Marketing Research Paper

Kellogg and New Product Innovation

Managing the Marketing Function

November 8, 2010

Executive Summary The Kelloggs Company began over 100 years ago in Battle Creek, Michigan, producing better-for-you breakfast foods with a strong focus on nutrition, health, and quality. Today, it has a wide geographical presence, manufacturing in 18 countries around the world and selling products in over 180, still maintaining its headquarters in Battle Creek. The company produces and markets ready-to-eat cereal and convenience foods. While cereal is produced under the Kelloggs name, the company produces many other products under various brand names which include; Keebler, Cheez-it, Murray, Austin, and Famous Amos. A commitment to nutrition without compromising taste or quality remains at the core of its business philosophy. The largest market for the company is North America, accounting for 68% of total sales with the European market coming in second at close to 19% of total sales. Kelloggs expands and adjusts its portfolio to meet the changing needs of its customers worldwide, introducing new products on a routine basis. Market research indicates that consumers demand more convenience as lives become more hectic. This market plan will focus on the introduction of a new cereal product that is easier to take and eat on the go, but just as nutritious and appetizing as one enjoyed at the breakfast table. The marketing objective is to launch a new product that is desirable in all areas of our existing US market while capturing the attention of new convenience shoppers. Our plan is to increase geographical areas as the initial launch proves successful.

TABLE OF CONTENTS

Page Organization Description..............................................................1 Mission Statement..............................................................................................3 Vision Statement.................................................................................................3 Product Details...................................................................................................4 Marketing Goals and Objectives........................................................................5 Product Market...................................................................................................5 Market Share......................................................................................................7 Market Trends/Growth........................................................................................8 SWOT Analysis.................................................................................................10 Strengths................................................................................................10 Weaknesses..........................................................................................12 Opportunities.........................................................................................13 Threats...................................................................................................13 Competition.......................................................................................................15 Environmental Forces.......................................................................................16 Segmentation....................................................................................................19 Marketing Strategies.........................................................................................20 Market Demographics......................................................................................20 Target Market...................................................................................................22 Product Portfolio Mix........................................................................................23 Product Portfolio Chart..........................................................................23 Product Positioning Mix....................................................................................25 2

Performance.....................................................................................................26 Price ...............................................................................................................27 Brand ..............................................................................................................28 Sales Support Strategies..................................................................................28 Switching Costs.....................................................................................29 Promotion...............................................................................................29 Marketing and Promotional Objectives..................................................30 Design....................................................................................................30 Logo.......................................................................................................35 Media and Advertising......................................................................................32 Public Relations................................................................................................32 Sales Promotion Tools.....................................................................................33 Distribution........................................................................................................33 Conclusion........................................................................................................35 References.......................................................................................................36 Appendix 1........................................................................................................40 Appendix 2........................................................................................................41

Organization Description W.K. Kellogg Company was formed in 1906 from a demand that corn flakes be made commercially. Kellogg recognized that advertising and promotion were the keys to success in a market flooded with look-alike products; the company spent a third of its initial working capital on an ad in Ladies' Home Journal (Funding Universe, 2006). The Kellogg Company, as it was ultimately named, followed a straight and profitable path, avoiding takeovers and diversification, relying heavily on advertising and promotion, and posting profits nearly every year of its existence (Funding Universe, 2006). Kelloggs principal products are ready-to-eat cereals and convenience foods, such as cookies, crackers, toaster pastries, cereal bars, fruit snacks, frozen waffles and veggie foods. All cereals are marketed under the Kelloggs name and sold to the grocery trade through direct sales forces for resale to consumers. Cereal continues to be a strong category which achieved volume growth during this past year (Kellogg Co., 2010). It responds well to innovation and advertising and Kelloggs is committed to this continuous effort while staying true to its core commitment of providing nutrition in every great tasting product. Kelloggs has continued to expand its operations and innovate by acquiring the vegetarian-based food group Worthington Foods in 1999 and the organic-based food group Kashi Company in 2000. Kelloggs also acquired snack leader Keebler Foods Company in 2001. A multi-year global relationship with Kellogg and Disney was formed in 2002 to introduce several new cereal and snack food products to the market (Kellogg Company, 2010). The ready-to-eat cereal category is robust and growing on a global basis. Its strong appeal to consumers continues even during this weak economy, as consumers seek greater value in addition to taste and convenience (Kellogg 2009 Annual Report., 2010).

What began as a small manufacturer and marketer of breakfast foods over 100 years ago has morphed into the worlds leading producer of ready-to-eat cereal. Kelloggs products are sold all over the world and the company is now divided into four major operating segments. North America is the largest, followed by Europe, Latin America, and Asia respectively. Products sold in the distinct geographical areas may differ by name or packaging, but all hold true to the nutritious core value that Kelloggs was built upon. Within the 68% of North American sales; cereal represents 24% of that totals net sales (Standard & Poors, 2010).

The company reported revenues of 12,575 million during the fiscal year ended January 2009, a decrease of 1.93% from 2008. The operating income of the company was 2,001 million during the fiscal year 2009, an increase of 2.46% over 2008. The net profit of the company was 1,212 million during the fiscal year 2009, an increase of 5.57% over 2008 (Kellogg Co., 2010). Kellogg is guided by Chairman, James Jenness and led by David Mackay, President and Chief Operating Officer (CEO). In a company where innovation and creativity are essential to sustainability, there is the belief that a diverse workforce is critical. This can be surmised from various areas of the corporate web site and highlighted in a key address presented by CEO MacKay. Not only does Kelloggs have a prominent diversity strategy, but it also has employee resource groups (ERG) aimed at nurturing the differences and taking advantage of the benefit that each groups uniqueness can offer. Examples of the ERG include Latin/Hispanic, African-American, Multinational, K-Pride and Allies, Women of Kellogg, and Young Professionals.

