Post Cereal

Even though Post has shown a 12% decline in their children’s cereal market as compared to one year earlier, in general, Post’s increase in their marketing expenditure over the past few years appear to show significant results, but let us analyze by numbers. The increases in marketing are spread between trade deals, advertising, and premiums. Consequent to those increases, let us measure from 1985 to 1990, that the share Post held in the children’s cereal market had dramatic increases from 35% to 41% over that period. (That share of the market does not reflect an increase in population over that period, thus making the actual number of sales that much larger, roughly 2-3%/year). Calculating the numbers (Total Market Sales * Post’s Share = Total Revenue) the following represents the yearly revenues = 1985 = $27.3 mil; 1986 = $28.7mil; 1987 = $28.9; 1988 = $36.1; 1989 = $44mil; 1990 = $48.79mil. Now, taking those numbers, we can get the amount spent yearly on Marketing as follows: 1985 = $7.371; 1986 = $7.462; 1987 = $8.38; 1988 = $11.55; 1989 = $16.28; 1990 = $17.07. Basically extrapolating this information, we can see that from 1985 to 1990, total revenues increased from $27.3mil to $48.79mil an increase of $21.49mil. Over that same period, our total marketing increased from $7.371 mil to $17.07mil, making the increases in the marketing budget worthwhile!

As it has been stated, it is difficult to pin point the exact reason for the success over the years. (This will become a factor a later time during this synopsis of Post) The increases of the marketing budget went from 27% of revenue in 1985; to 35% of revenue in 1990 (Estimated for 1990 and not including the additional 18% increase that management has designated for Jane Well’s to allocate). Both the increase in market share and increase in marketing are shown in the following chart.

The first reaction of some, as a result to Kellogg’s increase in marketing expenditure, would be to subsequently increase one’s own budget proportionately as well. This would be a knee jerk reaction and would probably show some effects. However, we should view the decrease in sales of 12% these past two quarters as an opportunity to re-tool and redesign the marketing plan. As it was stated, the marketing plan, in general, is made up of 3 areas: trade deals, advertising, and premiums. For the most part, representatives from each of the three areas believe their field is the best to invest into and make strong arguments to that effect. However, we must realize that each is looking at the situation from one point of view, where Jane has the opportunity to view things from a bird’s eye perspective and realize that some of the information she is receiving could be biased. The solution should be a multi-pronged approach, factoring in well thought out, calculated and researched methods. The pie chart below shows the current allocation of marketing funds, with advertising currently receiving the largest piece of the pie.

First, trade deals are a critical factor. Thinking about it from a buyer’s perspective, if a product is not placed in the right location, a buyer may get frustrated looking for it and take something else, or simple purchase what is being placed in the prime location. An added twist that should be involved in this is as follows. Since our increase needs to factor in the two other major marketing areas (advertising and premiums), it is recommended that 30% of the $3.05 million increase (pending further increase requests discussed later) in marketing monies should be spent towards trade deals. This figure follows the rough pattern of investments currently being made, which is actually estimated at 34% of the 1990 marketing budget (12% / 35%). An added twist is also recommended in addition to this increase. Old allocations should continue at the same levels, following the same patterns at the same levels. However, the newly allocated funds should be targeted and researched. We need to examine the sudden decrease of Post’s market and analyze the increase in Kellogg’s market. In doing so, we can finely tune our investment in targeted regions that we see as our “bread and butter” and not invest more into areas that do not effect us that much. For instance, let’s say after researching the current market trends, we find that Kellogg’s has had major increases in the south and locations within urban areas. Is this example, we may want to consider focusing the entire allocation of funds in this region to circumvent Kellogg’s increase.

Secondly, we need to consider premiums, the smallest of our marketing budget. An increase from our new monies is recommended by 10%, slightly less of an increase in proportion to the current 14% it currently receives (5% / 35%). In addition to simply increasing the budget, a further analysis should be conduct in this area, similar to that above for trade deals. Here however, we look to find what times of year premiums make a difference in addition to what types of cereal add-ins have been or could be successful. For instance, let’s say that we’ve noticed that the beginning of the school year is the most popular time for cereals in general. Since we know that people will buy cereal at a higher rate during this time, maybe we should look at when sales are slower, and entice children to purchase during those down seasons. Additionally, premiums should also be tailored and thought through. Any company can put a plastic toy in the cereal box, but, if that toy had meaning, or was part of a set that required more future purchases, or was related to a recent hit children’s movie release etc… the possibilities are endless.

Lastly, the lions share, 60% of the $3.05 million marketing increase (again pending further increase to be discussed later) should be allocated to advertising. As stated and shown, most children are sold on the type of cereal they plan to purchase by what they’ve seen or recognize from watching television. However, a simple increase of airtime will not suffice in fixing our problem of lost sales over the past two quarters. A new campaign, targeted and timed correctly is recommended to help aide in the loss of sales. There are a multitude of options, but some of the more intriguing are as follows. Most children actively see commercials on TV’s in the morning or during kid’s shows. A twist on this active commercial viewing is alternative branding, such as product placement within major children’s movie releases. This is a tailored and creative way of placing your product in the kitchen, of let’s say, Clark Kent!

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