1. MBA 5060 - Product Strategy CEREAL PRODUCTS Laurie Baron Yvan D’Silva Yu-Hsuan Lai Carolina Quintanilla Valdovino Lalinthip Sriwitanont Matthew Van Heel Friday 30th November, 2007

2. Agenda Industry overview Environmental trends Threats & opportunities New product opportunities Business Analysis Proposed launch plan Q&A

3. Industry Overview Global Perspective (Food and Drink Industry) Global Revenue Estimate: $7.1T AUD (2005) EU Industry Revenue Estimate: $1.42T AUD (2005) Australian Perspective (Food and Drink Industry) Australian Revenue Estimate: $69.8b AUD (2005-2006) Australia has a range of climates and land types, most of which are used for food production. This variety, combined with high quality ingredients and cutting edge technology, makes Australia a reliable long-term supplier to global markets

4. Australian Perspective (Cereal Products) Revenue Revenue Growth RateImports and Exports Industry Overview

5. Breakfast cereals Pasta Milled rice and rice flour Prepared baking mixes Meal or offal Hulled or shelled oats Oatmeal for human consumption Self-raising flour Jelly crystals Custard powder Product Segmentation Australian Perspective (Cereal Products) Industry Overview

6. Market SegmentationGeographic Spread of Businesses Australian Perspective (Cereal Products) Industry Overview

7. Competitors Australian Perspective (Cereal Products) Market Size: Total revenue : $2.62 billion, 2.9% higher than 2005 Total value added: $731.6 million, 4.2% lower than in 2005 Industry Overview

8. Demand determinants Changing lifestyle The variety of substitute products Health, nutritional and dietary concerns Household incomes Population growth Changes in the demographic profile of the nation Domestic sales were estimated at $ 2.5 billion in 2005-6 The competition of industry Price : the price will be varied by product segments Selling and distribution: strong relationship with retailer and manufacturer Quality : good quality product enable the firms to charge a premium Product differentiation and functional qualities product innovation and differentiation play a key role Branding and promotion firms have heavily promotion through mass media advertising The external competition alternative breakfast foods ex. Muffins, bread, bagels and take-away stores Industry Overview

9. Industry Overview - PLC

10. Porter’s Five Force Potential entrants Medium entry barriers High capital requirements Economies of Scale Proprietary product differences THE INDUSTRY Degree of Rivalry The larger competitors Mature and stable market (low growth rate) Wide and completed product line Substitutes Muffin, bread, bagels Take-away foods Restaurants Buyers Consumer has high bargaining power. The buyers are price sensitive. Suppliers The bargaining power of supplier is between medium to high. (It depends how large is the retailers.) The importance of value to supplier is high because the margin is not high.

11. Environmental Trends Political/Legal Election 2007 Bilateral agreements between Australia and the US Role of ANZFA within the food industry Role of the ACCC Economic/ Environmental Key economic indicators affect buying habit of consumers Global economy is on the tipping point of potentially slowing down Australian economy is continuing good growth Climate change affecting the production of key ingredients used in breakfast cereals i.e. Drought, global warming Industry is being affected by environmental regulations

12. Environmental Trends Socio-cultural Australia’s population is growing approximately 1.2% per year Average household size is increasing Aging Population Increasing multicultural population Demand for products with healthy image due to increases in obesity Demand from consumers for convenient ready to eat foods Technology Major technological changes occurring within the industry. Computerisation has aided quality control and JIT manufacturing CRM Systems E-Business is allowing customers to shop from home GM foods are entering the market

13. GE/McKinsey Screening Grid

14. The Company - Kellogg’s

15. Kellogg’s - Company Profile A wholly owned subsidiary of the U.S. Kellogg Company since 1928 Kellogg Australia operates manufacturing facilities in Botany (NSW), Charmhaven (NSW), and Brisbane (QLD). Kellogg is the largest player in this segment, with over 43% market share. 2006 - Kellogg’s sales revenue reached A$ 470.6m Kellogg’s overall market share is gradually falling

16. Kellogg’s - Product Portfolio

17. Corn Flakes All-Bran Rice Bubbles Frosties Coco Pops Corn Flakes Crumbs Variety pack Froot Loops Sultana Bran Special K Nutri-Grain Just Right Sustain Komplete LCM’s cereal & milk bars Nutri-grain bars K-time cereal bars LCM’s shakes Mini Wheats Guardian LCM’s Crispix Kellogg’s Muesli Bars K-time twists Special K bars with Yoghurt All Bran baked bars Special K light muesli Crunchy nut nutty bars Coco Pops Coco Rocks Kellogg’s - Brands