Kelloggs is serious about embracing diversity and growing and expanding in a multicultural environment (Kellogg Company, 2010). Mission Statement To Drive Sustainable growth through the power of our people and brands by better serving the needs of our consumers, customers, and communities. You can conclude by this mission statement that Kelloggs puts a high amount of trust in its people in order to drive the growth of the company and its brand awareness. W.K. Kellogg recognized a century ago that the success of our company is dependent on the success of our employees (Kellogg Company, 2010). Vision Statement To be the Food Company of Choice This is exactly where the company aims to be. As our product lines grow, our purpose becomes more defined. The objective of this marketing plan is to grow that ambition one step further by introducing another product innovation aimed at reaching new markets while still maintaining our core principles of providing nutrition and great taste. Product Details In this plan we will introduce TruMoo, our most innovative product to date. This product relates to how the company meets the changing needs and wants of customers. We will launch Froot Loops and Special K with TruMoo in a joint venture with SACO Foods. Dollar sales for Froot Loops were up nearly 60% in the drug store channel for the 52 weeks ended Dec. 27, 2009, according to IRI (White-Sax, 2010) and Special K is our leading brand in this category. These two cereals will be created milk ready,

intended to be eaten anytime, anywhere. This is the value of TruMoo; it is a true milk product that will coat the cereals we process and the consumer will only need to add water to enjoy a bowl of milk as if it were just poured fresh from the carton. The intangible aspect of this product is found in alleviating the need to purchase, store, and refrigerate milk. This type of product has never been introduced to the cereal market and Kellogg is expecting it to be well received after overwhelming acceptance in our select focus groups. This primary research helped us discover how our new product could be developed and refined to fit in with the well-known brand names A product extension is a less risky way of increasing market share by providing consumer products with new features under an existing brand. New product extensions give more choice to consumers and help them feel more favorably about existing brands. We believe the introduction of TruMoo will strengthen and further extend the growth stage of these existing brands.

Marketing Goals and Objectives During its introductory stage, it is anticipated that sales will double within the first six months and then ebb to a steady 10% growth for the first year. We seek to continue the excitement by saturating the market, focusing our promotional mix on traditional as well as on-line advertising. This will include mailed samplers, print advertising, television/radio ads, direct marketing, and utilizing the company website and interactive media using links from the major search engines. We will tie into the popular social networks and create viral ads. Kelloggs will spend 10-15% of the value of first year sales on advertising to create awareness of TruMoo, however, since we will be capitalizing on two of our most popular brands, some of this cost will be absorbed by 2

existing product. We will reevaluate our marketing budget near the end of the initial six months to verify goals are being met. Product Market TruMoo is a new product that will be sold within the cereal market. The particular market will be the ready-to-eat cereal. Ready-to-eat cereal falls into the Cereal Breakfast Foods or Dow Jones SIC category, 2043. Producing the product falls into the Breakfast Cereal manufacturing or NAICS category, 311230. Breakfast cereal is an established market which continues to be a strong category in the processed food industry and achieved volume growth during this past year (Kellogg Co., 2010). This growth can be further fueled by extending the life of our most popular cereal brands by adding extra value without significantly increasing the price. The added values in the past have been calcium, more fiber, antioxidants such as A, C, E, and Beta Carotene. In general, there are several factors to influence the consumer. Some of the factors are: Price Convenience Health and Nutrition Value Perceptions

Most of these factors have been greatly influenced by the regional economies of the world. In the US, Americans are constantly looking for ways to extend their purchasing power, to eat healthy and to maintain a high level of convenience. So, to attract and maintain more consumers, we must add more value to our current and future cereal products. The consumers added value can be seen in the pricing example in Table 1.

Table 1. TruMoo Savings per Serving Special K Avg Cereal Price/serving A pint of Milk Total per serving $0.38 $0.38 $0.76

Special K w/ TruMoo (Water price minimal) $0.48 $$$Savings to consumer per serving $0.28

The value-add in Table 1 can be realized in price savings by taking our current product offering (Special K in this comparison) and adding TruMoo. Admittedly, we know that cereal growth will have to address the needs of the consumer. Market Share
Table 2

From Table 2, the top five cereal manufacturers per sales are General Mills, Kelloggs, Ralcorp holdings, Kraft Foods (Kraft Divested Post in 2008), and Hain Celestial. (, 2010). The cereal industry represents big dollars with General Mills leading the pack with over $14.7 Billion in sales, however, Kellogg leads in breakfast cereal sales alone. At Kellogg, ready-to-eat cereal represents 24% of total sales or about $3.01 Billion in sales. Market Trends/Growth
Table 3

Net sales growth for the most of the industry has slightly risen as seen in Table 3. (, 2010)(, 2010)(, 2010) Net sales in the industry over the last 5 years continue to show positive growth in most cases, overall. Looking at Kelloggs financials in Table 4, growth has occurred every year except for 2009; but in Table 5, the 5-Yr cumulative average growth rate (CAGR) has been 6%.(, 2010)
Table 4

Table 5

SWOT Analysis Strengths Strong focus on innovation Strong Brand Portfolio Geographical Diversification Weaknesses Narrow Customer Base Declining Market Share Limited Liquidity Position

Opportunities International Expansion Strategic Acquisitions Health Conscious Consumer

Threats Growing Competition Government Regulation Rising Cost of Raw Materials

Strengths: Kellogg controls 42% of the global market for pre-sweeter cereal, which is more than triple the market share of any of the companys competitors. Innovation - Kellogg focuses on innovation which provides the company with a great competitive advantage. It allows the company to cater to the growing needs of its customers. Kellogg added, or expanded more than 150 products globally last year and invested more than 181 million USD. TruMoo will be a great new addition and gain a wide acceptance as an expansion to the Special K line of breakfast cereal (Hoovers, 2010).

