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private labels been able to enter this industry successfully

Subject: Customer Relationship Management

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Paper Type: Assignment

Total Words: 795

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  1. Why was the RTE cereal industry so profitable for so many decades?
  2. What does General Mills hope to accomplish with its April 1994 reduction in trade promotions and prices?

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  1. Why was the RTE cereal industry so profitable for so many decades?

I personally think that the cereal industry RTE was so profitable for the past decades. Considering this the new entrants there is not much alternative as there are many barriers to entry and these barriers made entry impossible. The barriers include a large manufacturing unit so it was difficult to sustain until profitability was reached. Secondly, one fifth of the sales was to be spent on marketing and advertisement. This is essential as they are introducing a new product in the market that is already settled.

Further Barriers to entry are discussed below.

Brand Proliferation Strategy: The affected have launched a “brandproliferation” strategysuccessfully. In addition, this strategy has been used to identify every foreseeable niche of the market and ensure that it is serviced with a particularly unique brand using which every foreseeable market niche is already servicedwith a specific brand. There are more than 200 brands offered by the big three in this industry. This approach halts the inflow of entrants as every niche is explored and every part is being served with a brand. There are also sub brands, which are compiled in a brand, which houses these. These halt new entrants to launch brands in a low cost market where some brand serves each niche (Corts, 1994).

Spending on Promotion and Advertising: This advertising and promotional spending is about 15% of sales and the big three invest about 300 million on this expenditure per year.

Preferential Privileges in Retail Stores: The big three hadprolonged and deep relationships with theretailers and usually get the best and most desired shelf space in the store. This shelf space not only boosts their sales but also limits the sale of new entrants. This shelf space is normally allotted on volume of historical sales. This also makes it difficult for new entrants to get a decent space to sell their baby brand as their old competitors take up all the good spots on the shelvesAs a result it makes it difficult for them to enter the market or bear high sales.

Capital Investment: Manufacturing units cost almost $300 million just to setup in order to achieve economies of scale a set production is to be achieved. This in whole is a risk that cannot be bore by new entrants as they have limited supply of investment and are short on time as well. Therefore, this is a barrier for sure and many large companies consider that amount to be achieved once in the lifetime of a project. The Return on this investment portfolio is not as big if the growth potential is set aside (Porter, 2006).

Hence, these barriers are strong enough to hold and stop progression in the entry of new entrants. Hence, flourish this oligopoly and conclude that the barriers of entry had prevented new entrants into this industry for a long time.


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