseas
investors. The Franchise holder may help out by providing training and marketing the services or product.
McDonalds is a popular example of a Franchising option for expanding in international markets.
5) Contracting
Another of form on market entry in an overseas market which involves the exchange of ideas is contracting.
The manufacturer of the product will contract out the production of the product to another organisation to
produce the product on their behalf. Clearly contracting out saves the organisation exporting to the foreign
market.
6) Manufacturing Abroad
The ultimate decision to sell abroad is the decision to establish a manufacturing plant in the host country.
The government of the host country may give the organisation some form of tax advantage because they
wish to attract inward investment to help create employment for their economy.
7) Joint Venture
To share the risk of market entry into a foreign market, two organisations may come together to form a
company to operate in the host country. The two companies may share knowledge and expertise to assist
them in the development of company, of course profits will have to be shared between the two firms.
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CHAPTER 2: FRANCHISING
Franchising is the practice of leasing for a prescribed period of time the right to use a firm's
successful business model and brand. The word "franchise" is of Anglo-French derivation—from franc,
meaning free. For the franchiser, the franchise is an alternative to building "chain stores" to distribute
goods that avoids the investments and liability of a chain. The franchisor's success depends on the success
of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or
she has a direct stake in the business.
Essentially, and in terms of distribution, the franchisor is a supplier who allows an operator, or a
franchisee, to use the supplier's trademark and distribute the supplier's goods. In return, the operator pays
the supplier a fee.
According to the International Franchise Association approximately 4% of all businesses in the United
States are franchisee-worked.
It should be recognized that franchising is one of the only means available to access venture investment
capital without the need to give up control of the operation of the chain and build a distribution system for
servicing it. After the brand and formula are carefully designed and properly executed, franchisors are able
to sell franchises and expand rapidly across countries and continents using the capital and resources of their
franchisees while reducing their own risk.
It's important to know that there is risk for the people that are buying the franchises, too. There are a lot of
myths surrounding the success and failure rates of franchise businesses. One of the more popular myths
states that franchise businesses have lower risk than independent business startups.[9] Another one suggests
that it's almost impossible to fail. Both are untrue, and it's important for today's franchise-seekers to be
aware of that fact.
Franchisor rules imposed by the franchising authority are usually very strict in the US and most other
countries need to study them carefully to protect small or start-up franchisee in their own countries.
Besides the trademark, there are proprietary service marks which may be copyrighted, and corresponding
regulations.
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CHAPTER 3: ORIGIN OF FRANCHISING
Earliest Franchising
Many believe that Albert Singer, founder of the Singer sewing machine, was the initiator of franchising. He
was actually the earliest person recognized by most as being associated with franchising. However, the
concept of franchising really began long before.
The term 'franchising' derived from ancient French, is defined as holding a particular privilege or right.
Back in the middles ages, local leaders would designate privileges to citizens. Some of these rights
included conducting fairs, running markets and operating ferries. The franchising idea then carried forward
to the practice of Kings yielding rights to conduct activities such as beer brewing and road building. In
addition, the expansion of the church is known as a form of franchising.
The Evolution of Franchising
During the 1840's, several German ale brewers granted rights to particular taverns to market heir ale. This
was the beginning of the type of franchising that became familiar to most of us in the twentieth century.
Franchising then traveled from European brewers into the United States. Before franchising there was not
much in the way of chain operations, which would eventually form the basis of franchising in the U.S.
Peddlers in early American history, selling items from town to town, were also considered a form of
franchising. Licenses were provided to general stores at military outposts as well. These exclusive
territorial rights are described in written literature, however specific names are not.
Albert Singer came on the scene in 1851 with the Singer Sewing Machine Company. Singer made use of
franchising to distribute his machines over a widespread geographic area. He is the first actual name
recognized as an early franchisor. Additionally, Singer was the first to prepare franchise contracts. These
documents then became the basis for the modern version of franchise agreements.
In the late 1800's and early 1900's many other forms of franchising took place. Some examples included
monopolized franchises for several utilities as well as street car companies. Then as oil refineries and auto
7. 7
manufacturers found that they could sell their products over a larger geographical area, they began to
franchise.
Transportation and increasingly mobile Americans were the basis for the establishment of retail and
restaurant chains/franchises. As time went on a large number of establishments began to franchise. Some of
the well-known franchises include Kentucky Fried Chicken in 1930, Dunkin Donuts in 1950, Burger King
in 1954, and McDonald's in 1955.
Modern Franchising
The modern leading form of franchising, known as business format franchising, became popular post
World War II. At that time, those serving in the war returned home and had huge desires for many products
and services. Subsequently, the baby boomers became the leaders of the economy and are expected to
continue as the driving force for quite some time.
As franchising expanded rapidly in the 1960's and 1970's, also came a large amount of oppressive activity
to contend with. There were several companies that were under-funded and poorly managed, therefore
going bankrupt leaving many franchisees in a lurch. More upsetting were the fraudulent companies who
literally took peoples' money for nothing.
These unfortunate events led to the formation of the International Franchise Association (IFA) in order to
regulate the franchising industry. The IFA continuously works in conjunction with the US Congress and
Federal trade Commission (FTC) on improving the industry's relations with franchisees. In 1978, the FTC
created the Uniform Offering Circular (UFOC) requiring franchise companies to provided detailed
information to potential franchisees. This document was updated in 2007 and renamed the Franchise
Disclosure Document (FDD).