Strong brand portfolio and brand recognition Kelloggs portfolio of ready to eat cereal allows it to cater to the various needs of its customer base. Kelloggs is one the largest producers of cereal in the world. Special K, All-Bran, and Rice Krispies brands are the major brands in the companys global portfolio. The international popularity of the brands will allow the company to adjust to and capitalize on changing consumer dynamics and trends while it maintains a strong market position. This brand position will support the innovation process as TruMoo is launched and expands from its test market to other geographical areas (Yahoo Finance, 2010). Kellogg has the strongest brand recognition and advertising recollection of all the cereal manufacturers (Kellogg Company, 2010). Geographical diversification Kelloggs has a wide geographical presence which helps to mitigate the risks associated with dependence on particular markets. Kelloggs currently manufacturers products in 18 countries on six continents and markets those products in over 180 countries. The wide geographical diversification helps reduce the volatility in the companys earnings from different markets while also enhancing its revenue stream (Daily Finance, 2010). Efficient Use of Resources In fiscal year 2009 the companys Return on Equity was 53.4%. The average of S&P 500 companies was 12.9%. This is a good indicator that Kellogg is using its finances efficiently and generating extremely high returns for its investors (Kellogg Company, 2010). Strong growth prospects At the end of fiscal year 2009 Kelloggs company was trading at a price/earnings (P/E) ratio of 16.7. S&P 500 companies were averaging a P/E of 9.2, indicating that the company has very high growth prospects. These prospects are reflected in the premium pricing of Kelloggs stocks (Hoovers 2010). 3

Weaknesses: Kelloggs has not aggressively developed many new cereal lines in the past four years. Narrow customer base Kelloggs dependence on a limited number of customers is a cause for concern. The companys largest customer, Wal-Mart stores and its affiliates, accounted for approximately 20% of the companys net sales. In 2009 Wal-Mart accounted for 20% of the net sales primarily within the US. Taking this a step further, about 17% of the companys consolidated receivables balance and close to 27% of its US receivables balance were owed by Wal-Mart and its affiliates. In fiscal year 2009 Kelloggs top five customers accounted for 33% of its net sales and 42% of its US sales. Retail grocery consolidation and the growth of mass marketing may position Kelloggs customers to procure products at a more favorable position. This could possibly affect volume growth negatively. Also, the loss of any large customer would have a very negative effect on the companys position (Kellogg Company, 2010) Declining market share There has been slow erosion of Kelloggs US market share in the past few years. The companys compounded annual growth rate (CAGR) for revenue was 5.43% during the period from 2005 to 2009 compared to the average for S&P 500 companies of 11.1%. This indicates that the company has lost market share for the last four years. The company reported earnings of 12,575 million USD for the 2009 fiscal year a decrease of 1.93% from fiscal year 2008 (Hoovers, 2010). Limited liquidity position The companys current ratio was 1.12 at the end of fiscal year 2009. This was below the S& P 500 companies average of 1.4. A lower than 5

S&P 500 companies average current ratio indicates that the company is in a weaker financial position than other companies in the S&P 500 index. (Kellogg Company, 2010). Opportunities: International expansion provides Kelloggs with its biggest opportunity for growth. The company can diversify and remain in their core business area which will increase their profitability. Increased health conscientiousness - More individuals are spending time in the outdoors hiking and camping pursuing a healthier lifestyle, this will provide growth opportunities for the instant cereal market. TruMoo will be well positioned to be a major player in that industry. A strategic partnership with some of the larger outfitters will provide an outlet for TruMoo and will also broaden Kelloggs customer base. Strategic acquisitions - Strategic acquisitions offer a growth potential for the Kellogg organization, especially with the expansion of the Special K line into a new product line. The United Bakers Group, one of the leading breakfast cereal producers in Russia, was acquired in 2008. UBs brands will help Kellogg to expand their presence in the international cereal markets. Kelloggs acquisition of Specialty Cereals Pty Limited, the Australia based natural cereal manufacturer and Bear Naked, a leading seller of premium-branded natural granola products further improves the growth potential (Kellogg Company, 2010). Threats: Kelloggs top competitors are using price competition and product proliferation to erode their market share. And, discount imitation cereal brands have been successful in attracting customers away from the premium cereal brands (Daily Finance, 2010). 2

Growing competitive market The marketplace is becoming more competitive, as the competition grows Kellogg may be impacted. As the competition has grown the food industry has witnessed many consolidations where smaller chains are being acquired by the major players. There has also been a major influx of private labels brining an increase in the competition on various factors such introductions, product quality, packaging, and convenience. In order to survive it becomes critical that a company distinguish its products and services. Kellogg must follow through with its launch and provide a clear message regarding the unique position TruMoo offers its customers (Hoovers, 2010). Government regulations - As a producer, manufacturer, and marketer of foods Kelloggs is subjected to various regulations by numerous state and federal government agencies with respect to processed, quality, packaging, labeling, storage, and distribution. Its advertising is also subject to regulation by the Federal Trade Commission. Failure to comply with the numerous regulations can expose the company to new liabilities and could hamper its operations resulting in a decline in profitability. (Kellogg Company, 2010) Rising raw material costs The rising costs of agricultural commodities such as soybeans, corn, wheat, sugar, oil and cocoa which are the principal raw materials used by the company can quickly erode its profitability. The increase in petroleum products such as fuel used in shipping and plastics used in some of the companies packaging will also reduce the ROE (Hoover, 2010).

Competition 2

The main competition will be from our top competitors; General Mills, Ralcorp, Nestles, and Quaker. All of them offer breakfast cereal as part of their product mix and most have some type of an instant breakfast product. None however offer a product that is set up to eat cold by adding only water this will provide Kellogg with a competitive advantage. General Mills A fortune 500 company, food products is its primary business. The worlds sixth largest food company (General Mills, 2010). General Mills markets many popular cereal products including Cheerios and Lucky Charms both of which are very competitive with our current product line. They have a global presence with revenues of USD 14,796.5 million and will remain one of our top competitors (Hoovers, 2010). Ralcorp Holdings Ralcorp is the parent company of Post Foods and is also a nationally acclaimed Ready-To-Eat cereal company. Post Foods products include Honey Bunches of Oats, Pebbles in the US and Shreddies in Canada. Post Foods is currently expanding especially using brand extension strategies. During the past year Post made significant improvements in their production capabilities and have. Unique marketing programs for consumers, as well as customized packaging and category management information for retailers, further enhance the high value of Post brands and strengthen shopper loyalty (Hoovers, 2010). Nestles Neltles S.A. is actually a Swiss company founded in Vevey, Switzerland. Nestles offers many types of instant breakfast products and is the largest consumer packaged goods company in the world. Nestles currently operates in 86 countries and is a true global competitor. Nestles experience with instant breakfast offerings will place them in a position to be a major competitor for TruMoo in the future. 4

Quaker Oats Quaker Oats was founded in Ravenna, Ohio when four oat mills decided to merge. Quaker was bought out by PepsiCo in 2001and is now the fourth largest consumer goods company in the world. Quaker offers a wide variety of breakfast cereal including Capn Crunch, Life, and Quisp. Quakers cereal products are marketed as a healthy choice to consumers and will compete with TruMoo from the health conscious aspect (Hoovers, 2010) The following chart details the revenues of our competitors.