18. Perceptual Map High product quality Low product quality High price Low price

19. SWOT Analysis Strength Market leadership position Strong Brand recognition - Product variety - Nature of products - Product positioning Kellogg's leads the trend towards better health and nutrition Consumer trust Broad Channel Distribution - Grocery store, Supermarket, Convenient store, etc. Weaknesses High market concentration Growth opportunities via acquisitions are limited The product supply chain depends on many suppliers such as farms, fresh fruit providers, etc. A great number of variable costs

20. Opportunities Increasing awareness on health, well being and nutrition Consumption in ready to eat cereals is increasing Improved crop production as a result of GM food technology Consumer trust and brand recognition Largest purchaser of Rice in Australia The growth of health-conscious trend among people across countries Busier lifestyle The continual growth of cereal market (2.9% increasing from 2006) Threats Impact of global warming on availability of raw materials (cereals and rice) Concern over GM food technology and consumer skepticism On going effects of Australian drought on raw material availability and cost Growing strength of competitors (Goodman Fielder, Sanitarium) Highly competitive industry Increased food regulation Increasing cost of raw materials Alternative choices of breakfast e.g. rice SWOT Analysis

21. New Product Opportunities Megatrend: Convenience, Health, Taste, Ethical Market Opportunity: Easy to consume Convenient Can consume on the run Healthy (low fat, sugar content) Nutritional (vitamin supplement) Tasty Environmentally friendly

22. New Ideas Generation New cereal grain with high levels of resistance starch Cereals that taste like; Bacon and eggs Toast with jams Fruits Baked beans Pan cakes Rice Edible packaging New cereal flavours Fun shapes/ colours/ seasonal Cereals made from new seeds Breakfast bar plus (high energy) Products with salt Ready to eat cereal as a meal replacement for weight loss New product range by demographics Milk and cereal combination Space bar breaky (dehydrated & or microwave) Wake up breakfast Combo breaky with additives

23. Screening Criteria 1.Sales/Revenue potential 2.Profit Margin Potential 3.Development Cost 4.Innovation 5.Competition 6.Distribution

24. Screening Criteria

25. Concept Testing Involves designing and presenting representations of the proposed new product/s to a sample of intended customers Objective is to estimate market reaction to a product before committing resources to its physical development

26. 2 research methods will be utilized Qualitative feedback provide information to evaluate the 3 concepts Profile of the market Assess likely purchase intentions and position the product Make improvements to the product Modifications to be made on the product presentation Quantitative Research Estimate trial of the product Compare product with existing buying patterns Identify barriers / issues in adoption Concept Testing

27. Product A – Edible PackagingProduct B – Space BarProduct C – Combo A new packaging concept for breakfast cereals Inner plastic coated packaging layer is replaced by an edible package which forms part of the contents to be consumed. Consumer need Environmentally friendly Nutritional and low fat Benefits Environmentally friendly Reduce packaging waste by up to 40% Nutritional and low fat Vitamin supplement Enhanced flavors & taste Convenient / no preparation Fresh mint flavor (Oral hygiene) A new product category Dehydrated cereal in a small snack bar size that consumed directly or re-hydrated by adding milk and consumed as a traditional breakfast Consumer need Convenience Nutritional and low fat Time effective Substitute for snacks Benefits Size/packaging Nutritional and low fat Added health benefits Convenient / no preparation Quality / flavor Easy to consume A new product category Disk shaped cereal that consumed directly or by adding milk and consumed as a traditional breakfast using patented technology Consumer need Convenience Nutritional and low fat Time effective Substitute for snacks Benefits Size/packaging Nutritional and low fat Added health benefits Convenient / no preparation Quality / flavor Easy to consume No preparation Concept Testing

28. Edible Packaging Would you be interested in a cereal where the inside package was part of the cereal? Interested in the idea “I’m interested in any thing that reduces waste and is environmentally friendly so I would be interested in finding out more” Found the product credible “I’m not surprised that with the rate of technological change they can come up with cereal packaging that can be eaten with the cereal” Not interested in the idea I don’t believe it is possible and I don’t fancy eating paper of any sort” (35-55) “How do you transport the product”? Conclusion- Most interest in younger ages group (13-25) Most skeptical (45+) Qualitative Research Results – Adolescents and Young adults most interest Research Results Qualitative Research

