Extending the product life cycle CURRICULUM TOPICS

• Product life
• cycle
Ansoff’s matrix
• Marketing mix

Introduction • Extension strategy

Businesses need to set themselves clear aims and objectives if they are going to GLOSSARY
succeed. The Kellogg Company is the world’s leading producer of breakfast cereals Aims: the end purposes towards
and convenience foods, such as cereal bars, and aims to maintain that position. which a business focuses its activities.
Objectives: the end purposes that
It is Great Britain's largest selling grocery brand. Product lines include ready-to-eat cereals an organisation or individual seeks
to achieve.
(i.e. not hot cereals like porridge) and nutritious snacks, such as cereal bars. Kellogg’s brands
Brand: a name, symbol or design
are household names around the world and include Rice Krispies, Special K and NUTRI-Grain,
used to identify a specific product
whilst some of its brand characters, like Snap, Crackle and Pop, are amongst the most and to differentiate it from its
well- competitors.
known in the world. Corporate social
responsibility: how a business
shows it cares not just about
Kellogg has achieved this position, not only through great brands and great brand
products, but its people and
value, but through a strong commitment to corporate social responsibility. This communities, its place in society.
means that all of Kellogg’s business aims are set within a particular context or set of Market share: the percentage
ideals. Central to this is Kellogg’s passion for the business, the brands and the food, slice of a particular market
demonstrated through the promotion of healthy living. occupied by a product.
Product life cycle: the way sales
of a product change over time.
The company divides its market into six key segments. Kellogg's Corn Flakes has been
Research and development:
on breakfast tables for over 100 years and represents the ‘Tasty Start’ cereals that people processes that involve investigating
eat to start their day. Other segments include ‘Simply Wholesome’ products that are new ideas for products and taking
good for you, such as Kashi Muesli, ‘Shape Management’ products, such as Special K them forward to be test marketed.
and ‘Inner Health’ lines, such as All-Bran. Children will be most familiar with the ‘Kid Start-up costs: those costs that
have to be paid once to establish
Preferred’ brands, such as Frosties, whilst ‘Mum Approved’ brands like Raisin Wheats are
a business or brand - also called
recognised by parents as being good for their children. sunk costs.

Each brand has to hold its own in a competitive market. Brand managers monitor the
success of brands in terms of market share, growth and performance against the
competition.
Key decisions have to be made about the future of any brand that is not succeeding. This
case study is about NUTRI-Grain. It shows how Kellogg recognised there was a problem with
the brand and used business tools to reach a solution. The overall aim was to re-launch the
brand and return it to growth in its market.

The product life cycle

Each product has its own life cycle. It will be ‘born’, it will ‘develop’, it will ‘grow
old’ and, eventually, it will ‘die’. Some products, like Kellogg’s Corn Flakes, have
retained their market position for a long time. Others may have their success
undermined by falling market share or by competitors. The product life cycle shows
how sales of a product change over time.

The five typical stages of the life cycle are shown on a graph. However, perhaps the most
important stage of a product life cycle happens before this graph starts, namely the
Research and Development (R&D) stage. Here the company designs a product to meet
a need in the market. The costs of market research - to identify a gap in the market and of
product development to ensure that the product meets the needs of that gap - are called
‘sunk’ or start-up costs. NUTRI-Grain was originally designed to meet the needs of busy
people who had missed breakfast. It aimed to provide a healthy cereal breakfast in a
portable and convenient format.

1. Launch - Many products do well when they are first brought out and NUTRI-Grain
was no exception. From launch (the first stage on the diagram) in Year 1, it was
immediately
successful, gaining almost 50% share of the growing cereal bar market in just two
years.
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 2. Growth - NUTRI-Grain’s sales steadily increased as the product was promoted and
became well known. It maintained growth in sales until Year 6 through expanding
the original
product with new developments of flavour and format. This is good for the business, as it
does not have to spend money on new machines or equipment for production. The market
position of NUTRI-Grain also subtly changed from a ‘missed breakfast’ product to an
‘all-day’ healthy snack.

GLOSSARY
Market saturation: when there is no room for any more competitor products; the market is ‘full’.

3. Maturity - Successful products attract other competitor businesses to start selling

similar products. This indicates the third stage of the life cycle - maturity. This is
the time of maximum profitability, when profits can be used to continue to build the
brand. However, competitor brands from both Kellogg itself (e.g. All Bran bars) and
other manufacturers (e.g. Alpen bars) offered the same benefits and this slowed
down sales and chipped away at NUTRI-Grain’s market position. Kellogg continued to
support the development of the brand but some products (such as Minis and Twists),
struggled in a crowded market. Although Elevenses continued to succeed, this was
not enough to offset the overall sales decline.

Not all products follow these stages precisely and time periods for each stage will vary
widely. Growth, for example, may take place over a few months or, as in the case of
NUTRI-Grain, over several years.

Year 3Year 4Year 5Year 6Year 7Year 8

Year 1
Year 2

4. Saturation - This is the fourth stage of the life cycle and the point when the market is
‘full’. Most people have the product and there are other, better or cheaper
competitor products. This is called market saturation and is when sales start to
fall. By mid of Year 8
NUTRI-Grain found its sales declining whilst the market continued to grow at a rate of 15%.

5. Decline - Clearly, at this point, Kellogg had to make a key business decision. Sales
were falling, the product was in decline and losing its position. Should Kellogg let the
product ‘die’, i.e. withdraw it from the market, or should it try to extend its life?