Franchising continues to be a highly regulated industry in an effort to promote the healthy growth of the
economy.
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CHAPTER 4: OBLIGATIONS IN FRANCHISING
Each party to a franchise has several interests to protect. The franchisor is involved in securing protection
for the trademark, controlling the business concept and securing know-how. The franchisee is obligated to
carry out the services for which the trademark has been made prominent or famous. There is a great deal of
standardization required. The place of service has to bear the franchisor's signs, logos and trademark in a
prominent place. The uniforms worn by the staff of the franchisee have to be of a particular design and
color. The service has to be in accordance with the pattern followed by the franchisor in the successful
franchise operations. Thus, franchisees are not in full control of the business, as they would be in retailing.
A service can be successful if equipment and supplies are purchased at a fair price from the franchisor or
sources recommended by the franchisor. A coffee brew, for example, can be readily identified by the
trademark if its raw materials come from a particular supplier. If the franchisor requires purchase from his
stores, it may come under anti-trust legislation or equivalent laws of other countries. So too the purchase
things like uniforms of personnel and signs, as well as the franchise sites, if they are owned or controlled
by the franchisor.
The franchisee must carefully negotiate the license and must develop a marketing or business plan with the
franchisor. The fees must be fully disclosed and there should not be any hidden fees. The start-up costs and
working capital must be known before the license is granted. There must be assurance that additional
licensees will not crowd the "territory" if the franchise is worked according to plan. The franchisee must be
seen as an independent merchant. It must be protected by the franchisor from any trademark infringement
by third parties. A franchise attorney is required to assist the franchisee during negotiations. [11]
Often the training period - the costs of which are in great part covered by the initial fee - is too short in
cases where it is necessary to operate complicated equipment, and the franchisee has to learn on their own
from instruction manuals. The training period must be adequate, but in low-cost franchises it may be
considered expensive. Many franchisors have set up corporate universities to train staff online. This is in
addition to providing literature, sales documents and email access.
Also, franchise agreements carry no guarantees or warranties and the franchisee has little or no recourse to
legal intervention in the event of a dispute.
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CHAPTER 5: REASONS FOR FRANCHISING
1) Lower Cost
Unlike employees, franchisees make an initial payment in return for becoming a part of your business and
then they continue to pay you a percentage of their revenue, throughout the duration of their Franchise
Agreement. This means that the costs of setting up the franchise, training staff and launching the business
are all covered by the franchisee rather than by the parent organisation. Similarly, once the business is up
and running, it is the franchisee who will be rewarding you with a monthly income, rather than being paid
by you as an employee. For these reasons, the franchise system can provide a very cost-effective route for
business development, but only provided that the original business is successful and that the franchisor is
willing to invest sufficient time and money into creating an attractive franchise opportunity.
2) Simpler Management
Franchisees are themselves responsible for the day-to-day running of their business units and they must do
this strictly in accordance with the Franchise Agreement and Operating Manual. As franchisees
have invested their own hard-earned money, they do not require the detailed level of management which
would be needed for employees. The objectives of the franchisee and of the franchising organisation are,
therefore, very closely aligned, with the success of the one depending to a great extent on the success of the
other. As a result, the franchise network requires only a simplified and relatively low-cost management
system. This is typically based on the close monitoring by the franchisor of the key performance indicators
(KPIs) and the provision of motivational leadership.
3) Faster Expansion
The benefit of self-financing business units and a simplified management structure as described above
usually means that franchised networks can be expanded more quickly than company-run networks.
Franchising is all about replicating a clear and successful business formula and, provided the franchisor is
prepared to make a reasonable investment in marketing at national level, the brand can quickly be expanded
nationwide. This will in turn generate increased sales volumes and stronger purchasing power, via which the
organisation can command greater discounts from its suppliers.
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4) Better Market Penetration
Franchisees are normally well established as part of the local community, either on a personal level or as a
result of their past business activities. This can give them a very significant advantage in gaining new
business for the franchise at a local level. They will generally live within the franchise territory, be known
there and will be seen as having made a permanent commitment. These are all attributes which generally do
not apply to company employees and will be of enormous value in helping franchisees to penetrate their
local market.
5) Greater Commitment
Franchisees have invested in their business and know that they can benefit directly from its success.
Logically, for that reason, their commitment will be much greater than that of employees, who have made
no such financial investment and are guaranteed to receive at least a basic wage at the end of each month,
regardless of performance. However, money is not the only driving force for better performance. Since the
business is their own, franchisees will take real pride in the service which they provide and will ceaselessly
strive to exceed the expectations of their customers. This commitment will also reflect in their loyalty to the
franchisor’s brand, because it is also the franchisee's brand, and they are intent on building up a business
which can be sold on for profit at some future date. Of course, not all potential franchisees are so strongly
motivated – nor do all have the necessary ability to succeed – so the franchisor’s initial selection process
must be rigorous.