Environmental Forces There are many external factors that need to be accounted for in order to ensure the success of our TruMoo product line. Those factors range from the ever changing political atmosphere within the United States, to the environmental factors and standards that must be met in order to maintain both a healthy and safe product and working environment. There are a few political factors that directly relate to the success or failure of our new product launch. One of those factors is the approval of the Food and Drug Administration (FDA). The FDA has many regulations depending on the category that our food would fall under. Since our product would contain milk products, we would need to comply with the FDA regulations regarding milk products. Milk contains aflatoxins, which are natural toxins present in the growth of specific molds. These toxins are present in milk and also in corn crops that are stressed by drought or insects. Since these corn products are used in the production of many foods, such as cereal, as well as feed for livestock, such as cows, it is very important that these toxins are not present

in the food. It is for that reason that the FDA tests a sample of the milk used in different products. Another political factor that that will directly influence the success of TruMoo is the Food Quality Protection Act (FQPA) that was passed and signed by former president of the United States, Bill Clinton, on August 3, 1996. This act regulates the pesticides that are used in the growing, producing, and manufacturing of food products in the United States. Kellogg needs to ensure that all of their products are being grown and used according to these standards in order to make sure that TruMoo will be successful. One of the major economic factors that must be considered with the launch of a new product is not only if Kellogg is sound enough financially to produce TruMoo successfully, but also that this product is something that our consumers will buy given the recent economic troubles worldwide. Kellogg and its competitors are expecting increased prices in ready-to-eat cereal products. At the heart of the increase is a cost surge in the ingredients for food production. Corn prices are near 26-month highs, and corn futures for December delivery, a key price gauge, are up 45 percent since the end of July. Corn is king when it comes to influencing food prices, a staple ingredient in everything from sweeteners to breakfast cereals, and the main component of almost all types of animal feed (Hughlett, 2010). As the chart above shows, U.S. consumer spending has been down substantially from 2008 to 2010. This means that consumers are less likely to buy things that they dont need. Therefore Kellogg needs to ensure that the TruMoo products that are being produced are ones that play to the necessity and convenience of the products.

One last factor that must be addressed is the social factors involved with the production of the TruMoo product. It is no secret that more and more people are becoming increasingly health and environmentally conscious in the United States. The TruMoo product will be designed and manufactured to capture the best of both of these ideologies. The SACO milk used in the TruMoo products is as nutritious as liquid milk and quite healthy when compared to other products on the market. Nutrition Facts Serving Size: 1/3 cup (23g) dry (makes 1 cup prepared) Calories 80 Calories from Fat 0 Amount per Serving Total Fat 0g Saturated Fat 0g Cholesterol <5mg Sodium 125mg %DV* 0% 0% 1% 5% Amount per Serving Total Carb. 12g Dietary Fiber 0g Sugars 12g Protein 8g %DV* 4% 0%

Vitamin A 0%, Vitamin C 0%, Calcium 0%, Iron 1% *Percent Daily Values based on 2,000 calorie diet. As can be seen from the table above, the amount of calories and fat in this milk makes it a very healthy and convenient way to enjoy ones favorite cereal. Segmentation The main marketing technique we will emphasize is the convenience of our original TruMoo product. It is well documented that beginning every day with a balanced breakfast is a healthy way to start. It is also known that many Americans dont 1

take the time to sit down and have breakfast; however, with TruMoo breakfast can be taken wherever and eaten whenever. Through research, we have concluded that this product should appeal to adults with active life styles, either due to work or enthusiastic leisure activities, such as camping or hiking. Children of all school ages are another segmentation that tested favorably with TruMoo cereal. Introducing this concept with our Fruit Loops and Special K brands will deliver products that appeal to children and adults, covering both segments. We will capitalize on the shared goal of our target market, obtaining nutrition in a fast, convenient way. TruMoo will give consumers valueadded time to spend on increasingly demanding schedules while still providing great taste, good value, and wholesome nutrition. Marketing Strategies Our demographic for TruMoo in the United States is as follows:

Students of all ages from kindergarten through college Working adults Senior citizens Individuals that enjoy outdoor activities such as camping, hiking, etc. Vending machine consumers Traditional non-milk buyers Market Demographics

Geographics: Our initial target market for TruMoo is the United States. As of today, the U.S. population is over 300 million. Demographics: Presently, 49% of Americans consume a bowl of cereal for breakfast. In 2008, the median household income was $52,029. The daily breakfast

group is older males. However, groups are very comparable in terms of marital status and educational level. Irregular Cereal 24-83 28.8% 71.2% 15.4% 50.8% 18.5% 15.4% 9.1% 25.8% 16.7% 0% Occasional Cereal 23-82 35.8% 64.2% 18.2% 53.0% 18.2% 10.6% 13.6% 33.3% 12.1% 4.5% Daily Cereal 21-85 48.8% 52.1% 15.9% 57.9% 14.3% 11.9% 11.0% 36.2% 15.1% 80%

Age (years) Gender Male Female Marital Status Single Married Divorced/Separ ated Widowed Education Primary Secondary University Higher Degree

Psychographics: The typical Kellogg customer usually has a healthier general lifestyle in that they were less likely to be smokers, alcohol drinkers, and have a healthier diet. Most consumers want convenience due to their busy lifestyles. Behaviors: Consumers of Kelloggs cereal with TruMoo are more likely to be more productive and efficient than those who do not eat breakfast. Eating breakfast is very important for the brain and the body first thing in the morning. Those who skip breakfast often feel tired, restless, or irritable in the morning (Importance). Daily breakfast consumers are less likely to be smokers but did not differ from other groups in terms of other health related behaviors such as alcohol consumption and sleep (Smith, 1999).