Strategic use of the product life cycle

When a company recognises that a product has gone into decline or is not performing as well
as it should, it has to decide what to do. The decision needs to be made within the context of
the overall aims of the business. Kellogg’s aims included the development of great brands, great
brand value and the promotion of healthy living. Strategically, Kellogg had a strong position in
the market for both healthy foods and convenience foods. NUTRI-Grain fitted well with its main
aims and objectives and therefore was a product and a brand worth rescuing.
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Kellogg decided to try to extend the life of the product rather than withdraw it from
the market. This meant developing an extension strategy for the product. Ansoff’s
matrix is a tool that helps analyse which strategy is appropriate. It shows both market-
orientated and product-orientated possibilities.

GLOSSARY
Extension strategy: a way of extending the life of a
re-branding it or re-pricing it.
Ansoff’s matrix: a model developed by business wri
Brand image: the lifestyle or other image associate
Unique selling point: a specific benefit of a produc

Extending the Nutri-Grain cycle

– identifying the problem
Kellogg had to decide whether the problem with NUTRI-Grain was the market, the product or both.
The market had grown by over 15% and competitors’ market share had increased whilst NUTRI-
Grain
sales in Year 7 had declined. The market in terms of customer tastes had also changed – more
people missed breakfast and therefore there was an increased need for such a snack product.

The choice of extension strategy indicated by the matrix was either product development
or diversification. Diversification carries much higher costs and risks. Kellogg decided that
it needed to focus on changing the product to meet the changing market needs.

Research showed that there were several issues to address:

1. The brand message was not strong enough in the face of competition. Consumers
were not impressed enough by the product to choose it over competitors.
2. Some of the other Kellogg products (e.g. Minis) had taken the focus away from
the core business.
3. The core products of NUTRI-Grain Soft Bake and Elevenses between them represented
over 80% of sales but received a small proportion of advertising and promotion
budgets.
4. Those sales that were taking place were being driven by promotional
pricing (i.e discounted pricing) rather than the underlying strength of
the brand.

Implementing the extension strategy for Nutri-Grain

Having recognised the problems, Kellogg then developed solutions to re-brand and re-launch
the product in Year 9.

1. Fundamental to the re-launch was the renewal of the brand image. Kellogg
looked at the core features that made the brand different and modelled the new
brand image on these. NUTRI-Grain is unique as it is the only product of this kind
that is baked. This provided two benefits:
• the healthy grains were soft rather than gritty
• the eating experience is closer to the more indulgent foods that people could be
eating (cakes and biscuits, for example).
The unique selling point, hence the focus of the brand, needed to be the ‘soft bake’.
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2. Researchers also found that a key part of the market was a group termed
‘realistic snackers’. These are people who want to snack on healthy foods, but
still crave a great tasting snack. The re-launched Nutri-Grain product needed to
help this key group fulfil both of these desires.
3. Kellogg decided to re-focus investment on the core products of Soft Bake Bars and
Elevenses as these had maintained their growth (accounting for 61% of Soft Bake
Bar sales). Three existing Soft Bake Bar products were improved, three new ranges
introduced and poorly performing ranges (such as Minis) were withdrawn.
GLOSSARY
Investment: putting funds to use in the hope of4. New returns
securing packaging
later. was introduced to unify the brand image.
Marketing mix: a series of variable factors such as the four Ps (product/price/place/promotion) used by an organisation to meet its customers' needs.
5. An improved pricing structure for stores and supermarkets was developed.
Point-of-sale materials: information that is used where the sale actually takes place, such as displays in stores and by tills.

Using this information, the re-launch focused on the four parts of the marketing mix:
• Product – improvements to the recipe and a wider range of flavours, repositioning
the brand as ‘healthy and tasty’, not a substitute for a missed breakfast
• Promotion – a new and clearer brand image to cover all the products in the range
along with advertising and point-of-sale materials
• Place – better offers and materials to stores that sold the product
• Price – new price levels were agreed that did not rely on promotional
pricing. This improved revenue for both Kellogg and the stores.

As a result Soft Bake Bar year-on-year sales went from a decline to substantial growth,
with Elevenses sales increasing by almost 50%. The Nutri-Grain brand achieved a retail
sales growth rate of almost three times that of the market and most importantly,
growth was maintained after the initial re-launch.

Conclusion
Successful businesses use all the tools at their disposal to stay at the top of their
chosen market. Kellogg was able to use a number of business tools in order to
successfully re-launch the Nutri-Grain brand. These tools included the product life
cycle, Ansoff’s matrix and the marketing mix. Such tools are useful when used
properly.

Kellogg was able to see that although Nutri-Grain fitted its strategic profile – a
healthy, convenient cereal product – it was underperforming in the market. This
information was used, along with the aims and objectives of the business, to develop a
strategy for continuing success. Finally, when Kellogg checked the growth of the re-
launched product against its own objectives, it had met all its aims to:
• re-position the brand through the use of the marketing mix
• return the brand to growth
• improve the frequency of purchase
• introduce new customers to the brand.

Nutri-Grain remains a growing brand and product within the Kellogg product family.

Questions:
1 Using current products familiar to you, draw and label a product life cycle diagram, showing which
stage each product is at.

2 Explain the difference between “Market orientated routes and Product orientated routes”, with examples
from the local market.

3 Critically evaluate the decision taken by Kellogg to opt for product development. Suggest a way in
which it could have diversified instead. Justify your answer.

4 Highlight the importance of branding in product management. What role does branding play in
extending the PLC? Illustrate with examples from this case and beyond.

5 The Ansoff growth matrix is a tool that helps businesses decide their product and market growth
strategy. Briefly discuss two other strategic management tools used by businesses to plan their
future direction.