6) Less Recruitment
On purchasing their franchise, the franchisees are really taking a decision to stick with their chosen business
for the long term. If they leave prematurely they are unlikely to realise the full potential of their franchise
investment and they may possibly lose everything. Even when the time is right to sell, it is their own
responsibility to find a suitable buyer. As for recruitment of staff within the franchises themselves, the
responsibility for this task clearly rests with the franchisee, not the franchisor.
7) International Potential
If you have longer-term aspirations to expand your business internationally, the franchise system again has
many advantages. Using a system called Master Franchising, you can quickly and simply replicate the
whole of the your UK franchise model in another country, leaving the Master Franchisee to adapt the model
to the local market – its language, business customs and legal requirements. This is a very effective method.
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CHAPTER 6: FRANCHISING IN INDIA
The franchising of goods and services foreign to India is in its infancy. The first International Exhibition
was only held in 2009. India is, however, one of the biggest franchising markets because of its large
middle-class of 300 million who are not reticent about spending and because the population is
entrepreneurial in character.
So far, franchise agreements are covered under two standard commercial laws: the Contract Act 1872 and
the Specific Relief Act 1963, which provide for both specific enforcement of covenants in a contract and
remedies in the form of damages for breach of contract.
India is one the world’s largest and the fastest-growing emerging markets, and franchising has become a
successful business model for many local companies.
Globalisation and Market liberalisation has fuelled brand awareness among the Indian masses making the
importation of foreign brands to Indian shores an attractive business opportunity for local businessmen.
Foreign brands such as McDonald's and Pizza Hut have studied India's tastes and needs and customised
their products and menus to suit local preferences.
Many foreign companies consider franchising to be a convenient method of entry into the geographically
vast and culturally diverse Indian Market, which offers a very favourable franchising environment.
Legal aspects
Compared to other parts of the world, the franchise sector in India is at a nascent stage and the general
feeling at the moment is that there is no need for franchise-specific legislation. As a consequence,
franchising in India is governed by a number of statutes, rules and regulations, some of which are discussed
below.
The Contract Act
The contractual relationship between the franchisor and the franchisee is governed by the Indian Contract
Act, 1872 (the Contract Act). There is no specific requirement under Indian law as regards a particular
language; however, English is customarily accepted as the standard language.
Under the Contract Act, a "contract" is an agreement enforceable by law. A franchise agreement would be
enforceable under Indian law since it would meet the criteria of a valid contract. However, care needs to be
12. 12
taken to ensure that the agreement does not contain any provisions that render the contract void or
voidable.
Restraint of trade.
Section 27 of the Contract Act deserves specific mention. As per said section, agreements in restraint
of trade are void. The Monopolies and Restrictive trade Practices Act, 1969 (MRTP Act) also regulates
agreements that relate to restrictive trade practices; however, in the context of the Contract Act, it is
imperative to understand the implications of a restrictive provision in a franchise agreement.
Accordingly, covenants in a franchise agreement restraining the franchisee from carrying out competing
business or limiting it to a given territory would normally be regarded as reasonable restraints and would
be enforceable against a franchisee.
Consumer protection and product liability
The Consumer Protection Act, 1986 seeks to provide remedies to consumers in case of defective products
or deficiency in services and holding the manufacturers and service providers liable.
Despite the fact that under a franchise goods would be manufactured and likewise services provided by the
franchisee, it is quite likely that the consumers could file an action against both the franchisor and the
franchisee, since the goods are sold and the services are rendered under the brand name of the franchisor.
While consumers may seek remedy against both, it is common for the franchise agreement to provide that
all product liabilities and responsibilities for consumer claims lie with the franchisee.
Monopolies and restrictive practices law and competition law
The Monopolies & Restrictive trade ractices Act, 1969 (MRTP Act) prohibits the imposition of restrictions
in respect of sources of supply and pricing of products. It must be ensured that the terms of the franchise
agreement are not construed as monopolistic or restrictive. If found to be otherwise the MRTP Commission
could grant an injunction preventing such trade practices and may also award compensation to the
complainant for any losses or damages suffered.
Restrictive trade practices
The MRTP Act orders the registration of agreements considered to contain restrictive TRADE practices.
Those that are relevant in the context of a franchise include: exclusive supply provisions; exclusivity in
product dealing; restrictions on methods used; and resale price-fixing conditions.
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Irrespective of whether the agreement has been registered or not, the MRTP Commission has the right to
investigate if it is of the opinion that the agreement is prejudicial to the public interest.
Some of the decisions of the MRTP Commission, which are relevant to franchising include:
• Director General (Investigations and Registration) v Sri Sarvarayay Sugars Limited, where the respondent
company engaged in the manufacturing, bottling and sale of beverages under various brand names and
required the dealer to keep for sale only the respondent company's products and was therefore prevented
from selling similar products from competitors. The MRTP Commission held that the respondent was not
in any manner guilty of adoption of or indulgence in restrictive trade practices under the MRTP Act.
• Mohan Meakins Limited and others, where Mohan Meakins had entered into franchise agreements with
bottlers for the manufacture, bottling and selling of soft drinks, which required the bottlers to purchase raw
materials from Mohan Meakins. Upon being challenged as restrictive, the MRTP Commission held that
reasonable restrictions on the franchisees to protect the quality of the products would be in the public
interest and are justified.
