Industry Analysis Essay
Smaller firms are unable to diversify products in this way, as they do not have the required technology or capital to produce a large range. Furthermore, the Big Three also faced a trade-off with regards to which cereals would be allowed the limited shelf-space they were allocated at supermarkets. 2) The Industry significant segment markets are aimed at different types of consumers or those with different lifestyles. For example Kellogg makes Front Loops, which Is aimed at children rather than adults and Special K, aimed at the more health conscious consumers.
This s evident in the RET cereal industry; “the Big Three had restrained competition among themselves by achieving effective unwritten agreements to limit in-pack premiums” (Harvard Business School, 1995. UP). 5) Prior to 1994 the key to success lay in the concentration of the cereal industry and having few challenger firms. The Big Three also invested heavily in advertising; the advertising/sales ratio was 10. 2% by 1993 (Harvard Business School, 1995 . UP). They did not initially need to resort to pricing strategies however, as buyers had low- switching costs, the threat of private labels increased.
Private labels had the advantage of consistently lower prices than major incumbent firms. As the RET industry was characterizes by “regular rounds of price increases”, the major firms resorted to using coupons as a promotions strategy. However, this only swayed the most price-sensitive buyers, proved costly to the issuers and diminished brand loyalty. Private labels managed to benefit from this situation. “The high prices and ubiquitous coupons of branded cereals were blamed by many for the market share of private labels. ” (Harvard Business School, 1995.
UP). General Mills identified the robber that their cereals division was declining, so in 1994 they changed their strategy in order to add clarity to their positioning in the industry. They decided to cut $17 million out of its promotions and coupling budget and simultaneously reduce prices on its biggest brands by an average of 11 percent. (Harvard Business School, 1995. Pl 1). As a result, smaller firms were gaining some of General Mills’ and Kellogg market share. The success factors are changing in the sense that firms have changed their game strategy.
They resorted to cutting prices across all lines and introducing a value-priced line of cereals (Harvard Business School, 1996. UP). This in essence meant that larger firms were changing their strategy in line with smaller firms which despite costing them profitability, resulted in greater competition within the industry. Bibliography Grant, R. M. (2009). Contemporary Strategy Analysis. John Wiley and Sons. Harvard Business School. (1996). Read-to-East Cereal Industry in 1994 (B). Boston: Harvard Business School Publishing. Harvard Business School. (1995). Ready-to-Eat Cereal Industry in 1994 (A).