Question

Topic: Research/Metrics

Breakfast Cereal Concept

Posted by Anonymous on 12/18/2009 at 12:45 AM ET 500 Points
Dear KHE gurus,

In an Asian market, we have a situation wherein the packaged cereal market can broadly be classified as local vs. imported. Local brands account for nearly 60% of market. Imported brands, such as Kelloggs, although priced higher delivers a much better sensorial and taste experience.

Within imported segment, X is the biggest brand with a share of nearly 20%. All the imported brands offer three variants differentiated mainly by the fineness of grain and therefore respective pricing.

Now, the catch is that in the next few months the local government plans on introducing a mixed tax system and VAT which is assumed to impact X's consumer price pushing it up for all imported brands as well as for all local brands.

So, X is planning to launch X Gold as a vertical down-ward line extension. The new line is expected to catch the potential down-traders due to price increase and also encourage trial from the local segment and thus maintain the growth momentum of X under the following different scenarios -

Scenario 1 :- prices for all brands go-up by 3%

Scenario 2 :- prices for all imported brands go-up by 4% and for local brands by 2%

Scenario 3 :- prices for all local brands remain same and prices for imported brands increase by 2%

I need your PoV on the best approach (or combination of approaches) to unearth for X:
- Consumers’ reactions to concept of X Gold
- Identify directions for concept & product improvement
- select a price-point for launch of X Gold so as to maximize gains for brand and minimize the extent of cannibalization
- estimate likely share for Brand X in above-mentioned 3 scenarios with or without X Gold

We have the latest retail audit report of the MS and pricing of key brands...as an addendum

Additionally, research should be able to provide directions on a few additional pricing scenarios if needed.

Thanks, in advance!

S
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RESPONSES

  • Posted by koen.h.pauwels on 12/18/2009 at 7:46 AM Member
    Very interesting...the three analogies in my mind:
    a) a similar situation faced by Unilever laundry detergent in India
    b) P&G contemplating how to compete with private label diapers in the US: reducing the price on Luvs or launching a new, lower-priced brand
    c) a pharmaceutical company in Germany faced with a government price structure change, which devised a way for consumers to pay the same while the price raised on all other brands, and permanently increased its market share

    I can give you references on these, but of course each situation may differ from yours. Therefore, in order to give you a quantitative answer to your questions as to:
    - Consumers’ reactions to concept of X Gold
    - select a price-point for launch of X Gold
    - estimate likely share for Brand X in above-mentioned 3 scenarios with or without X Gold

    I would need quantitative information on current and past pricing and market shares for the key brands - did not see the latest retail audit report of the MS and pricing of key brands in addendum
  • Posted by Gary Bloomer on 12/18/2009 at 9:23 AM Accepted
    Dear justbloggin,

    I'm reminded here of the XO Beer campaign that Singapore Newspaper Holdings ran—oh so many years ago (written by my good friend Neil French).

    Before you launch your new cereal and before other prices go up, might you want to place your message in front of potential cereal buyers so that they're asking the question "What on Earth will I do when the price of my favorite cereal goes through the roof?"

    Your message then offers the ANSWER to this question—which then gets people thinking about their future breakfasts, so to speak.

    This way, you create fear and anticipation and THEN, you offer your solution in the guise of your new cereal:

    You then in effect say to customers "Prices are going up? Good lord! That's outrageous. Someone ought to do something about that!".

    Then you wait for a moment and, with dramatic effect, proclaim "What about THIS? (as you unveil your new product) and shout "T'dah!" as sales then (potentially) go up because you've given customers salvation with your pre-seeded messages about their future.

    Your new vertical down-ward line extension might then be
    more likely to catch the potential down-traders due primarily
    to your new message because you've changed attitudes and behaviours, NOT simply because of price increases elsewhere,
    or because of trials in the local segment.

    Give who buys this stuff, and how much they're prepared to
    pay for their favorite cereal (based mainly on taste and overall message), consumers’ reactions to X Gold might depend on your message more than they'll depend on price.

    Without tasting the stuff and without seeing the packaging or the ads you'll be running it's almost impossible to offer feedback that identifies directions for concept and product improvement.

    No workee.

    Likewise, without knowledge of local currency and price points of similarly placed brands (psychologically speaking) it's again all but impossible to offer advice or opinion on price-points for the launch of X Gold.

    And ditto, without FURTHER information that offers detailed background about potential market share for Brand X compared with other brands and based on who buys and eats the stuff, again, you're asking questions that no one here can answer.

    You can offer all the scenarios under the sun, but until you prop them up with the bar of the local watering hole in the guise of facts, those scenarios are all just weekend bar room quarterbacks:
    all fine to listen to, but devoid of a connection to what's going on on the field of play.

    I hope this helps.

    Gary Bloomer
    Wilmington, DE, USA


  • Posted by mgoodman on 12/20/2009 at 7:22 PM Accepted
    The kinds of questions you ask are (a) the right ones, but (b) can't be answered in a general sense because there are too many specifics (i.e., independent variables) that need to be taken into account.

    There are two options, as I see it:

    First, you can design a series of research "experiments" to try to quantify consumers' likely reactions in each scenario and use the results of those experiments to address the strategic alternatives.

    Second, you can get a pricing strategy expert (or two) and give them all the relevant information about the market/history, and then ask them to "intuit" what's likely to happen, and get their input. Sometime the gut reactions of people who have been through the drill before are better than the quantitative analysis.

    Or you can start with the experts and see if they recommend a quantitative study to improve the accuracy of their conclusions.
  • Posted by koen.h.pauwels on 12/20/2009 at 9:49 PM Member
    Agreed with Michael. JB, which of these two routes do you want to go? If you want a quantitative analysis of the market/history to pinpoint best pricing options, you can ask for a consultancy project on MarketingProfs...
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