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Ready-to-Eat Breakfast Cereal Sarah Icke, Kamille Jackson, Julian Ordman.

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Presentation on theme: "Ready-to-Eat Breakfast Cereal Sarah Icke, Kamille Jackson, Julian Ordman."— Presentation transcript:

1 Ready-to-Eat Breakfast Cereal Sarah Icke, Kamille Jackson, Julian Ordman

2 Presentation Overview IntroductionIntroduction Industry OverviewIndustry Overview Advertising Strategies and Raw Data AnalysisAdvertising Strategies and Raw Data Analysis Concluding Analysis and Industry RecommendationConcluding Analysis and Industry Recommendation

3 Why Cereal? Breakfast is the most important meal of the dayBreakfast is the most important meal of the day “Americans buy 2.7 billion packages of breakfast cereal each year. If laid end to end, the empty cereal boxes from one year's consumption would stretch to the moon and back. “ – Cerealizing America: The Unsweetened Story of American Breakfast Cereal“Americans buy 2.7 billion packages of breakfast cereal each year. If laid end to end, the empty cereal boxes from one year's consumption would stretch to the moon and back. “ – Cerealizing America: The Unsweetened Story of American Breakfast Cereal An industry with extremely high brand loyaltyAn industry with extremely high brand loyalty An industry with one of the highest ad-to-sales ratiosAn industry with one of the highest ad-to-sales ratios

4 Industry Overview Industry Definition Source: IBISWorld

5 Industry Overview Acquires raw materials such as wheat, flour, rice, and sugar Key Supplying Industries: Baking Mix & Prepared Food Manufacturing Canned Fruit & Vegetable Processing Corn Farming Corn, Wheat & Soybean Wholesaling Flour Milling Seasoning, Sauce and Condiment Production Sugar Processing Source: IBISWorld

6 Industry Overview Processes raw materials into various cereal products, including ready-to-eat cereals, cereal bars, and hot cereals Source: IBISWorld

7 Sells through sellers in various channels, including supermarkets, wholesalers, and food service providers Industry Overview Source: IBISWorld

8 Industry Profile Source: IBISWorld

9 Industry Profile Key External Drivers Demand from grocery wholesaling Per capita disposable income Healthy eating index Price of coarse grains World price of wheat Source: IBISWorld

10 Industry Profile Source: IBISWorld

11 Industry Profile Key Success Factors Ability to adapt to change Ability to pass on cost increases Product differentiation Supply contracts for key inputs Economies of scale and scope Source: IBISWorld

12 Industry Profile Mature Industry Revenue: $11.7bn (2013) Per capita consumption is stagnant Revenue growth: -0.2% ( ), 1% ( ) Source: IBISWorld

13 Industry Profile Highly Concentrated HHI: (top 4 firms) Top 4 firms: 74.7% market share Oligopoly High barriers to entry Source: IBISWorld

14 Industry Profile Source: IBISWorld

15 Industry Profile Highly Competitive Source: IBISWorld

16 Industry Profile Source: IBISWorld

17 Industry Profile Source: IBISWorld

18 Industry Profile Source: IBISWorld

19 Highly Regulated Expected to continue increasing. Production & Labeling Standards –FDA –FD&C Act –Fair Packaging and & Labeling Act Environmental Regulations –CWA, CAA, Pollution Prevention Act, RCRA Children advertising Industry Profile Source: IBISWorld

20 Industry Profile Regulations Towards Child Advertising Children’s food consumption heavily influenced by advertising (Goldberg and Gorn, 1978) Children’s Television Act (1990) – Limited amount of commercial time dedicated to child-targeted products Children’s Food Better Advertising Initiative (CFBAI) – Pledge to devote at least 50% of child-targeted advertising promoting healthier foods and messages encouraging healthy lifestyles Kellogg’s, General Mills, and Pepsi have all increased nutritional content of child-oriented brands Sources: Nutrition advertising targeting children. (2012). Retrieved April 8, 2013, from Stitt, C., & Kunkel, D. (2008). Food Advertising During Children's Television Programming on Broadcast and Cable Channels. Health Communication,23(6), doi: / Under self regulation cereals advertised to children are less sugary. (2012). Retrieved April 8, 2013, from