Competition law
Following the globalisation and liberalisation of India's economy, competition law has shifted its focus
from curbing monopolies to promoting healthy competition. Accordingly, the Competition Act, 2002 (the
Competition Act) replaces the MRTP Act. Though some of its provisions have yet not been made effective,
the provisions with respect to anti-competitive agreements and abuse of dominant position have recently
entered into force.
The Competition Act prohibits any arrangements with respect to production, supply, distribution, storage,
acquisition or control of goods or provision of services that cause or are likely to cause an appreciable
adverse effect on competition within India. For the purpose of the said Act the following arrangements are
presumed to have an appreciable adverse effect on competition:
• directly or indirectly determines purchase or sale prices;
• limits or controls production, supply, markets, technical development, INVESTMENT or provision of
services;
• shares the market or source of production or provision of services by way of allocation of geographical
areas of the market, or type of goods or services, or number of customers in the market or in any other
similar way; and
• directly or indirectly results in bid rigging or collusive bidding.
14. Under the Competition Act, tie-in arrangements, exclusive supply and distribution agreements and resale
price maintenance would be regarded as being anti-competitive if such agreements cause an appreciable
adverse effect on competition in India. Since, these concepts are similar to the provisions of the MRTP Act,
the implications under the Competition Act ought to be considered by taking into account the judicial
decisions made under the MRTP Act.
Intellectual property rights
Trademark protection
The Trademarks Act, 1999 prescribes the procedure for registration of trademarks and service marks.
Validity of registration is for a period of 10 years from the date of application and subject to renewal at the
expiry of validity.
There are three courses of action that can be initiated against trademark infringement:
• an injunction under statute;
• an infringement or a passing off action, depending on whether the trademark is registered or not; and
• criminal action for an offence of falsifying a trademark.
14
Trans-border reputation of trademarks
Several decisions of the Indian courts have recognised the reputation and protected the trademarks of
foreign companies where their products or services have an international reputation even though they have
no actual business in India. In the case of Calvin Klein Inc (CK), the trademark "CALVIN KLEIN" was
used for clothing and was registered internationally, but not in India. Despite this, the court issued an
injunction against an Indian company using CK's trademark. Hence, it would be possible for a foreign
franchisor to legally protect its trademarks in India on the basis of its trans-border reputation; however, it
would be prudent to register the trademarks in India.
Foreign exchange regulations
The Foreign Exchange Management Act, 1999 and the relevant rules and regulations govern payments in
foreign exchange. Franchise arrangements would normally include payments such as a franchise fee,
royalty for use of trademarks and the system, training expenses, advertisement contributions, etc, which
can be remitted to the foreign franchisor without any approvals provided the appropriate nomenclature is
used to denote such payments.
Single brand retailing
In 2006, the government allowed up to 51 per cent of foreign direct investment in "single brand product
retailing" subject to prior approval of the Foreign Investment and Promotion Board (FIPB) and certain
15. 15
prescribed conditions, such as, the products should be sold under the same brand internationally.
In view of the above regulatory regime, the use of a franchise as a business model has gained tremendous
momentum, resulting in foreign franchisors such as Mothercare and Next entering the market It should be
noted, however, that other central and state legislation, such as labour laws and property laws should also
be considered.
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CHAPTER 7: KELLOGG’S
Founder: Will Keith Kellogg
Found: 1906
Headquarters: Battle Creek, U.S.A
CEO: John. A. Bryant
Kellogg company was found on a commitment to nutrition.
Kellogg Company, with its global headquarters in Battle Creek, Michigan, USA, is the world's leading cereal
company, and a major producer of convenience foods. It MARKETS more than 1,500 products in over 180
countries all over the world. Founded in 1906, with a commitment to nutrition, Kellogg Company has always
been focusing on its products and processes. Today, with more than 100 ready-to-eat cereals around the world,
consumers count on Kellogg for providing great-tasting, convenient and healthy food choices that meet their
nutrition needs.
Kellogg entered India in 1995 and during these 16 years, the company has become synonymous with great
tasting & ntheirishing breakfast cereals. With a range of brands appealing to kids, adults and of ctheirse, the
entire family, Kellogg's is becoming a common feature on breakfast tables across Indian homes today.
Kellogg Company is one of the leading organizations in the food category, especially when it comes to
breakfast cereals. Across the world, it is also well-known for its presence in other categories like snacks and
cookies. The founder of the company, W.K. Kellogg, had a strong commitment to nutrition, health and quality.
His vision continues to drive Kellogg Company to improve its products and processes, with the goal of
providing delicious, nutritious products that meet the most rigorous quality standards.
As a food company focused on catering to its consumers' needs, Kellogg provides a balanced portfolio of
brands for all members of the family. In fact, the trust enjoyed by Kellogg's brands is its great strength. It has
always been Kellogg Company's endeavor that its brands offer consumers real value, and that its heritage as a
17. health and Kelloggllness company is aligned with the way consumers live their lives. Kellogg Company and its
employees have always striven to serve the consumers to the best of their ability, by ensuring that its brands
offer great taste, nutrition, convenience, versatility and value.
17
Vision of Kellogg’s
To enrich and delight the world through foods and brands that matter.
Purpose
Nourishing families so they can fllourish and thrive.
Values of Kellogg’s
Integrity
Kellogg Company act with integrity and show respect.
