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Differentiated Products

Differentiated Products

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Differentiated Products

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  1. Differentiated Products AG BM 102

  2. Commodity Products • Consumer (or buyer) doesn’t care who made commodity products • Commodity products are sold on price • Quality matters but many sellers can provide a given quality • Producers have very little customer loyalty • Barriers to entry low – at least in comparison

  3. Differentiated Products • These products have a distinct identity • The manufacturer has some control over the price • It need not sell for the same price as the competitor’s price • Keys to success are product characteristics • Entry very difficult

  4. Advertising • Backbone of differentiated products – remind consumer of the differences • Costs a lot of money • Lots of effort spent

  5. Growth • Hard to win customers from competitor • May raise prices for a while • Entering new markets can be difficult • New product strategy common

  6. Rationale for New Product Development • emerging demands • counter competitors • broaden product line • product life cycle

  7. Types of New Products • Innovative – Lite Beer • New to firm – Sprite for Coke copied 7Up • Product line extension – Vanilla Coke • Product improvements – new Cheer

  8. Leading Soft Drinks by Volume2009

  9. World Market

  10. The Economics of Cereal

  11. Top Cereal Producers

  12. Leading Brands 2008 GM Cheerios 12.6% K Special K 5.4% P Honey Bunches of Oats 4.9% K Frosted Flakes 3.8% K Frosted Mini Wheats 3.5% K Kellogg Raisin Bran 3.0% K Froot Loops 2.6% GM Cinnamon Toast Crunch 2.4% GM Lucky Charms 2.4% Q Cap’n Crunch 2.4% • Source: Topher's Breakfast Cereal Character Guide

  13. Inputs • Inputs are commodity products • Input supplier power is very low

  14. Cereal Company Power • Moderate • Sole source of branded products • Some essential to store • Yet Kellogg needs store just like store needs Kellogg • Store has more power for new products

  15. Supermarket’s Power • Supermarket’s power is medium • Is increased by supplier dependence on • Distribution channels • Shelf space • Consumers • Advertisements • Is decreased by buyer’s need for • Cereal products • Other food items produced by the companies

  16. Threat of Substitutes • Threat of substitutes is medium • The threat is increased by • Increased pace of life • Fast food alternatives • Fewer people eating breakfast • Fewer manual jobs • The threat is decreased by • Health Awareness • Company Diversification

  17. Threat of New Entrants • The threat of new entrants is very low • Barriers to entry include • Economies of scale • Product differentiation • Capital requirements • Buyer switching costs • Access to distribution channels • Brand proliferation

  18. Intensity of Rivalry • Rivalry is very intense • Rivalry is increased by • A few similar sized competitors • Slow industry growth • High fixed costs • High degree of differentiation • Low consumer switching costs

  19. General Mills • Largest market share in ready to eat cereal industry. • #1 in all but one out of the major product categories it has products • 1 out of every 11 boxes of cereal sold is Cheerios.

  20. Strengths • Brand Names • Cheerios, Trix, Total, Lucky Charms, Wheaties, Golden Grahams, Cocoa Puffs • Innovation • Hamburger Helper, Fruit Rollups • Industry Focused • Divested all non-food products • Acquired Pillsbury

  21. The Kellogg Company W.K. Kellogg ran a health resort where (Kellogg’s claims) cereal was invented Today, they are the world’s second largest producer of cereal

  22. Strengths • Knowledge • In 95th year of producing cereal commercially • Founded by the (claimed) creator of cereal • Invested a lot of resources in R&D • Brand Name • Great reputation • Tony the Tiger, Snap, Crackle, and Pop

  23. Post Cereal Company • Postum Cereal company started in 1895 by C.W. Post. • Grape-Nuts introduced in 1897 • Post now ranks 3rd in industry in market share. • Post took initiative in 1996 by lowering prices an average of 20 percent

  24. Strengths • Established Since 1901 • Diversified • Gatorade, Rice A Roni, Aunt Jemima • Nutrition • Late entrant to cold cereals • Part of PepsiCo since 2001

  25. Concluding Comments • Branded foods have special role in marketplace • Consumer loyalty • Grocer must carry strong brands • Gives manufacturer leverage • Requires investment in brand • Price competition rare