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Part 2: Understanding the Marketplace and Consumer Value (Chapters 3–6)

3 Analyzing the Marketing Environment

Chapter Preview

So far, you’ve learned about the basic concepts of marketing and the steps in the marketing process for engaging and building profitable relationships with targeted consumers. Next, we’ll begin diggingdeeper into the first step of the marketing process—understanding the marketplace and customer needs and wants. In this chapter, you’llsee that marketing operates in a complex and changing environment. Other actors in this environment—suppliers, intermediaries, customers, competitors, publics, and others—may work with or against the company. Major environmental forces—demographic, economic, natural, technological, political, and cultural—shape marketing opportunities, pose threats, and affect the company’s ability to engage customers and build customer relationships. To develop effective marketing strategies, a company must first understand the environment in which marketing operates.

To start, let’s look at Kellogg, the world’s largest cereal maker and one of its most recognized and respected brands. Kellogg’s cereals have been staples in American homes for generations. However, as demographic, cultural, lifestyle, and other environmental shifts have changed how people eat breakfast, mighty Kellogg has had difficulty adapting. The storied company now finds itself battling to bring modern breakfast eaters back to its table.

KELLOGG: Losing Its Snap, Crackle, and Pop?

For more than 109 years, ever since the Kellogg brothers of Battle Creek, Michigan, first perfected the process of making toasted corn flakes, the morning bowl of cereal has been a daily ritual in U.S. homes. Generations of sleepy-eyed Americans have bellied up to the breakfast table, filled a bowl with crunchy goodness, and munched their way through enough fuel to fortify them until lunch.

That morning ritual has made Kellogg the world’s largest cereal maker. For more than a century, the company’s storied brands—such as Kellogg’s Corn Flakes, Frosted Flakes, Froot Loops, Rice Krispies, Frosted Mini-Wheats, Raisin Bran, and Special K—have helped define the American breakfast experience.

From its origins, Kellogg has capitalized on environmental trends and shifts, even led them. Before Kellogg, most people ate leftovers for breakfast, a sure-fire path to late-morning indigestion. Then John and Will Kellogg patented the process for making a healthy alternative, “flaked cereal,” leading to their first successful product, Kellogg’s Corn Flakes. When television appeared in 1950s, Kellogg pioneered the pairing of its cereal brands with familiar animated mascots, such as Tony the Tiger for Frosted Flakes, Toucan Sam for Froot Loops, and Snap, Crackle, and Pop for Rice Krispies. And when cereal sales waned in the 1980s, Kellogg almost single-handedly grew the entire cereal category by 50 percent in just five years by targeting baby boomers with products positioned on nutrition and convenience.

But in recent years, amid a flurry of demographic, cultural, and lifestyle changes, Kellogg’s bowl-of-cereal breakfast has lost a lot of its allure. Today, as people increasingly reach for granola bars or Greek yogurt, cold cereal consumption has dipped. As breakfast-eating behavior has changed, however, Kellogg has not. As a result, in recent years, Kellogg’s overall revenues and profits have lost their snap, crackle, and pop. Its morning-foods sales—which account for the lion’s share of its overall revenues—have been hardest hit. Last year, for example, sales of 19 of Kellogg’s 25 top cereals dropped by as much as 14 percent.

Americans simply aren’t eating as much cereal these days. Gone are the times when families gathered around the breakfast table before Dad headed off to work while Mom stayed home, made lunches, and got the kids off to school. Cold cereal fit well with that routine. But now, with both parents often working, it’s a grab-and-go breakfast world, with little time to linger over a bowl of Raisin Bran and the morning newspaper. “For a while, breakfast cereal was convenience food,” says one food historian. “But convenience is relative. It’s more convenient [now] to grab a breakfast bar, yogurt, a piece of fruit, or a breakfast sandwich at some fast-food place than to eat a bowl of breakfast cereal.” Kellogg does market some grab-and-go breakfast lines—such as Eggo frozen waffles, Pop-Tarts toaster pastries, and Nutri-Grain cereal bars. But the modest gains in those products have done little to offset the bigger losses from Kellogg’s powerhouse cereals.

There’s another major lifestyle trend affecting Kellogg’s cereal business—Americans have become more health-conscious. Increasingly, consumers are looking for food with attributes such as “low-carb,” “gluten-free,” “organic,” and “non-GMO” (genetically modified organisms). That presents a big problem for Kellogg, which churns out box after box of carb-heavy, processed foods made from corn, oats, wheat, and rice.