1. Demonstrate a commitment to integrity and ethics
2. Show respect for and value all individuals for their diverse backgrounds, experience, styles, approaches
and ideas.
3. Speak positively and supportively about team members when apart
4. Listen to others for understanding
5. Assume positive intent
Humility
Kellogg have the humility and hunger to learn.
1. Display openness and curiosity to learn from anyone, anywhere
2. Solicit and provide honest feedback without regard to position
3. Personally commit to continuous improvement and are willing to change
4. Admit their mistakes and learn from
Passion
Kellogg are passionate about their business, their brands and their food. Show pride in their brands and
heritage
1. Promote a positive, energizing, optimistic and fun environment
2. Serve their customers and delight their consumers through the quality of their products and
18. 18
services
3. Promote and implement creative and innovative ideas and solutions
4. Aggressively promote and protect their reputation
Simplicity
Kellogg strive for simplicity.
1. Stop processes, procedures and activities that slow us down or do not add value
2. Work across organizational boundaries/levels and break down internal barriers
3. Deal with people and issues directly and avoid hidden agenda
4. Prize results over form
Results
Kellogg love success.
1. Achieve results and celebrate when Kellogg do
2. Help people to be their best by providing coaching and feedback
3. Work with others as a team to accomplish results and win
4. Have a "can-do" attitude and drive to get the job done
5. Make people feel valued and appreciated
Accountability
Kellogg are accountable.
1. Accept personal accountability for their own actions and results
2. Focus on finding solutions and achieving results, rather than making excuses or placing blame
3. Actively engage in discussions and support decisions once they are made
4. Involve others in decisions and plans that affect them
5. Keep promises and commitments made to others
6. Personally commit to the success and well-being of teammates
19. 19
CHAPTER 8: KELLOGGS – THE INDIA STORY
India an opportunity land
New, unexplored, untapped
Attractive huge population base, over 950 million inhabitants
Newly opened economy for the West
India an opportunity land
Had a 53% market share.
Launched iconic brand Corn Flakes as the first offering in 1994
Invested 65 million INR initially
Had a 53% market share on the 150 million INR Indian Market
Cereal breakfast segment was growing at 4-5% annually
Reasons for Initial failure in Indian Markets
Cereal based breakfast was a new concept for Indians
Major investment in Consumer Education or Learning
Traditional, deep rooted breakfast habits
Indians are used to hot/lukewarm servings
Corn Flakes in hot/warm milk tend to be soggy
Promising early sales turned out to be one-off novelty
Product was too expensive (33% more pricy)
Unwillingness to bow down on price pressures
Lack of market research before Launch
Expert Comments
Multinational corporations must not start with assumption that India is a barren field
-C.K.Pralhad
It was just clumsy cultural homework.
-Titoo Ahluwalia, Chairman ORG MARG
You cannot change the taste buds that were developed more than a thousand years ago
20. - Wahid Berenjian, M.D, U.S Pizza
20
The Society is much stronger than any company or product
High prices
Lack of Optimized or Indianized flavours
Mistook India for one Single , homogeneous market
Underestimated the efforts they would have to put in to create a strong distribution and retail chain.
Kellogg‟s was blinded by numbers, it saw the huge population of India but purchasing power parity is
not the same.
Corn Flakes seems like a long haul product. Involves new habit creation and consumer learning
Kellogg’s is a name to reckon throughout the world. It is the company that introduced the concept of Corn
flakes as a breakfast item throughout the world. They have taken on markets where corn flakes has never
been very popular as breakfast and converted them into corn flake eating nations over a long period of time.
They are experts in changing breakfast eating habits of customers’ across the world.
In the early nineties Kellogg came to India with lots of hope and confidence. The Indian organized
breakfast market sector was expected to roll over and die. After all Kellogg’s annual turnover was so big
that the Indian organized breakfast sector was written off even before the skirmishes started.
Kellogg did lot of home work and launched its products in India. They had the best products, packaging and
their marketing strategy was excellent. The advertising campaign was handled by a leading Indian
advertising agency.
Kellogg did not do as well as expected. The witch doctors (read marketing research firms) were called in.
The research findings were very surprising. The areas where Kellogg went wrong include:
1. Kellogg pitched itself as an alternative to the regularly consumed breakfast. The Indian breakfast is
heavy and there is a feeling of fullness at the end of an Indian breakfast. What with oily Parantas, Puris and
Dosas, the feeling of fullness is real and not imagined. Kellogg’s Corn flake breakfast does not give that
feeling of fullness and that went against the grain of having a total breakfast. In short after having a corn
flake based breakfast the Indian consumers were still hungry.
21. 2. Indian breakfast is known for its variety. There can be 30 types of Dosas (there is a restaurant in
Hyderabad that offers 99 types of Dosas!) or Idlis, Parantas or other types of native Indian breakfast items.
Indians are used to a variety and one item that is eaten will not be on offer for the next two or three weeks.
Asking Indians to have the same type of corn flake based breakfast was too much of a cultural change for
the Indians to accept.
3. Indians have spicy and hot food for breakfast. To ask them to eat the sweet tasting and cold corn flake
breakfast was too much of a sweet breakfast for the Indians to digest.
