1) Substitutability by buyers and suppliers defines the boundaries of RTE cereal industry from a demand-side perspective and a supply-side perspective respectively. The boundaries from a demand-side perspective in this case are the fact that buyers have low switching costs. The cereal industry has a diversified range of products so consumers can easily substitute one type of cereal for another or one brand for another. From the supply-side perspective, boundaries are technological in nature such that larger firms can produce many different types of cereals in large production lines as they can sustain the large capital requirements. Smaller firms are unable to diversify products in this way, as they do not have the required technology or capital to produce a large range. Furthermore, the Big Three also faced a trade-off with regards to which cereals would be allowed the limited shelf-space they were allocated at supermarkets.
2) The industry’s significant segment markets are aimed at different types of consumers or those with different lifestyles. For example Kellogg’s makes Froot Loops, which is aimed at children rather than adults and Special K, aimed at the more health conscious consumers. Quaker Oats also produced hot cereals. A segment that was expected to grow during the 90s was the ‘Co-branded’ cereals. “Co-branded cereals were produced and distributed by one of the Big Three, but relied on another company’s brand name for the product’s distinctiveness.” (Harvard Business School, 1995. P6). This is a way of targeting consumers who are brand loyal. It is evident that companies attempted to diversify into the snack foods market as well. Here they are targeting consumers who are ‘on-the-go’. General Mills introduced a cereal called ‘Fingos’ that could be eaten with fingers.
3) The industry has been successful because it is the most concentrated out of all U.S industries. Cooperative competition increased their bargaining power so that buyers would have...
Bibliography: Grant, R. M. (2009). Contemporary Strategy Analysis. John Wiley and Sons.
Harvard Business School. (1996). Read-to-East Cereal Industry in 1994 (B). Boston: Harvard Business School Publishing.
Harvard Business School. (1995). Ready-to-Eat Cereal Industry in 1994 (A). Boston: Harvard Business School Publishing.
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