Increased health concerns also add new weight to long-standing claims by food activists that the cereal industry is peddling junk food to children. “Many of the kid-oriented cereals have a fair amount of sugar in them,” says one Kellogg critic. “Their Eggo waffles are mostly white flour. Pop-Tarts are white flour and sugar. For a company that started out as a health-food company, they’ve turned into something very different.” For some discerning breakfast eaters, says one analyst, “Tony the Tiger and Toucan Sam may seem less like friendly childhood avatars and more like malevolent sugar traffickers.”

Kellogg has responded to some of these concerns. Over the years it has lowered the amount of sugar in its top-selling children’s cereals, added gluten-free and GMO-free cereal varieties, and added healthier extensions such as Raisin Bran with Cranberries and Special K Red Berries, a current best seller. In 2000, Kellogg also purchased Kashi, a California-based health-food cereal brand known for natural and organic ingredients. Leveraging Kellogg’s resources and know-how, Kashi’s annual revenues grew from $25 million to more than $600 million in less than a decade.

But moves toward a healthier Kellogg have been compromised by decisions that seemed at odds with shifting customer lifestyles and preferences. For example, at the same time that Kellogg was adding healthier options to its mainstream brands, it was weighing down its more wholesome brands like Special K and Kashi with less-than-healthy extensions—such as Special K Chocolatey Pretzel Bars, Special K Fudge Brownie Bites, Kashi GoLean Vanilla Graham Clusters cereal, and Kashi Blueberry Frozen Waffles—all processed foods loaded with carbs and calories. Kashi also now sells cookies, crackers, pizzas, and frozen entrees in addition to breakfast foods. As a result, these “healthier” Kellogg brands have suffered setbacks. Last year, some Special K versions posted double-digit declines. And the Kashi brand is now struggling with both its identity and its sales. “Kashi is a brand that has lost its way,” says an analyst. “Many of its varieties are not organic. Many have GMOs.”

Photo shows a few packets of Kellogg's products. — For generations, Kellogg’s storied cereal brands have helped to define the American breakfast experience. But as modern American lifestyles and breakfast-eating behaviors have changed, Kellogg has lost some of its snap, crackle, and pop.

Associated Press

Kellogg has plans to reenergize its breakfast sales, such as restoring Kashi’s credibility among health-food shoppers and repositioning Special K from a diet brand to one with broader appeal to health-conscious consumers. And the company is busy developing new on-trend breakfast products. Kellogg has also reduced its reliance on cereals with the acquisitions of big snack brands such as Pringles and Keebler—cereal now accounts for 45 percent of its business, down from 70 percent 15 years ago.

Still, some analysts wonder if Kellogg’s heart is really into keeping up with new health and lifestyle trends. For example, its recent unveiling of a new gluten-free Special K was largely overshadowed by the enthusiastic introduction of peanut butter and jelly Pop-Tarts, a product largely out of sync with where the U.S. food culture is heading. And although Kellogg has already put 15 new GMO-free cereals on supermarket shelves, behind the scenes the company is spending millions to defeat ballot initiatives in three Western states that would require companies to identify GMO ingredients on their labels. Finally, the Pringles and Keebler acquisitions were more off-trend than on, and they moved the company farther away from its breakfast-foods core.

Despite its recent woes, Kellogg remains a strong, iconic brand. Kellogg’s CEO doesn’t seem all that worried: “The company has been around for 109 years,” he says. “We have the time. We have a plan to turn it around.” Some analysts, however, paint a more ominous picture. “Carbs, sugar, and stubbornness are killing Kellogg,” says one. Whatever their views, all observers agree that Kellogg is at a critical juncture. As consumers change, Kellogg must change with them. The company’s difficulties provide a cautionary tale of what can happen when a company—even a dominant market leader—fails to adapt to its changing marketing environment. Companies that understand and adapt well to their environments can thrive. Those that don’t risk their very survival.1

Objectives Outline

A company’s marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers. Like Kellogg, companies must constantly watch and adapt to the changing environment—or, in many cases, lead those changes.

More than any other group in the company, marketers must be environmental trend trackers and opportunity seekers. Although every manager in an organization should watch the outside environment, marketers have two special aptitudes. They have disciplined methods—marketing research and marketing intelligence—for collecting information and developing insights about the marketing environment. They also spend more time in customer and competitor environments. By carefully studying the environment, marketers can adapt their strategies to meet new marketplace challenges and opportunities.

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Table of Contents for Part 2: Understanding the Marketplace and Consumer Value (Chapters 3&#8211;–6)

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Table of Contents for
Part 2: Understanding the Marketplace and Consumer Value (Chapters 3––6)