The overall market for cold cereal is shrinking, yet there are segments with growth.
The $50 million cinnamon flavored segment of the breakfast cereal market is showing growth of 4% annually. The segment is dominated by General Mills Cinnamon Toast Crunch at 20% share. Kellogg's Cinnobon co-branded cereal has 10% share. Kellogg's would like to have a second entry into the growing market. They intend to introduce Kellogg's Cinnamon Frosted Flakes, a line extension of their popular Frosted Flakes. They are concerned about cannibalization of their Kellogg's Frosted Flakes, which has sales of $75 million. They decided to test this in 4 test markets before a national rollout of the product. In the test markets, Cinnamon Frosted Flakes captured 10% of the Cinnamon Flavored market, and Frosted Flakes declined 2%. The introduction did not impact the sales of their Cinnabon co-branded product.
Given what you know from the test market results, should Kellogg's introduce the new Cinnamon Frosted Flakes Cereal?
a) No, because the cannibalization of Kellogg's Frosted Flakes and the Cinnabon Cereal make it a losing proposition
b) No, because they already have a strong player in the Cinnamon category with the Cinnabon cereal, and this weakens the Frosted Flakes franchise.
c) Yes, because the net new incremental business in the category demonstrates growth, even with the impact of cannibalization, plus the cinnamon segment is growing.
d) The information presented does now allow us to accurately determine the long-term impact of such a decision. More data is required.
e) Yes, because Kellogg's Frosted Flakes is a strong cereal which should be family branded.