Target Market Our target demographic with Froot Loops and Special K with TruMoo will be marketed to multiple groups across the United States. They include students, working adults and senior citizens. Students of all ages from kindergarten through college will be targeted for many reasons. Breakfast is the most important meal of the day. When students eat breakfast, it helps in their overall learning process. Students have to face a lot of challenges in school and an empty stomach may come in the way of their progress. It has been observed that students who do not eat breakfast before school have problems like headache, sleepiness, stomach pain, muscle fatigue, etc. They need the energy which comes from the glucose that breakfast provides (Kartha). A bowl of our delicious cereals with TruMoo can also reduce the risk of childhood obesity which has become a recent problem due to unhealthy eating habits. According to a study from the USDA and Kelloggs, kids who eat breakfast are less likely to become obese, even if their breakfast choice is cereal. In the study, 22 percent of breakfast skippers were obese, compared to 15 percent of cereal eaters (All, 2010). Working adults and senior citizens are also a target market for Kelloggs cereals featuring TruMoo. With children, careers and just daily life, adults usually do not have the time to sit down to enjoy a bowl of cereal in the morning. About 6 percent of individuals who eat breakfast eat the first meal of the day on the go. Adults who skip breakfast also tend to have higher cholesterol, elevated insulin levels, and larger waist circumferences. On a plus side, 79 percent of parents eat breakfast with their children, 3

while younger parents between the ages of 18 and 34, about 85 percent were most likely to eat breakfast with their kids. The age group most likely to eat breakfast is those over the age of 60 with 86 percent (All, 2010). Regular consumption of breakfast cereal is associated with higher intelligence scores in the elderly (Smith, 1999). TruMoo will be marketed as the perfect breakfast-on-the-go, convenient to be taken in a lunch bag to the office, school, or anywhere. Because it is so convenient and tasty, we will also emphasize the after breakfast purpose of this product. Cereal isnt just for breakfast anymore will be the theme of this portion of the campaign. We will target the person that just wants a nutritious meal, quick. According to a report released in 2008 by Chicago based consultancy Technomic Inc, 44% of survey respondents indicated they would consume breakfast throughout the day (Riell, 2008). This group will be an additional focus of our promotion Product Portfolio Mix Kelloggs has a large product portfolio mix with numerous brands including cereals and snacks that fit everyones dietary needs. The product portfolio mix meets the demands of all people by providing foods that address the special needs of vegetarians, vegans, kosher certified, halal certified, low sodium and gluten free diet products (Kelloggs, 2010). The Kelloggs product mix consists of three important dimensions: width, length, and depth. Kelloggs product mix width consists of a number of product lines including baking goods, beverages, cereals, crackers, party mixes, pie crusts, snacks, waffles, pancakes and syrup. Within these product lines are a number of different brands including Austin, Famous Amos, Keebler, Morning Star Farms, Sunshine and Worthington resulting in a large number of products offered in the Kelloggs product 2

portfolio mix. Within most product lines, Kelloggs offers a variety of products including 107 varieties of cookies and 59 varieties of cereals. The Special K product line offers nine different varieties of its cereal which may include berries, granola or nuts. The TruMoo Froot Loops and Special K will fit nicely into the current Kellogg Product Portfolio Mix. The Kelloggs Product Portfolio is identified in the following table (Kelloggs, 2010):

Kelloggs Product Portfolio 2010 Product Category

Beverages Cereal Baking Products

Feebler Ready Crust Pie Crusts Kelloggs Corn Flake Crumbs Kelloggs Protein Water Mixes All Bran Apple Jacks Bran Flakes Cinnabon Corn Pops

C ones

C ookies

Cracke rs

Fruit Flavored Snacks

Sn ack Bars

Snacks Chips & Party Mix

Toaste d Pastries

Vegetaria n

Waffles, Pancakes & Syrup

Keebler Ice Cream Cones

Austin Vanilla Crme

Austin Sandwich

Kelloggs Fruit Flavored Snacks

Rice Krispies Treats

Sunshine Cheez-It Snack Mixes Sunshine Baked Cheez-It Snack Mixes

Kelloggs Pop Tarts

Kaffree Roma Coffee

Kelloggs Eggo Minis

Kelloggs Shakes

Famous Amos Jacks Wafers Keebler Animal

Carrs Table Carrs Entertainme nt

Nutri Grain Bars

Kelloggs Pop Tart Popsters

Morning Star Farms Vegetarian Burgers, Nuggets.

Kelloggs Eggo Pancakes

Cocoa Pops Cocoa Krispies Corn Flakes Crackin Oat Bran Crispix

Keebler Sandies Keebler Soft Batch

Keebler Club Keebler Elfin

Special K Bars

Kelloggs Chrunch mania Graham Snacks

Morning Star Farms Bacon Strips and Veggie Patties

Kelloggs Eggo Waffles

Keebler Chips Deluxe

Keebler Graham

Cinnabo n Snack Bars

Sunshine 100 Calorie Right Bites Blue Ginger Multi Grain Snacks

Morning Star Veggie Sausage

Kelloggs Eggo Syrups

Crunchy Nut Cocoa Krispies Fruit Loops Frosted Flakes Honey Smacks Just Right

Keebler Grahams Keebler Vienna Keebler Bakers Treasure

Keebler Toasted

Special K Protein Snack Bar

Morning Star Farms Meat Substitutes

Kelloggs Cinnabon Pancakes

Keebler Town House

Special K Protein Meal Bar

Worthington Loma Linda Vege-Franks

Kelloggs Eggo Real Fruit Pizzas

Keebler Country Style

Keebler Zesta Keebler Soda

Special K Fruit Crisps

Worthington Loma Linda Vege-Burgers

Low Fat Granola Mini Wheats Product 19 Raisin Bran Rice Krispies Special K Start Smart