21
22. 4. Kellogg in its advertising campaigns hinted that the Indian breakfast was not nutritious and that Indian
breakfast was not very good for health. This deeply hurt the sentiments of the home maker. The home
makers said to themselves “We have eaten and served the Indian breakfast for decades and centuries. My
family is doing fine”. Once the home maker’s ego was hurt they psychologically turned themselves against
the concept of corn flake based breakfast.
5. Kellogg corn Flakes have to be consumed with cold milk. Indians have be taught right from their
childhood that milk has to be consumed every day and that milk should always be consumed hot. In a
tropical country that is very logical. If the milk is bad once it is heated it will become undrinkable. So for
the Indian family eating corn flakes with cold milk was unbearable. So hot milk was poured over the corn
flakes. Once hot milk is poured the corn flakes become soggy and there are no longer tasty and edible.
22
23. 23
SWOT ANALYSIS
Figure 7.1: SWOT analysis of Kellogg’s considering Indian maket
Source: www.slideshare.com
The initial failure did not deter the breakfast food giant. But a Re Look at Product Mix Re positioning
Adaptations Revised Communication Strategies Promotional Strategies
REVISED PROMOTIONAL STRATEGIES
Introduced new variants from its vast product line of the West, to make up for the bad performance of the
star brand – Corn Flakes
Entered aligned food category to make up for the loss in the Corn Flakes segment
i) Introduced energy bars, biscuits etc
Launched special products for strategic segmentation of the consumers owing to the better understanding
of the Indian Consumer.
i) Chocos for kids,
ii) K special for women,
iii) All Bran for mid aged women etc.
New positioning Fun& Taste & Health
24. 24
Indianized Product names- Extra Iron Shakti .
i) Generating familiarity with the masses
ii) Touching upon general passion for scholastic excellence in India
Identified the nutritional need and launched products accordingly
i) Extra Iron Shakti
ii) Special K diet for weight management
iii) Chocos for kids in different shapes and styles, reassuring the fun element
iv) All Bran Wheat Flakes for a fiber rich diet
25. 25
Launched different SKU‟s catering the varied Indian Consumers
i) One time use pack @ Rs.10/-
ii) Smaller pack,
iii) Family pack
Catchy Phrases
i) “jaago jaise bhi, lo Kelloggs hi”
ii) “Andar se khush , to bahar se khush”
iii) “Shuruaat sahi to din sahi”
Attributing to the daily energy of the whole family
Focused initially on communicating the nutritional value
Currently educating consumer about varied recipes
Currently emphasizing more on convenience and fun
Popular health conscious celebrity brand ambassador
i) Lara Dutta
ii) Karisma Kapoor
iii) Sakshi Tanwar
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CHAPTER 9: KELLOGG’S MARKETING LESSONS FROM INDIA
To see what I mean, consider what happened to Kellogg when it first attempted to enter the Indian market in
the early 1990s. The logic behind its decision appeared to be unassailable. With $3.8 billion in revenue and
a whopping 40% share of the U.S. ready-to-eat cereal market, Kellogg was the market leader in its home
base. And with sales in nearly 150 countries, it already had a formidable international presence. India was
home to 950 million possible new consumers. If Indian consumers would eat as much cereal, on average, as
Americans, then just 2% of the population would generate more revenue than the entire U.S. market. Surely,
Kellogg could capture 2% of this vast group with a little bit of innovation.
Buoyed by this optimism, Kellogg invested $65 million in establishing an operational and marketing
presence to launch Corn Flakes, Wheat Flakes, and its "innovation" — Basmati Rice Flakes — throughout
the country. "Our only rivals," declared the managing director of Kellogg India, "are traditional Indian foods
like idlis and vadas."
Unfortunately, these rivals turned out to be formidable. The company's significant investment failed to gain
Kellogg much of a foothold in the Indian breakfast market and, 12 months later, by April 1995, it could
claim to have less than 0.01% of those 950 million potential consumers. Over the years, Kellogg continued
to invest in the market — repositioning products, launching new brands of ready-to-eat cereal, and
marketing heavily. But by 2010, Kellogg had managed to capture considerably less than 1% of the
population, generating revenues of only $70 million.
Kellogg's mistake was that it had taken a far too simplistic approach to identifying its "huge" market, merely
looking for people who might want its products. What it needed to do was to take a more sophisticated
approach to identifying viable markets, a process that comprises three broad steps: gaining the right insights,
counting the right people, and envisioning the right innovations to serve those people.
Gain the Right Insights
Where did Kellogg executives come up with that original 950 million figure? They assumed that everyone
in India (950 million people) eats breakfast and that everyone who eats breakfast would potentially want to
eat corn flakes. But was that so? To find out, they needed to ask a completely different set of questions:
1. What jobs were people trying to accomplish when they either bought the current offerings in the breakfast
food market or made breakfast from scratch at home?
