Ready-to-Eat Breakfast Cereal Here is where we introduce the topic and say why we chose breakfast cereal Sarah Icke, Kamille Jackson, Julian Ordman

Presentation Overview Introduction Industry Overview Advertising Strategies and Raw Data Analysis Concluding Analysis and Industry Recommendation

Why Cereal? Breakfast 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 An industry with extremely high brand loyalty An industry with one of the highest ad-to-sales ratios

Industry Overview Industry Definition Source: IBISWorld Acquires raw materials such as wheat, flour, rice, and sugar Processes raw materials into various cereal products, including ready-to-eat cereals, cereal bars, and hot cereals Sells through sellers in various channels, including supermarkets, wholesalers, and food service providers Source: IBISWorld

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

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

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

Industry Profile Key External Drivers Key Success Factors Life Cycle Stage Concentration Competition Regulation Source: IBISWorld

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

Industry Profile Source: IBISWorld

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

Industry Profile Mature Industry Revenue: $11.7bn (2013) Per capita consumption is stagnant Revenue growth: -0.2% (2008-2013), 1% (2013-2018) Source: IBISWorld

Industry Profile Highly Concentrated HHI: 1770.57 (top 4 firms) Top 4 firms: 74.7% market share Oligopoly High barriers to entry Source: IBISWorld

Industry Profile Source: IBISWorld

Industry Profile Price-Based Competition Quality-Based Competition Highly Competitive Price-Based Competition Some consumers more price-sensitive Growing segment of private-label brands Quality-Based Competition Affect cereals with high brand equity Affect cereals with healthy additions (ex. dried fruit or fiber) Differentiation Cereals designed to appeal to different segments Make demand more inelastic Source: IBISWorld

Industry Profile Source: IBISWorld

Industry Profile Source: IBISWorld

Industry Profile Source: IBISWorld

Industry Profile 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 Source: IBISWorld

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 http://www.cdc.gov/phlp/winnable/advertising_children.html Stitt, C., & Kunkel, D. (2008). Food Advertising During Children's Television Programming on Broadcast and Cable Channels. Health Communication,23(6), 573-584. doi:10.1080/10410230802465258 Under self regulation cereals advertised to children are less sugary. (2012). Retrieved April 8, 2013, from  http://www.bbb.org/us/article/under-self-regulation-cereals-advertised-to-children-are-less-sugary-37619

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

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.

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. 13.2 (2004): 241-72. Print. Source.:

Brand Equity & Loyalty However, advertising overcomes brand loyalty in this industry Encourages “switching” behavior at the household level Persuades households to try new brands Advertising may be an effective option for new entrants An example of Brand Equity: Blind vs. Branded Test Choice 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. 13.2 (2004): 241-72. Print. Source.: Harris, Schwartz, Kelly Brownell, and Vishnudas Sarda. ”Evaluating the nutrition quality and marketing of children’s cereals." Cereal FACTS. (2009): 1-102. Online.

Advertising Strategies Here is where we say that breakfast cereal companies all use the same types of advertising strategies, but to give specific examples and to go into a more in depth analysis, we will focus on Kellogg. Advertising Strategies

Kellogg’s Company 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  Highest Advertising Expenditure Highest Ad-Sales Ratio Forbes, "World's Most Powerful Brands“ in 2012 and 2011 Interbrand, "Best 100 Global Brands“ in 2012 and 2011 Forbes, “World's Most Reputable Companies” in 2012 and 2011

Advertising Mediums Television Social Media Websites In-store Marketing

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.

The Effects of Advertising Compared to non-TV advertised ready-to-eat cereals: TV Advertised child-targeted cereals were purchased thirteen times more frequently Family-targeted brand purchases were ten times more frequently Adult-targeted cereals were purchased four times more frequently In a study conducted in 2008, it was found that children ages 5-12 are the primary target market of ready-to-eat cereals Children see twice as many cereal ads than adults 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.

Cereal Television Ads

Brand Percentage of Television Advertisements

Advertisement v. Time of day

Cereal Industry

Top 10 in 2011

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

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.

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

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

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

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.

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

Persuasive Advertising

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

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  http://www.foxnews.com/health/2012/06/22/kids-cereals-are-healthier-ads-arent/ Stitt, C., & Kunkel, D. (2008). Food Advertising During Children’s Television Programming on Broadcast and Cable Channels. Health Communication,23(6), 573-584. Doi:10.1080/10410230802465258

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

Advertising to Children

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

Family Values & Nostalgia Humor and Emotion Children Brand Mascots Slogans Songs Animated Adults Situational Comedy Family Values & Nostalgia

Children v. Adult Humor and Emotion

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”: 2000 - Acquired Kashi brand 2011- Gluten-free cereal advertisement and branding, such as Rice Krispies Is this slide too wordy?

Athletic Sponsorship Major International Athletic Events Individual Amateur/ Professional Athletes Usually American Charitable Athletic Events Community athletic events to raise awareness and funds for specific charities Tie in athletic achievements to what they eat

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

Other Sponsorships Non-Athletic Celebrity Sponsorships Only publicly sponsor celebrities with charitable causes Blog Sponsorship

Analysis and Recommendation Here is where we say that breakfast cereal companies all use the same types of advertising strategies, but to give specific examples and to go into a more in depth analysis, we will focus on Kellogg. Analysis and Recommendation

Investment Cash Cow Mature Market Little growth

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