29. Space Bar Would you be interested in a cereal which is very small and can be either eaten has a snack bar or re re-constituted and consumed as a traditional breakfast Interested in the idea “I really like the convenience facto r- I can sit down and eat it as traditional cereal or if I’m in a hurry I can eat it on the run and still get the same nutritional value”. “ it small enough to be carried around a snack food which is not junk food” Found the product credible “they have been doing this sort of stuff in the space program and the military since the 60’s so the technology should be well advanced”. “It can be eaten on the” “It would fill you like a regular breakfast” Conclusion- Interest across all age groups (13-55) Qualitative Research Results - Adolescents and Young adults and adults Qualitative Research Research Results

30. Combo Would you be interested in a cereal where it can either be eaten as a traditional cereal or a snack on the run? Interested in the idea “I really like the convenience facto r- I can sit down and eat it as traditional cereal or if I’m in a hurry I can eat it on the run and still get the same nutritional value”. Found the product credible “Because it has the additional additives it can be eaten without milk and you still get all of your calcium intake” Conclusion- Interest across all age groups Not interested in the idea (I don’t believe it is possible and I don’t fancy eating paper of any sort” 55+) Qualitative Research Results – Adolescents, Young adults and adults to 50+ most interest Qualitative Research Research Results

31. Quantitative Research Research Results

32. Kellogg’s New Product Kellogg's Kompact Disk Breakfast cereal eaten on its own as biscuit or with milk Healthy snack Vitamins and minerals added Added value - to be discussed

33. New Product Development IP - Bonding agent MBA – Mono-Bythen-Apyte Lactose PATENT PENDING

34. IP - Bonding agent Lactos MBA – Mono-Bythen-Apyte PATENT PENDING New Product Development

35. IP - Bonding agent Added Value!! Product of MBA combined with Lactos Fat Globules PATENT PENDING New Product Development

36. Business Analysis (preliminary) Sales Forecasting Market size = 12,910 tones

37. Profitability Analysis Business Analysis (preliminary)

38. Break Even Analysis Business Analysis (preliminary)

39. NPV Analysis Business Analysis (preliminary)

40. Fixed Asset Expenditure Business Analysis (preliminary)

41. Product Testing

43. Product Testing Results

44. Commercialization Production Plan Modification to the existing production line New tooling for Kompact DisK Shape Launch Strategy and Marketing Plan Roll Out Strategy Test marketing (second half of 2008, before official launch) - Nutri Grain, Just Right - Geographic region: Sydney Customer Segmentation, 4 P Strategies, IMC Plan

45. Launch Strategy and Marketing Plan Launch target: Q1/2009 Offering Summary: Brand: Kellogg Kompact Disk (Special KK) Product: Combo breaky with additives Attribute: Attractive shapes of cereal bar 3 product categories: 1) Sport/Energy, 2) Kids, 3) Health-conscious Benefits: 100% Australian products Convenient, tasty, fun, healthy, assistance in weight reduction. Key competitors: Direct Competitors: Uncle Toby's, Nestle, Sanitarium, Weight-watchers Indirect Competitors: Restaurants, Take-away food, Fast food, hot breakfasts (substitute products)

46. Target Customer Demographic People on the go People with varying needs for breakfast timing People who like breakfast to be interesting People who are concerned about their weight Psychological Attitude and Belief Health-conscious, Convenience-driven and Energy-driven Brand preferences Lifestyle Have the habit of eating breakfast Busy lifestyle Lazy lifestyle Traditional lifestyle

47. Marketing Objectives (SMART Objectives) To increase 75% brand awareness among target customer by the end of 2010. To achieve annual sales volume of “Kellogg’s Kompact DisK” > $50 million by end of 2010 To increase market share by 5% by the end of 2010 Marketing Strategy: Roll Out

48. Product Strategy Product strategy – Positioning as “health, convenience and intriguing” – Product differentiation with “new technology of versatility, health element and unique shape” – Packaging : Various varieties will be tested during market testing (individually rapped in packages of 14, jumbo packs etc)