Keebler Gripz

Kelloggs All Bran

Special K Bliss Bar

Worthington Loma Linda Chikn

Keebler 100 Calorie Right Bites Mothers

Kelloggs Special K

Fiber Plus Bars

Worthington Cutlets

Sunshine Cheez-It

Worthington Chili

Murray Sugar-

Sunshine Krispy

Worthington Meat

Product Positioning Mix TruMoo will be sold in individual containers with a spoon attached to the package and in family sized cereal boxes. The two TruMoo products will be sold in vending machines in schools, colleges and universities, office buildings, businesses and grocery chains throughout the United States. Consumers are becoming increasingly health conscious, there is a massive opportunity for out of home caterers to stock healthier brands through a vending machine (Solutions by Segment, 2010). TruMoo will be positioned as the perfect complete meal to be enjoyed anytime and anywhere water is available. The range of healthier alternatives is ideal for consumers to enjoy at any time of the day and will satisfy demand for both convenience and portability, together with an increasing desire to eat nutritional food (Solutions by Segment, 2010). Kelloggs currently has four major brands that are also marketed in a similar way including: Nutri Grain Bars, Special K, Crunchy Nut Chocolate Peanut Crisp and Rice Krispie Squares. The cost of the TruMoo products will be approximately 25% more than most of our other cereal lines with the added guarantee of a two year shelf life and retaining all of its nutritional value and flavor. This is a newly developed product that has no current competition. Performance For more than 100 years, innovation and our commitment to being the best in the categories in which we compete have guided our Company. From being the first company to offer premiums in its cereal boxes to being the first to fortify its cereals, Kellogg has historically been a leader in industry, innovation and marketing (Kelloggs 3

Our History, 2010). We again will be leading the industry with another innovative product by introducing the TruMoo cereal products a complete meal ready to eat by just adding water. The Kellogg brand has a significant competitive advantage over most cereal trademarks. It is number one in market share with just under 34% of the $9 billion cereal market (Shea, 2010). Over the years, we have been keeping the pace with dietary trends. Most recently, the demand for even tastier and ground-breaking options has led to the introduction of TruMoo. We want to continue to create new products in order to supply consumers with healthy choices. The Kelloggs variety offers taste, fun, convenience, and nutrition from a selection of breakfast cereals that contain between 3% and 14% of the Guideline Daily Amount (GDA) for sugars (Kelloggs, 2010). Price The market for Kelloggs cereal is inflexible in that our consumers are not very responsive to price changes and not likely to switch brands when prices go up. Although there are substitutes, Kelloggs brand reputation and flavor make substitutes unacceptable to our consumers. The lower-priced brands are typically perceived as inferior in taste and/or quality, whether these attributes are objectively determined or not. The pricing of our TruMoo cereal products will require a slight increase over our other cereal products due to the milk product being added to the cereal. We expect that the price will be approximately 25% more per package but will still deliver the value consumers are used to from Kellogg products. The increased product performance and longevity of the TruMoo cereal products will provide additional value to consumers with its two year shelf life and ability to retain its flavor and nutritional value. Kelloggs currently has a monopoly on the patented 2

process of adding a milk product to its cereal therefore, maintains the power to set the price. Pricing of TruMoo products are aligned with Kelloggs overall marketing strategy and the products brand performance (Levens, 2010). Brand Since 1906, people have known Kellogg as a company they can count on for great tasting, high quality foods. Inventing original products or making changes to existing varieties can be an expensive objective. When W.K. Kellogg started this company, he wanted everyone to know that the Kelloggs signature carried a guarantee of consistent quality. For over 100 years, Kelloggs has been producing delicious breakfast cereals with an unrivaled taste. Our dedicated team uses their expertise to make only the highest quality cereals (Kelloggs, 2010). Kelloggs is a premium product, and its premium brand is well established internationally due to its substantial investment in advertising and its longstanding reputation in the cereal industry. Sales Support Strategies Kelloggs will utilize sales support checklist and evaluations furnished by Demand Matric (Appendix A and B). Not all aspects of these documents pertain to our products but they provide a foundation to create, implement, and evaluate our sales support strategies. We will use the evaluation to measure our customer satisfaction as well as determine ways to improve our product. Kelloggs marketing team will carefully monitor the sales trends in order to determine if we are gaining new market share or simply cannibalizing from our existing product. Some cannibalization is anticipated; however our aim is to interest new customers. Every product has to undergo a home usage test prior to launch. At the 2

end of the trial, consumers complete a report on what they thought of the cereal in the form of a questionnaire. The final survey measures how appealing the product is to consumers and how likely they would be to buy it in real life. The data collected from the research also helps to establish and calculate a sales forecast for the new product in its first and second year on the market. This forecast will then be used by the finance department to set budgets and organize the supply chain and schedule food production. Our positive survey results have enabled Kellogg to make the strategic decision to produce and market TruMoo. Switching Costs According to Stock 200 the companies that make it tough for a customer to switch to a competitor are in position to retain the customer and increase profit year after year (High Switching Costs, 2010). This is relatively simple because of our unique joint venture and the lack of competition currently in the market. We have the opportunity to secure brand loyalty prior to any future competition. Nilssen reported that there are two kinds of switching cost: Transaction Costs and Learning Cost (1992). The transaction costs are incurred by consumers and the learning costs are incurred only when they switch to a new product. Because the cost difference is minimal considering the absence of the price of milk, the switching cost will be of little consequence to our customers. Promotion We will invest heavily in traditional media advertising to include television ads and on-line media. This plan will convey some of the techniques and designs we will use in advertising and promotion. The Promotional theme will be: This is not your traditional breakfast cereal! We will need to copyright or trademark TruMoo. 2

Marketing & Promotional Objectives The objectives of our marketing and promotional campaign are to create awareness of our new breakfast and snack cereal and promote brand extension. We are also using this opportunity to get the product into the hands and mouths of our target customers. Design The individual packaging for the cereals with the TruMoo will have leak proof liners and a detachable spoon. The vending machine packaging will be the same as the multipack sold in stores. Nutritional values will be on the label. The packaging for the family size boxes will look like a standard box of cereal. This slight change will be done in-house using existing recognizable templates. The color of the packaging will be similar to the counter parts with the exception of the TruMoo logo and wording:

