Hazards Of New Markets - Usha Iyengar

The Problem
Thompson's entered India in 1994, soon after liberalisation assuming that with the opening up of the Indian economy, there would be many an Indian who would love to start the day with their breakfast cereal. It set up a wholly owned subsidiary and invested in a greenfield manufacturing plant for cereals. (When ownership is not shared, then it is a subsidiary which is wholly owned. A greenfield project is when the factory is built from scratch.)

It entered the market with corn flakes supplemented with iron and the fruity rice crispies called fruity hoops. They carried out some  initial trials in Mumbai by offering heavy inducements to the customer to purchase their first pack. No independent market research to corroborate its asumptions was conducted. It decided to  attack the market through a broad base with no clear strategy of market segmentation.

When Thompson's entered India, they had anticipated that within two years, they would be able to stack up their sales figures. But they achieved less than 20% of their initial sales target. What could be the problem that is hindering their sales growth? How do they address this problem?

The Solution
Thompson's had entered a tough market. It first had to understand and then change the local food habits that were ingrained through decades if not centuries. The task becomes even more challenging in a country where eating habits change every 100 kilometres.  Let us study what were the mistakes Thompson's made that could have been the avoided.

The Significance Of Research
Thompson's seems to have failed in the gospel-truth, "Know thy customer." They had started out with the notion that what works across the world will work in India as well. Greenfield projects have helped transnationals to structure their operations and infrastructure in the way they want, however, it takes time to understand the country. This could have been one of the reasons why Thompson's took time to establish themselves in the country.

The peculiarities of Indian breakfast consumption pattern are not easy to understand. The company should study the breakfast table in the rural and urban India. For example, idli and dosa are the staple breakfast of   the south while dalia and parathas those of the north. Moreover, these are considered to be more filling and nutritious than any crispy cereal. This is because, for many Indians a breakfast is a mini-meal.

Though fortified with iron and other minerals, Thompson's cereal needs a dash of sugar to cut the blandness. Also Thompson's flakes can stay crisp only if they are consumed with cold milk. But Indians are well-known to be finicky about cold milk and instead prefer it with hot milk. As a result, the flakes turned soggy - just like the other cheaper variants.

Added to this the other problem was that Thompson's did not find out why it did well in its initial trials but was not able to follow up successfully. Instead, encouraged by these successes, it accelerated its roll-out plans to 60 cities.

It is imperative that the company conduct an in-depth research on the breakfast habits of Indians, understand their tastes and preferences to create a place for itself.

Intricacies Of Segmentation
Thompson's did not start out with a clear segment of consumers for its breakfast cereals. It chose a very broad base - the Indian family and assumed it to be enough. But given the complex nature of the Indian middle-class where different age groups and profiles have varied preferences it becomes important that a clear market segment be identified -whether it be children, working professionals, elderly people, youngsters who work out frequently or pregnant women. Realising this Thompson’s later narrowed its target segment to children.  But there was nothing exciting on offer that would appeal to the children. So there were few takers.

A workable strategy for Thompson's would be to position its breakfast cereal as a healthy start to a day, target health conscious people who frequently exercise as a part of their daily routine. Another important market to tap would be the working professional's segment. This segment is under perennial time crunch and life is made easier for them, with a ready-to-eat breakfast.

Revamping Brand Positioning
It is obvious that all multinationals are trying to break into well-populated markets. Thompson's initially came with the idea to target a broad market segment.  A few years of negative growth made them change track and they decided to target the children specifically. This was a concentrated marketing effort. But this was done after some trial and error and a lot of water had flowed down the bridge already.

The image of Thompson's had already been etched as a pricey brand, in the minds of the Indians. Once an image is created, it is rather difficult to break. Communicating the message through advertisements, school programmes and promotional activities would be very important. Urban children are the users and influencers but the parents take the ultimate buying decision. Innovative promotions to target children through give-aways and freebies would be a good way to influence children to buy.

They would also need to address the concern of very health conscious parents who would consider it to be too sweet a breakfast for children in the morning, and may not be the best way to start the day.  The best message would be that Thompson's is light and healthy. It could also be positioned as a health food. They should increase the range of products so that they can cater to a few more tastes and segments of the market.

According to CMIE, Centre for Monitoring Indian Economy, in August'2006 breakfast cereal volumes in the country  have increased from 5400 tonnes in 03-04 to 6000 tonnes in 2005-06. Thompson's has played a significant role in creating this market. The company should go for heavy advertising and communication. They will be able to leverage better on the market that they helped create. Margins will follow this exercise. It would also be a good idea to diversify into other new variants of the products to increase the consumer base.

Pricing - A Fine Balance
When Thompson's entered the Indian market it positioned itself as a premium product. A 450 gm pack of Thompson's costs Rs. 63, while a 500 gm pack costs Rs. 80. On the other hand cornflakes sold by the leading player then was Rs. 33 for a 500 gm pack. When it first entered the Indian market this kind of pricing was bound to deter the price-conscious consumer. It chose to reinforce its claim of being a quality product by highlighting its formidably expensive packaging, which, it claimed, kept its flakes extra crisp. The packaging accounted for 45 per cent of the product cost in the early days and so the price-value equation collapsed.

Thompson's will have to bring down its price so that a large mass of people can buy its products. A breakfast cereal is consumed almost on a daily basis and needs to be affordable. Thompson's can learn from a brand like Revlon, which introduced its Rs.99 lipstick. Revlon still remains a value product, which means that it delivers quality and affordable rates. Thompson's too needs to place itself as a value product.

To conclude, Thompson's has to learn from its mistakes and understand that it has to be relevant to the consumer of that country. They should be able to see themselves as a value-for-money product. The bottom line is that Thompson's needs to use different strokes for different folks.