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ready to eat breakfast cereal industry in 1994

Category: Business Paper Type: Homework Reference: APA Words: 1500

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.

Why have private labels been able to enter this industry successfully?
When considering private labels the industry has successfully entered due to numerous reasons. The first reason being more profit for retailers, second being discounted prices than the big three in the industry, third great coupon promotions by these private labels and the fourth being greater variations in taste. People choose these labels due to uniformity in quality and consider the cons and negative aspects of coupon promotion not a part of the regular deal (Porter, 2006).

What does General Mills hope to accomplish with its April 1994 reduction in trade promotions and prices?
There are two ends that General Mills wants to accomplish by reducing trade promotions and pricing in 1994 and those were to reduce the prices with the private labels and price was the major source where these private labels were competing successfully by decreasing pricing they were reducing their profits and by reducing trade promotions they were cost cutting. Result of an analysis denoted that GM wanted the big three to follow lead as the private labels were eating them up and the estimate was that GM saved $175 million by cutting trade promotions. The members of oligopoly all followed the lead (Corts, 1994).

Assignment on The Ready-to-Eat Breakfast Cereal Industry in 1994 By XxX Dated: 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 CITATION Cor94 \l 1033 (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 CITATION Por06 \l 1033 (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. Why have private labels been able to enter this industry successfully? When considering private labels the industry has successfully entered due to numerous reasons. The first reason being more profit for retailers, second being discounted prices than the big three in the industry, third great coupon promotions by these private labels and the fourth being greater variations in taste. People choose these labels due to uniformity in quality and consider the cons and negative aspects of coupon promotion not a part of the regular deal CITATION Por06 \l 1033 (Porter, 2006). What does General Mills hope to accomplish with its April 1994 reduction in trade promotions and prices? There are two ends that General Mills wants to accomplish by reducing trade promotions and pricing in 1994 and those were to reduce the prices with the private labels and price was the major source where these private labels were competing successfully by decreasing pricing they were reducing their profits and by reducing trade promotions they were cost cutting. Result of an analysis denoted that GM wanted the big three to follow lead as the private labels were eating them up and the estimate was that GM saved $175 million by cutting trade promotions. The members of oligopoly all followed the lead CITATION Cor94 \l 1033 (Corts, 1994). Reduce effect on trade promotions: These promotions are quite expensive as they cover administration expense, expense of coupon printing etc. In addition, tradepromotions coupons reduce switching cost but are an explosionfor brand loyalty based activities.GM plans to invest on advertising, which normally enhances brand loyalty, instead of spending advertising budget on coupons,whichtargets customers that are price sensitive. Bibliography BIBLIOGRAPHY Corts, K. S. (1994). The Ready-to-Eat Breakfast Cereal Industry in 1994. Harvard Business Review, 1-17. Porter, M. E. (2006). The five competitive forces that shape strategy. Harvard Business Review.

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