Media & Advertising Kelloggs will make extensive use of its already developed website. We will create individual links for the Special K with TruMoo and Froot Loops with TruMoo. Each link will describe the product and the advantages of choosing it. Nutritional information will also be available on the links. Kelloggs products with TruMoo will be promoted online through YouTube ads and banners on magazine websites. We will also promote using television and magazine ads. All of the advertising will have a uniform theme of bright vibrant colors that display our brand. The nutritional value will be on every package. There will also be a blurb about how we came up with TruMoo and how it can be enjoyed anytime anywhere, Just Add Water! Also there will be a closing tag: This is not your same old breakfast cereal. There will also we website and consumer relations contact information on the packaging. This will help to monitor any customer suggestions. Public Relations Because of Kelloggs reputation there is not much to do in way of public relations prior to the distribution of this innovative product. While we do not anticipate any public relation crisis, a plan will be in place to address any public backlash. This plan includes: ongoing focus groups, improvement committees, consumer surveys, and improved products.

Sales Promotion Tools (coupons, samplers) Kelloggs will have 4 main sales promotions: Samples samples will be distributed on school campuses, in grocery stores, and specialty stores. These samples will have a coupon available to consumers who express a desire to purchase more of the product. Mailers Samples will be mailed to a select market for trial. These markets will include middle-class family and high retirement age suburbs along with college cities such as Ann Arbor and Lansing. Trade Shows Through a food broker our product will be demonstrated for buying powers of national school districts. Coupons coupons will be in the Sunday circular of the newspapers in the target areas. Distribution Kellogg currently utilizes intermediaries in its distribution structure. Channel members such as retailers are involved in selling Kellogg products. This indirect channel allows Kellogg to penetrate numerous markets through a vast number of retailers such as Kroger and Meijer. An indirect channel involves one or more intermediaries between producer and consumer.(Levens, 2010) The use of intermediaries serves as an efficient way for the products to reach the consumer. Furthermore, the contact efficiency is a tremendous cost saver for Kelloggs. As TruMoo is introduced Kelloggs will continue to use the indirect channel to deliver the product to the end user. By utilizing existing channels, Kelloggs will be able to take advantage of existing relationships. Kelloggs will not be forced to take on startup costs as they are already the leader in breakfast and convenience foods. However, 1

Kelloggs will need to carefully analyze the channel strategy in which they will utilize for TruMoo. This will ensure that Kelloggs is acting in the most cost effective and efficient matter. As with their other products, Kelloggs will continue to follow an intensive distribution strategy. The intensive distribution strategy indicates that the product is sold through a large number of outlets/retailers. These products are readily available to the consumer. In addition to its traditional methods of getting their products to the consumer, Kelloggs will look add TruMoo to vending machines. Adding the breakfast product to vending machines will capitalize on the convenience of TruMoo. The specialized packaging which includes a spoon allows for easy on the go cereal. Vending machines on college campuses will be a major focus for Kelloggs. College students often times will grab a protein based drink or a dry cereal bar. Because of the unique spoon included packaging, TruMoo offers a great alternative to the student who doesnt want to wake up early to enjoy a bowl of cereal. Kelloggs will also look to gain new strategic partnerships. Kelloggs will look to add new retail partners to expand into new markets. Outdoor and sporting good stores such and REI and Dicks will begin to sell TruMoo to outdoor enthusiast. In the past, cereal is has not been a product that is able to be enjoyed by hikers and back country campers. Carrying a box/bag of cereal and a carton of milk is not feasible for most camping or hiking trips. However, the specialized packaging will allow any outdoor enthusiast to enjoy a bowl of cereal before the days activities. The new retail partners will allow for Kelloggs to reach a new customer base. Kelloggs can implore both a push and pull strategy for TruMoo. A push strategy will target the new retailers. Marketing campaigns focused on the retailers purchasing 2

TruMoo to carry on the shelves for their consumers. Retailers will be able to offer a new and innovative ready to eat cereal for those that enjoy the great outdoors. All pull strategy will also be utilized for TruMoo. Marketing to hikers and campers introducing a new product for breakfast will be the main focus of the new marketing campaigns. Consumers already shop at outdoor/sporting goods stores for supplies to take on their upcoming adventure. The consumer will be asking their retailer for TruMoo, pulling the product through the marketing channel. Conclusion We feel TruMoo is a natural extension to the Kellogg family of products. We are committed to measuring customer delight as product awareness grows to constantly improve and tune-in to the wants and needs of our consumers. We are confident TruMoo will increase the perceived values of both Froot Loops and Special K thereby growing our overall share of the breakfast cereal market.

REFERENCES 2010 Statistical Abstract, The (2010, February 17). In The U.S. Census Bureau. Retrieved November 25, 2010, from 2

http://www.census.gov/compendia/statab/cats/income_expenditures_poverty_we alth.html All Breakfast All the Time (2010). Retrieved November 25, 2010, from http://www.mrbreakfast.com/glossary_term.asp?glossaryID=152 Demand Matrix. Sales Support Strategy Checklist and Survey. (nd). Web. 29 Nov. 2010. D&B - The Million Dollar Database. (2010). Retrieved November 28, 2010, from D&B The Million Dollar Database: http://proxy01.academic.walshcollege.edu:2094/Selectory/SummaryView/Results .aspx?searchType=basic Funding Universe. (2006). Kelloggs company. Retrieved from: http://www.fundinguniverse.com/company-histories/Kellogg-Company-Companyhistory.html General Mills. (2010). Retrieved November 28, 2010, from General Mills:http://phx.corporate-ir.net/phoenix.zhtml?c=74271&p=irol-irhomeK Kellogg Co. (2010). Retrieved November 28, 2010, from Kellogg Co.: High Switching Cost. Stocks 200. Course 205: Economic Moats. (nd). Website. 24 Nov. 2010. http://news.morningstar.com/classroom2/course.asp? docId=144752&page=4&CN=COM www.dailyfinance.com/quotes/Kellogg-Company/k/nys www.fda.gov/ICECI/ComplianceManuals/CompliancePolicyGuidanceManual/ucm07448 2.htm www.gallup.com