27. 27
2. How (and how well) did those products actually accomplish those jobs?
3. What offering could Kellogg profitably devise that could fulfill those jobs better?
If Kellogg executives had asked those questions about the Indian breakfast market, they would have
identified one absolutely critical difference between its cereals and its "only rivals." What Kellogg didn't
know, as Homi Bhabha, director of Harvard's Faculty of Arts and Sciences' Humanities Center stated at the
time, "was that Indians, rather like the Chinese, think that to start the day with something cold, like cold
milk on your cereal, is a shock to the system. You start it with warm milk." In other words, Kellogg failed to
provide a product that satisfied one of Indians' most fundamental and important breakfast jobs — "enjoy a
warm breakfast that does not shock my system." Idlis, steaming hot lentil cakes, and vadas, hot potato
chutney pancakes — did that job far, far better than corn flakes.
Count the Right People
Had Kellogg executives understood this important insight, they would have seen that the market for its
ready-to-eat cereals was nowhere near the 950 million they had been salivating over. And had they
completed the analysis correctly, they would have seen that the market was even smaller still.
There are, of course, two sides to every marketing equation: Are you selling what people want? And can
you sell what they want at a price they can afford? Here Kellogg stumbled, too, as many multinationals do
when first entering developed markets: The price it needed to charge to be profitable with its existing
products was about 33% higher than its nearest competitor in India. And unlike in the U.S., where, as the
market leader, Kellogg could regularly increase prices and be confident that competitors would follow
quickly, Indian cereal manufacturers could not be assumed to behave in the same way. And they did not,
more rationally maintaining their low prices. Thus a $3 billion market of nearly a billion possible consumers
was really, even after 16 years of investment only a $100 million market comprising a small fraction of the
250 million breakfast eaters in the middle class. It's unlikely that this smaller market would have dissuaded
Kellogg from entering India, but a market of that size would necessarily entail a different market-entry
strategy, pricing, resource allocation, and marketing budget.
And that's where the innovation process should have kicked in.
Envision the Right Innovation
To find a big market it could innovate its way into, Kellogg needed to find a job that many Indian breakfast
eaters needed done that wasn't yet being fulfilled very well. One could imagine that, for instance, with the
28. insights that Indians' breakfast jobs are best satisfied by a variety of warm, spicy foods that leave you
feeling full and healthy, Kellogg might have focused its innovation efforts not on coming up with more
ready-to-eat cereals, or different sized packages for its existing products, but on the implications of India's
modernizing economy — on the fact that the time once allocated to preparing meals from scratch was now
being spent on pursuing the expanding educational and economic opportunities created by a newly-opened
market. With such an insight, Kellogg might have more fruitfully focused its innovation efforts on, say,
easier-to-prepare versions of traditional favorites that could be delivered at the temperature, in the variety,
and with the tastes familiar to Indians, but in a far more convenient way. Thus, by combining qualitative
insights with quantitative information, the company would have had a far better shot at using its innovation
capacities to create a truly innovative business that could generate significantly better results.
28
29. 29
CHAPTER 10 : KELLOGG’S EXTENDING PRODUCT LIFE CYCLE
Product life cycle is a business technique that attempts to list the stages in the lifespan of
commercial/consumer products. 'Product Life cycle' (PLC) is used for determining the lifespan of these
products; such as the normal phases through which a product goes over its lifespan.
Each product has its own life cycle. It will be ‘born’, it will ‘develop’, it will ‘grow old’ and, eventually, it
will ‘die’. Some products, like Kellogg’s Corn Flakes, have retained their market position for a long time.
Others may have their success undermined by falling market share or by competitors. The product life cycle
shows how sales of a product change over time.
The five typical stages of the life cycle are shown on a graph. However, perhaps the most important stage of
a product life cycle happens before this graph starts, namely the Research and Development (R&D) stage.
Here the company designs a product to meet a need in the market. The costs of market research - to identify
a gap in the market and of product development to ensure that the product meets the needs of that gap - are
called ‘sunk’ or start-up costs. Kellogs was originally designed to meet the needs of busy people who had
missed breakfast. It aimed to provide a healthy cereal breakfast in a KELLOGG’ Sportable and convenient
format.
Figure 10.1: Product Life Cycle of Kellogg’s
Source: www.slideshare.com
1. Launch
Many products do well when they are first brought out and Kellogg was no exception. From launch (the first
stage on the diagram) in 1997 it was immediately successful, gaining almost 50% share of the growing
cereal bar market in just two years.
30. 30
2. Growth
Kelloggs sales steadily increased as the product was promoted and became well known. It maintained
growth in sales until 2002 through expanding the original product with new developments of flavour and
format. This is good for the business, as it does not have to spend money on new machines or equipment for
production. The market position of Kellogg’s also subtly changed from a ‘missed breakfast’ product to an
‘all-day’ healthy snack.
3. Maturity
Successful products attract other competitor businesses to start selling similar products. This indicates the
third stage of the life cycle - maturity. This is the time of maximum profitability, when profits can be used to
continue to build the brand. However, competitor brands from both Kellogg itself (e.g. All Bran bars) and
other manufacturers (e.g. Alpen bars) offered the same benefits and this slowed down sales and chipped
away at Kellogg’s market position. Kellogg continued to support the development of the brand but some
products (such as Minis and Twists), struggled in a crowded market. Although Elevenses continued to
succeed, this was not enough to offset the overall sales decline.
Not all products follow these stages precisely and time periods for each stage will vary widely. Growth, for
example, may take place over a few months or, as in the case of Kellogg’s over several years.