21 Non-Compliance With Regulations Often a lot of resistance Fines Reputation damage Impairs producers credibility Expensive recalls Create liability to civil/criminal penalty Industry Profile Source: IBISWorld

22 Industry Profile Highly Advertised Advertising-to-sales ratios approximately 13% vs. 2-4% in other food industries Creates differentiation and demand inelasticity Cultivates brand loyalty Prisoners Dilemma Source: Nevo, A. (2000). Mergers with differentiated products: The case of the ready-to-eat cereal industry. RAND Journal of Economics, 31(3), 395.

23 Brand Equity & Loyalty  Brand Equity important to create greater loyalty  Loyalty crucial in order to stand out among hundreds of brands  Makes demand less elastic to price  Studies show brand loyalty is a strong feature in consumer product markets  Emotional branding Source: Shum, Matthew. "Does advertising overcome brand loyalty? Evidence from the breakfast cereals market." Journal of Economics & Management Strategy (2004): Print. Source.:

24 Brand Equity & Loyalty However, advertising overcomes brand loyalty in this industryHowever, advertising overcomes brand loyalty in this industry Encourages “switching” behavior at the household level Encourages “switching” behavior at the household level Persuades households to try new brandsPersuades households to try new brands Advertising may be an effective option for new entrantsAdvertising may be an effective option for new entrants An example of Brand Equity:An example of Brand Equity: Blind vs. Branded TestBlind vs. Branded Test Choice increase from 47% to 59% when Kellogg’s brand identifiedChoice increase from 47% to 59% when Kellogg’s brand identified Sources: Shum, Matthew. "Does advertising overcome brand loyalty? Evidence from the breakfast cereals market." Journal of Economics & Management Strategy (2004): Print. Source.: Harris, Schwartz, Kelly Brownell, and Vishnudas Sarda. ”Evaluating the nutrition quality and marketing of children’s cereals." Cereal FACTS. (2009): Online.

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26 Advertising Strategies

27 Kellogg’s Company Their Purpose: ”Nourishing families so they can flourish and thrive.”Their Purpose: ”Nourishing families so they can flourish and thrive.” “Create foods and brands that help to fuel the best in everyone everywhere.” Kellogg’s Website“Create foods and brands that help to fuel the best in everyone everywhere.” Kellogg’s Website Highest Advertising ExpenditureHighest Advertising Expenditure Highest Ad-Sales RatioHighest Ad-Sales Ratio Forbes, "World's Most Powerful Brands“ in 2012 and 2011Forbes, "World's Most Powerful Brands“ in 2012 and 2011 Interbrand, "Best 100 Global Brands“ in 2012 and 2011Interbrand, "Best 100 Global Brands“ in 2012 and 2011 Forbes, “World's Most Reputable Companies” in 2012 and 2011Forbes, “World's Most Reputable Companies” in 2012 and 2011

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29 Advertising Mediums Television Social Media Websites In-store Marketing

30 Television Most widely used medium to promote cereal to children Average child (6-11 yrs) viewed 721, while average adults viewed 372 television advertisements. Purpose for children: to associate products with positive emotions. Humor is commonly used in Adult & Family cereal advertising.

31 The Effects of Advertising Compared to non-TV advertised ready-to-eat cereals: Compared to non-TV advertised ready-to-eat cereals: TV Advertised child-targeted cereals were purchased thirteen times more frequently TV Advertised child-targeted cereals were purchased thirteen times more frequently Family-targeted brand purchases were ten times more frequently Family-targeted brand purchases were ten times more frequently Adult-targeted cereals were purchased four times more frequently Adult-targeted cereals were purchased four times more frequently Source: Castetbon, Katia, Jennifer Harris, and Marlene Schwartz. "Purchases of ready-to-eat cereals vary across US household sociodemographic categories according to nutritional value and advertising targets." Public Health Nutrition. (2011): 1-10.

