Kellogg's Indian Experience

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The Mistakes Contd...

Avronsart remarked, "Kellogg India is not here to change breakfast eating habits. What the company proposes is to offer consumers around the world a healthy, nutritious, convenient and easy-to-prepare alternative in the breakfast eating habit. It was not just a question of providing a better alternative to traditional breakfast eating habits but also developing a taste for grain based foods in the morning." Another mistake Kellogg committed was on the positioning front. The company's advertisements and promotions initially focussed only on the health aspects of the product. In doing this, Kellogg had moved away from its successful ‘fun-and-taste' positioning adopted in the US. Analysts commented that this positioning had given the brand a ‘health product' image, instead of the fun/health plank that the product stood on in other markets. (In the US for instance, Kellogg offered toys and other branded merchandise for children and had a Kellogg's fan club as well.) Another reason for the low demand was deemed to be the premium pricing adopted by the company.

At an average cost of Rs 21 per 100 gm, Kellogg products were clearly priced way above the product of its main competitor, Mohun's Cornflakes (Rs 16.50 for 100 gm). Vinay Mohan, Managing Director, Mohan Rocky Springwater & Breweries, the makers of Mohan's cornflakes said, "Kellogg is able to cater only to the A-Class towns or the more affluent consumers whereas Mohun's caters to the mass market." Another small-time brand, Champion was selling at prices almost half of that of Kellogg. This gave the brand a premium image, making it seem unattainable for the average Indian consumer. According to one analyst, "When Kellogg tried a dollar-to-rupee pricing for its products, the company lost out on getting to the mass consumer." Even the customers at the higher end of the market failed to perceive any extra benefits in Kellogg's products. A Business Today report said that like other MNCs, Kellogg had fallen into a price trap, by assuming that there was a substantial latent niche market in India for premium products.

In most Third World countries pricing is believed to play a dominant role in the demand for any product. But Kellogg did not share this view. Avronsart said, "Research demonstrates that to be well accepted by consumers even the most nutritious product must taste good. Most consumers view quality as they view taste, but with a very high standard. We approach pricing on a case-to-case basis, always consistent with the total value delivered by each product." He also said, "Local brands are selling only on the price platform. We believe that we're demanding the right price for the value we offer. If the consumer wants quality, we believe he can afford the price." Thus, it was not surprising that the company went ahead with its plans of increasing the price of its products by an average of 28% during 1995-98. Before the product was made available nationally in March 1995, the demand from Mumbai had been very encouraging. Within a year of its launch in Mumbai, Kellogg had acquired a 53% market share. Following this, the company accelerated its national expansion plans and launched the product in 60 cities in a 15-month period. However, Kellogg was surprised to see the overall demand tapering off considerably. A Mumbai based Kellogg distributor explained, "Why should somebody sitting in Delhi be deprived of the product? So there was considerable movement from Mumbai to other parts of the country." As the product was officially launched countrywide, the company realized that the tremendous response from the Mumbai market was nothing but the ‘disguised demand' from other places being routed through Mumbai.

Kellogg had also decided to focus only on the premium and middle-level retail stores. This was because the company believed that it could not maintain uniform quality of service if it offered its products at a larger number of shops. What Kellogg seemed to have overlooked was the fact that this decision put large sections of the Indian population out of its reach.

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