Ready to Eat Cereal Essay Example

implemented.
e. The RTE cereal market experienced a 15% increase due to a price-promotion spiral.

Between 1990 and 1993, private labels were able to successfully enter the cereal industry. Their entry was characterized by low prices, with private label cereals averaging $1.90, in contrast to branded cereal manufacturers.

The average of the Big 3 is $3, which is 40% less than b. Private labels had minimal advertising, but when they did advertise, it was to increase awareness of their price advantage. The advertising costs were $800 million and $610 million for coupon-related expenses.

Price up and spend back practice e. Price-promotion spiral drove RTE cereal up 15.6% from 1990 to 1993 Cost Structure- a. Private labels had lower costs related to manufacturing, packaging, marketing, R&D compared to the Big 3 cereal companies, product quality approaching that of branded products, higher margins for grocers, lower priced products 3. What does General Mills hope to achieve with its April 1994 reduction in trade promotions and prices? a. General Mills aims to enhance profit performance.

General Mills aims to regain lost market share from private label cereals by implementing a strategy that involves cutting $175 million from its trade promotions and couponing budget while simultaneously reducing prices by 11% on its major brands. This move is driven by the belief that Branded cereal offers superior quality compared to private labels, and by lowering prices, General Mills hopes to effectively compete with these private label counterparts.

Typically, the Big 3 companies tend to follow each other. Therefore, General Mills' move could positively impact the profitability of the other two companies. However, there are risks associated with these actions. One risk is that it

could potentially drive down industry profitability due to lower prices. Additionally, it is also important to consider how General Mills' competitors will respond to these actions.

Going against the unwritten agreement of the Big 3 could potentially initiate a cereal war. In response, competitors such as Kellogg and Phillip Morris are expected to act similarly to General Mills. As for General Mills, they should reduce their reliance on couponing, find ways to reduce expenses, but still maintain their advertising efforts.

6. Is this industry appealing? - Yes a. The threat of new entrants has historically been high due to a high barrier of entry and the Big 3 having a monopoly. b. The bargaining power of customers is low. c. The threat of substitutes is low.

Bargaining power of suppliers is relatively high. Additionally, rivalry among existing competitors in the industry has historically involved working together with unwritten agreements in order to maintain profitability.