49. Price Strategy Pricing strategy The price of “Kellogg Kompact Disk” is higher than other similar product because it is emphasized on health and convenience. BrandWeight (standardised) RRP /Unit ($) Kellogg’s Kompact Disk35g 0.40 Kellogg’s std ready to eats35g0.35 Uncle Toby’s Plus35g0.30 Uncle Toby’s Vita Brits35g0.25 Uncle Toby;s OT bars35g0.28 Sanitarium Premium35g0.44

50. Channel Distribution The manufacturing facilities of Kellogg cereal at Botany, on the train line and near to the wharves for convenient shipping of products around Australia and into the Asia-Pacific region. From the factories, the finished products are distributed directly to wholesalers, supermarkets, convenient stores, grocery stores. Possible New channel distribution: “Vending Machine” which suits students and busy people. Botany Factories Supermarkets Convenient stores Vending Machines Consumers Supermarkets Convenient stores Vending Machines Supermarkets Convenient stores Vending Machines Supermarkets Convenient stores Vending Machines Supermarkets Convenient stores Vending Machines Supermarkets Convenient stores Vending Machines Supermarkets Convenient stores Vending Machines Wholesalers, Supermarkets Export

51. Promotion Integrated Marketing Communication (IMC) is a key communication tool to create brand recognition and trigger purchase intention Utilizing both above-the-line and below-the-line media to effectively enhance target customers’ demand ATL: TVC, Radio, Outdoor, Interactive media BTL: In-store media, Point-of-purchase media, sampling distribution Focusing on “Pull strategy” to directly create demand and apply the most efficient media in the right program to reach target audience Stakeholder relationship management to manage the relationship with important company’s stakeholders

52. Communication Strategy SMART communication objectives Communication objective SMART objective Brand awarenessIncrease 70% awareness of "Kellogg Compact DisK " in the existing target market within the first year of launch Brand attitude Convince 12% of the target group to consume Kellogg’s Kompact DisK within the first year of positioning. Brand loyalty Build a strong relationship with consumers to make Kellogg Compact Disk becoming the first choice of our target consumers’ evoked set after one year of launching Kellogg Kompact Disk.

53. Communication Strategy Marketing Communication Objectives and media Key Communication Objectives MC Objectives Best MC FunctionRationale Product differentiation Brand awareness  Advertising Create the new product image and brand awareness Consumer trust and brand recognition Brand loyalty  Sales & promotion  Vouchers Reach the target customers, enhance the brand image and introduce new product Healthy image of cereal products Brand attitude  Advertising  Packaging  Promotion Reach a large amount of audience, associate product with a sense of healthiness through advertising, sponsorship and packaging.

54. IMC Launch Plan Task20082009 DecJanFebMarAprMayJunJulAugSepOctNovDec Product Launch (Market Testing) OFFICIAL LAUNCH Above-the-Line Media Launch TVC Radio Outdoor Interactive Below-the-Line Media Launch Sampling distribution In-store promotion In-store media Point-of-purchase Media (Vending machine)

55. Communication Strategy IMC Schedule and timeframe Priority of media option:High Medium (The number represents frequency)Low Marketing tactics & Media options2009 TV Commercial in 5 cities*JanFebMarAprMayJunJulAugSepOctNovDecFreq. Ch 7 - Australian Got Talent442 2 12 Ch 7 - 7 Sport4424 44 216 Ch 9 - Mornings with Kerri-Anne644 44 2226 Ch 10 - Are You Smarter Than A 5th Grader?1066 442 6 38 Ch 10 - The Biggest Looser (Aus)4644 24 220 Radio19 5000 00 0043 Fox FM (101.9 FM)106 16 MIX FM (101.1 FM)1065 16 Family FM (96.5 FM)106 16 Outdoor advertisement in 5 cities* Billboard62 8 Bus/Tram shelters644 14 Community pillars at train stations525 7 Internet Online advertisement Email updates to consumer Sales & Promotion In-store Media Point-of-purchase Media Packaging 94693780812104626 Note: Launching into 5 cities: Melbourne, Sydney, Perth, Adelaide, and Brisbane

56. IMC Budget

57. Roger’s Five Characteristics Kellogg’s Kompact Disk Relative Advantage Compatibility Complexity Divisibility Communicability

58. MBA 9050 - Product Strategy CEREAL PRODUCTS Friday 30th November, 2007 Questions ?