Pricing Strategies And Competition In Breakfast Cereal Industry

Pricing strategies of Cereal manufactures

1. Pricing strategies of Cereal manufactures?

2. Survey in a large chain super market?

3. Nature and competition in breakfast cereal category?

Breakfast cereal manufacturing industries is one of the leading readymade food manufacturing industries in the world. Day by day this industry is become very popular as they help people to save their time as well as they can maintain a healthy life (Does marketing need reform?: Fresh perspectives on the future, 2015).

Pricing strategies means a method used by the companies to price their products or services. Almost each and every company use this strategy on the basis of production, labour, manufacturing expenses and then add certain percentage of profit on it. In the given situation it is found that the cereal manufacturing industries are mainly using market skimming strategies where companies charges more price initially to recover the cost of production, advertising and other costs. Their main objective is to make quick profit. In cereal manufacturing industries very low amount is required for purchasing raw materials and labour but a very high amount is spent on advertisement to attract more customers (Esteban-Bravo, Múgica and Vidal-Sanz, 2009). Their manufacturing costs are also moderate. They put more focus on distribution part. As this product is a readymade breakfast, it became very popular among the school and office goers which save their time for making the breakfast. Historically this industry was working by using    price discrimination pricing strategy. However, recently some of the manufactures are started using Price competition, Price skimming and price penetration strategies, previously which were unused techniques (Chen, Li and Zhou, 2012) ; (Smith, 2012). Following is the cost of manufacturing shown in the chart

A main tool used by the cereal industry is coupons. Design of the coupons gives the customers a lower price if they use these coupons. Using these coupons charge made by this industry is higher and the high price conscious consumers will definitely use these coupons. It helps the industry by gaining a higher margin on impulsive buying but still allowing them to concern about the prices and not to complain about high prices.

For making a survey I had visited in Sainsbury retail store from where I find the following information (Chopra and Meindl, 2007) ; (Galperin, 2012).

A. The highest price breakfast cereal available in the store is Dorset Cereals Muesli Variety pack, the cost is £ 4.30 per unit or £ 0.84 per 100 gm.

Survey in a large chain super market

B. The lowest price breakfast cereal in the store is Sainsbury’s own product named as Sainsbury’s Cornflakes Basics. The cost of this product is £0.25/unit or £0.05/100 gm.

C. Price band means a range of price where an upper and a lower limit are stated and the consumers have given the option to bid within the range. Among the cereal brands I have not found any such price bands in Sainsbury.

D.  The average price of cereals is within the bracket of £1.50 to £ 2.00 in Sainsbury shop.

E. Almost more than 90% brands are in special offer. The offers are mainly

1. Discount of prices. Like Kellogg’s Fruit ‘n’ fibre Cereal 750 g is available at only £ 2.00 and itgives a option to save £1.00

2. Combo offers.

3. Cereals bowls free with a pack of cereal.

F.  Yes there is some existence of private labeled brands apart from the branded products. Sainsbury itself made cereals which is only owned by them and available in Sainsbury shops. They have four different categories of cereals within this brand name. Price points of Sainsbury cereals are not too high or too low. They are at £ 2.40/Unit or £ 0.32/100 gm (Kotler and Keller, 2012).

 The cereal industry without any doubt use differentiation strategies. Companies in different segment in the market produce various name brands. Brands are for Children, teenagers, adults (parents), and for those who are very conscious about their health. Most of the times creating this type of segmentation reduces the complexity of the entry. This strategy is popularly termed as product proliferation. Among the cereal industry the type competition is depend on new variety of cereal production to satisfy or create potential consumer desire. At present there are approximate over 75 brand names are available. Companies are continuously searching for new types to create an attraction for various market parts. Like Kellogg’s is trying to enlarge share in market by launching Cocoa Frosted Flakes with an anticipation of $ 30 million advertisement push. The cereal industry in a way tried to make a difference by introducing cereals as finger snack. Though cereal account for a small segment of snacks, People’s consumption as a finger food has increased during last 12 years (Anwar, 2015).

The main dominating firms in this industry are Kellogg, General mills, Phillip Morris (Post) and Quaker Oats. Some other techniques these firms are using as their defensive plans which will help them to reduce the capability of private brands to capture the market share. R&D has always been an important variable in cereal manufacturing industries. New cereal flavors, Healthier cereals, crunchier cereals, and are some examples of cereal market developments over the history. Private branded cereal companies are capable to offer their limited priced product to market by their technology and speed. Different joint branding ventures are resulted by this, for example Reese’s brand by Hershey’s and General Mills, and Healthy choice by Kellogg’s and Con Agra. Through this joint branding contracts brand equity has been established by the dominating companies and virtually it is impossible for a private labeled brand to imitate (Schöler, 2013).

Sometimes private brands are able to dominate the market as because very few options are available to the consumers for purchase. In Sainsbury shop it is found that there is most of the cereals available are from Sainsbury itself, though other brands are also there but the retail store was giving more emphasis on their own product than other ones. They are approaching customers to purchase their product.

Lastly, the cereal manufacturing industries adopted new strategies to ensure success and future growth and for this several strategies like reduction of cost and expansion of global market has been taken into consideration. Companies like Kellogg realize that the foreign market is very important for future expansion of their business. Today’s world consumer’s taste and preferences are almost similar due to the improvements economy and technology. It is providing them the opportunity to share world market. Cost elimination is very useful for successful expansion throughout the globe and also competition prevailing in the domestic market. Following is the revenue growth structure of Kellogg’s company (Strategic marketing, 2008).

Conclusion

Firms in the cereal manufacturing industry will try to improve its efficiency in manufacturing and advertising areas because if their product pricing strategies are continued in this manner then it will definitely bring down the cost of the product and tends towards lower prices (The marketing book, 2008) ; (Sustainability marketing: A global perspective, 2009).

References

Anwar, M. (2015). Effect of Borrowing on the Growth of Manufacturing Industries in India.Arthshastra : Indian Journal of Economics & Research, 4(1), p.9.

Chen, X., Li, L. and Zhou, M. (2012). Manufacturer’s pricing strategy for supply chain with warranty period-dependent demand. Omega, 40(6), pp.807-816.

Chopra, S. and Meindl, P. (2007). Supply chain management. Upper Saddle River, N.J.: Pearson Prentice Hall.

Esteban-Bravo, M., Múgica, J. and Vidal-Sanz, J. (2009). Magazine Sales Promotion: A Dynamic Response Analysis. Journal of Advertising, 38(1), pp.137-146.

Galperin, R. (2012). Organization-bound professionalism.

Kotler, P. and Keller, K. (2012). A framework for marketing management. Boston: Prentice Hall.

Schöler, C. (2013). Transfer Pricing Manager. CON, 25(11), pp.644-645.

Smith, T. (2012). Pricing strategy. Mason, Oh: South-Western Cengage Learning.

DoesMARKETING need reform?: Fresh perspectives on the future. (2015). .

TheMARKETING book. (2008).

Strategic marketing. (2008). .

Sustainability marketing: A global perspective. (2009)