www.glgroup.com/News/Kelloggs-Leadership-in-the-Cereal-MarketUnderAttack51237.html www.hoovers.com/company/kellogg-company/rfxcri-1.html www.investor.kelloggs.com/index.cfm www.sacofoods.com/mixndrink.html www.thestreet.com_yahoo/story/01934611/1/new-fda-regulations-good-or-bad-for-foodstocks.html Importance of Breakfast, The (n.d.). Retrieved November 25, 2010, from http://www.bellybytes.com/articles/breakfast2.shtml Kartha, D. (n.d.). Importance of Breakfast for Students. Retrieved November 25, 2010, from http://www.buzzle.com/articles/importance-of-breakfast-for-students.html Kelloggs, (2010). Company: Corporate Responsibility. Retrieved from http://www.kelloggs.ie/company/ Kellogg Co.. (2010). Form 10-K for the fiscal year ended January 2, 2010. Retrieved from http://www.sec.gov/edgar.shtm Kellogg Company. (2010). The Kellogg Company: The complete story. Retrieved from http://www.Kelloggscompany.com Kelloggs Food Away From Home. (2010). Solutions By Segments. Retrieved from http://www.fafh.com/Vending/ Kelloggs, (2010). Our Company: Our History. Retrieved from http://www.kelloggcompany.com/company.aspx?id=39 Kelloggs. (2010). Product Landing. Retrieved from http://www2.kelloggs.com/ProductLanding.aspx

Kraft Foods. (2010). Retrieved November 28, 2010, from Kraft Foods: http://www.kraftfoodscompany.com/Investor/index.aspx Levens, M. (2010). Marketing: Defined, Explained, Applied. Prentice Hall, Upper Saddle River, New Jersey. Nilsse, Tore. Two Kinds of Consumer Switching Cost. Rand Journal of Economics, Vol 23, 992. Web. 24 Nov. 2010. http://www.questia.com/googleScholar.qst;jsessionid=E99CA26338CABDBA7DE BA0473AC10A3F.inst1_1a?docId=97938517 Ralcorp Holdings. (2010). Retrieved 11 28, 2010, from Ralcorp:http://www.ralcorp.com/Investor%20Relations/ Shea, R. (2010). Kellogg's Leadership in the Cereal Market Under Attack. Gerson Lehrman Group. Retrieved November 19, 2010, from Smith, A. P. (1999). Breakfast Cereal Consumption and Subjective Reports of Health. International Journal of Food Sciences and Nutrition, 445-449. Retrieved November 25, 2010, from http://www.grainpower.org/docs/ss6.pdf Standard & Poors (2010, November 3) Stock Report: Industry Survey. Retrieved from S & P Net Advantage database. The Hain Celestial Group. (2010). Retrieved November 28, 2010, from The Hain Celestial Group: http://ir.hain-celestial.com/phoenix.zhtml?c=87078&p=irol-rhome White-Sax, B. (2010, March). Manufacturers milk cereal sales with nutritional boosts. Drug Store News, 32(3), 51. Retrieved November 20, 2010, from ABI/INFORM Trade & Industry. (Document ID: 1985536811).

Appendix 1 Company Logo Here Sales Support Check List

Purpose: The purpose of this tool is to provide a check list for improving sales support. Consider doing a Sales Support Effectiveness Survey to proactively highlight strengths and weaknesses in this process. Sales Support Check List

Don e

Description of Task

Complet ed

Notes

Job Descriptions standardized Sales Skills Assessment complete Sales Training Manual complete Sales Script standardized Feature, Advantage, Benefit tool built and distributed to sales staff Competitive Analysis complete Objection Response tool distributed Opportunity Pipeline tool is used Sales Proposal standardized Key Account Plan exercise complete Case Study exercise complete SPIN Selling Tool exercise complete Sales Presentation standardized Individual Goals being documented Pricing Sheet, Whitepapers, FAQ, and other marketing collateral Advanced CRM training complete 1

Enter date

Appendix 2 Company LOGO ...Sales Support Effectiveness Survey

Please consider each of these questions and rate based on the following scale: 1 2 3 4 Not at all Somewhat Agree Agree Strongly Agree

Where indicated, please provide brief feedback to suggest any changes that could be made to make you more effective in your position, servicing customers.

Customer Relationship Management

Is your current CRM system meeting your needs? 1 Do you ever forget task that you need to do? Do you manage/list forecast in excel?
If so, what are you keeping track of?

2 2 2 1

3 3 3 2

4 4 4 3 4

1 1

Is it difficult to quickly get prepared for a client call?

If so, Why?

Demand Generation
I receive a consistent amount of good leads. It is common for a prospect to call us. Lead quality is generally high. 1 1 1 2 2 2 3 3 3 4 4 4

Lead Management
Leads come to me semi-qualified. 2 1 2 3 4

We actively score new leads and prioritize them. It is easy to pull up a full list of my sales leads.

1 1

2 2

3 3

4 4

Product & Company Training

I know the strategic direction our company is going. I felt comfortable selling after finishing training. 1 1 2 2 2 3 3 4 3 4 4 My prospects clearly understand our value proposition. 1

Marketing Collateral
Current marketing collateral is sufficient. We need new sales tools to facilitate wins. If so, what do you need? 1 1 2 2 3 3 4 4

I use all of marketing collateral regularly. If not, what is not used?

Partnership Management
We effectively tap into our partners for new leads. 1 There is consistent communication with partners. 1 I understand what all of our partners do very well. 1 2 2 2 3 3 3 4 4 4

Brand Awareness
It is common for prospect to recognize our company. My friends/peers know about jobs at our business. 1 Customers feel that we are a world class company. What makes you think that? 1 2 1 2 3 2 3 4 4 3 4

Thank you for taking the time to provide us with your feedback. This tool was designed to facilitate discussion around ways we can support your sales process.

Please contact the Marketing department directly if you have any other suggestions that werent captured in terms of our current strengths and weaknesses.