32 Cereal Television Ads

33 Brand Percentage of Television Advertisements

34 Advertisement v. Time of day

35 Cereal Industry

36 Top 10 in 2011

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40 Social Media Myspace & Facebook Several children and family brand cereals have significant presence. Fan Pages

41 Websites Banners & Advertising on 3rd party websites Children Websites Kellogg’s: separate moderately large websites for Apple Jacks, Froot Loops, Frosted Flakes –Engagement techniques: spokes characters, logos, packaging, branded cereal itself.

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43 In-store Marketing Banners Packaging In-store displays & promotions Shelf Space

44 Primary Advertising Strategies Persuasive Complementary Memory Jamming Informative Children’s Advertising Humor and Emotion Celeb Endorsement Sponsorship Online In-Store Marketing Social Media Product Placement

45 Indirect Advertising Match-products-to-buyer effect Uninformative advertisements –Cartoon’s –Bright Packaging

46 Product Placement Kellogg’s & The Next Food Network Star Results: –93% adults (18-49) could recall the brand after reviewing the episode. This was up 32% from the brand recall Kellogg’s normally has across cable universe.

47 Persuasive Advertising Effect: increase consumer demand and WTP Children-oriented cereals –Promotions (ex. Kellogg’s Family Rewards) –Premiums –Emphasize nutritional content – “Nutrition at a Glance” in 2007 Adult-oriented cereals –Emphasize health benefits

48 Persuasive Advertising

49 Memory Jamming Reinforce positive aspects of cereal Use of characters and catchy slogans Evident from high ad-to-sales ratios

50 Advertising to Children Children heavily influenced by advertising $264 million spent in 2011 promoting child-targeted cereals (increase of 33% from 2008) TV is the most effective medium –Children exposed to > 1,000 hours of television annually –Half of advertising is for food products –Cereal is the most advertised food product to children (one quarter of all food ads) Sources: Kids' cereals are healthier, ads aren't. (2012). Retrieved April 8, 2013, from Stitt, C., & Kunkel, D. (2008). Food Advertising During Children’s Television Programming on Broadcast and Cable Channels. Health Communication,23(6), Doi: /

51 Advertising to Children Marketing Strategies –Memorable characters – more than 40% of kids cereals –Packaging –Placement on store shelf –Web advertising – “Advergames”

52 Advertising to Children

53 Humor and Emotion Keeps audience attentiveKeeps audience attentive Increase adult motivation through emotional appealIncrease adult motivation through emotional appeal Difficult to appeal to everyone because people have different senses of humor and valuesDifficult to appeal to everyone because people have different senses of humor and values

54 Humor and Emotion Children Brand Mascots SlogansSongsAnimated Adults Situational Comedy Family Values & Nostalgia

55 Children v. Adult Humor and Emotion

56 Complementary Advertising Family values: Want to provide for your family and have a great family dynamic Especially target mothers Trend towards Healthy Living Lifestyle in the General Public Want a cereal that will promote healthy living Trending Buzz words/values: “Good For You,” “Healthy,” “Active,” “Nutritious,” “Low- Fat,” “Gluten-Free,” “Low in Sugar” Make advertisements that link cereal to this lifestyle or set of values Kellogg’s Complementary “Healthy Lifestyle Advertising”: Acquired Kashi brand Gluten-free cereal advertisement and branding, such as Rice Krispies

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58 Athletic Sponsorship Major International Athletic EventsMajor International Athletic Events Individual Amateur/ Professional AthletesIndividual Amateur/ Professional Athletes Usually AmericanUsually American Charitable Athletic EventsCharitable Athletic Events Community athletic events to raise awareness and funds for specific charitiesCommunity athletic events to raise awareness and funds for specific charities

59 Corporate Responsibility Majority of charities sponsored either raise awareness and funds for hunger, healthy lifestyles, or children empowerment

60 Other Sponsorships Non-Athletic Celebrity SponsorshipsNon-Athletic Celebrity Sponsorships Only publicly sponsor celebrities with charitable causesOnly publicly sponsor celebrities with charitable causes Blog SponsorshipBlog Sponsorship

61 Analysis and Recommendation

62 Investment Cash Cow Mature Market Little growth

63 Recommendations New packaging Market as “anytime” food Focus on health benefits & keep up with diet trends


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