5. Saturation
This is the fourth stage of the life cycle and the point when the market is ‘full’. Most people have the
product and there are other, better or cheaper competitor products. This is called market saturation and is
when sales start to fall. By mid-2004 Nutri-Grain found its sales declining whilst the market continued to
grow at a rate of 15%.
6. Decline
Clearly, at this point, Kellogg had to make a key business decision. Sales were falling, the product was in
decline and losing its position. Should Kellogg let the product ‘die’, i.e. withdraw it from the market, or
should it try to extend its life.
31. 31
Ansoff’s matrix for Kellogg’s
The Ansoff Matrix, designed by Igor Ansoff, classifies and explains different growth strategies for a
company. This matrix is used by companies which have a growth target or a strategy of specialization. This
tool, crossing products and markets of a company, facilitates decision making.
Figure10.2 : Ansoff’s matrix for Kellogg’s
Source: www.slideshare.com
Strategic use of the product life cycle
When a company recognises that a product has gone into decline or is not performing as well as it should, it
has to decide what to do. The decision needs to be made within the context of the overall aims of the
business. Kellogg’s aims included the development of great brands, great brand value and the promotion of
healthy living. Strategically, Kellogg had a strong position in the market for both healthy foods and
convenience foods. Nutri-Grain fitted well with its main aims and objectives and therefore was a product
and a brand worth rescuing
Kellogg decided to try to extend the life of the product rather than withdraw it from the market. This meant
developing an extension strategy for the product. Ansoff’s matrixis a tool that helps analyse which strategy
is appropriate. It shows both market orientated and product-orientated possibilities.
32. 32
CONCLUSION
Kellogg’s was found by Will Keith Kellogg in year 1906. It’s headquartered in Battle Creek, U.S.A.. The
company’s current CEO is John. A. Bryant.
It started its Franchise in India in year 1994.
The various brands it offered under it’s head are:
Cereal:
i) Crunchy Nut
ii) Corn Flakes
iii) Froot Loops
iv) Frosted Flakes
v) Krave
vi) Raisin Bran
vii) Rice Krispies
viii) Special K
Toaster Pastries
i) Pop tarts
Bars
i) Fiber Plus
ii) Nutri-Grain Bars
iii) Special
iv) K Bars
Fruit Flavoured snacks
The Kellogg’s factory situated at The Trafford Park in Greater Manchester I Kellogg’s Europen base since
1938. The Factory produces more cornflakes than any other Kellogg’s factory in world.
Reasons for Initial failure in Indian Markets
Cereal based breakfast was a new concept for Indians
33. Major investment in Consumer Education or Learning
Traditional, deep rooted breakfast habits
Indians are used to hot/lukewarm servings
Corn Flakes in hot/warm milk tend to be soggy
Promising early sales turned out to be one-off novelty
Product was too expensive (33% more pricy)
Unwillingness to bow down on price pressures
Lack of market research before Launch
Introduced new variants from its vast product line of the West, to make up for the bad performance of the
33
star brand – Corn Flakes
Entered aligned food category to make up for the loss in the Corn Flakes segment
ii) Introduced energy bars, biscuits etc
Launched special products for strategic segmentation of the consumers owing to the better understanding
of the Indian Consumer.
iv) Chocos for kids,
v) K special for women,
vi) All Bran for mid aged women etc.
New positioning Fun& Taste & Health
Indianized Product names- Extra Iron Shakti .
iii) Generating familiarity with the masses
iv) Touching upon general passion for scholastic excellence in India
Identified the nutritional need and launched products accordingly
v) Extra Iron Shakti
vi) Special K diet for weight management
In the early ‘90s, Kellogg’s was the market leader in the American ready-to-eat cereal market. It had a huge
40 per cent market share and raked in $3.8 billion in revenue. It already had a presence in 150 countries, and
it decided to dip a toe into the Indian market. After all, Kellogg’s would only have to penetrate 2 per cent of
India’s 950 million people to turn over more than the entire US market. What could go wrong?
Kellogg’s spent $65 million in setting up marketing and operations in India. One year after entering
the market, it could only claim to have less than 0.01 per cent of the 950 million people. Fifteen years after
34. its debut in India, in 2010, it could only claim less than 1 per cent and was only generating $70 million in
revenue.
If Kellogg’s had done its homework, the cereal giant would have discovered that the Indians, like the
Chinese, think having cold milk first thing in the morning is a shock to the system and rather prefer starting
their day with warm milk and hot food.
34
In an interesting case of a global giant getting it wrong when entering a new market
Kellogg’s currently holds 70% share of market in a 500 crore Indian Cereal market.The Overall Market
growth rate of cereal market is 20% annually.
37. 37
APPENDIX
Questionnaire
1) When was the Kellogg’s established?
2) Who are founders of Kellogg’s company?
3) Where is it headquartered?
4) Whose the current CEO of Kellogg’s?
5) When did it start it’s franchise in India?
6) What are the various brands offered under its head?
7) Which Kellogg’s factory produces highest amount of cornflakes?
8) What are the Various strategies that Kellogg’s customized to suit Indian market?
9) What were the Marketing lessons that Kellogg’s learnt from it’s initial failure in India?
10) What is the share of Kellogg’s in Indian cereal market?
11) What is the overall growth rate of Cereal market in India annually?
