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Introduction

Barclays is a global bank. It provides a range of financial services

in 56 countries. Barclays provides retail banking services to

customers, whether they are individuals or businesses. It offers a

broad range of financial products and services including current

accounts, savings accounts and general insurance.

Within the UK, Barclays communications are designed to help

customers ‘Take One Small Step’ to managing their money better

every day.

Different kinds of customers represent distinct markets for

Barclays. The market for personal banking services is very

competitive. Personal customers have a choice of banks on the

high street or on the web to assist them in managing their

finances. For example, they can have their salaries paid into

accounts, pay bills through the bank or save money to gain

interest on their savings.

There is also a competitive market for business banking services.

Businesses require different services such as credit management,

payments for suppliers or loans and overdrafts to help them to

survive and grow. For example, an expanding business may need

a mortgage to buy a new building.

Each market is capable of being further sub-divided into segments.

A market segment is a part of a whole customer group that

shares particular characteristics. These include such factors as

age, life stages, geography or occupation. Within the market of

personal banking, the segments could include categories such as

students, graduates, ‘new to work’, mature, and families. By

identifying different market segments, organisations can ensure

they are providing products or services to meet the needs of these

customers. In addition to this, appropriate promotional techniques

can be used to reach the people in the separate segments.

Through segmentation, Barclays has been able to devise

appropriate banking offers for customers in different segments.

This approach is helping Barclays to improve its market share of

the student accounts market.

Barclays believes students constitute a very important market

segment for the business. Students may be choosing a bank for

the first time and Barclays hopes to retain these customers. By

focusing on the specific needs of this segment, Barclays hopes to

attract more student customers and keep them in the long term.

Using market research has enabled Barclays to identify the right

product offer that will meet their needs.

The case study shows how market research enabled Barclays to

improve its student account offer.

Curriculum Topics

• Purpose of research

• Types of research

• Research findings

• Implementation and

evaluation

G L O S S

A R Y

www.thetimes100.co.uk

Market: Any medium through which

sellers and buyers can negotiate a sale.

Market segment: The percentage of

sales within a market that is held by one

brand or company.

Segmentation: Dividing up a

marketplace into parts, each comprising

a group of consumers with common

characteristics.

Market share: The percentage of sales

within a market that is held by one

product, brand or company.

EDITION

15 www.thetimes100.co.uk Barclays | Discovering customer needs through research 13

Discovering customer needs through research


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Purpose of market research

The purpose of market research is to gather data on customersand potential customers. The collected data aids business decision

making. This therefore reduces the risks involved in making these

decisions. In order to create a product proposition that would

attract new student accounts, Barclays needed to understand fully

the needs of this target market. Before engaging on external

market research, Barclays began by asking itself a series of key

questions. It did this to ensure the business was fully aware of all

the relevant issues and did not make incorrect assumptions.

In asking itself these key questions at the start and reviewing

internal customer data, Barclays was able to clarify its rationale for

acquiring students. Firstly, students provide an opportunity for

developing a long-term relationship. As the student market

segment increases each year in September/October as the

university term starts, Barclays has an annual opportunity to target

new student customers who need an account and who might not

yet have chosen a bank.

Secondly, the use of this data highlighted that in the years after

opening their accounts, Barclays was able to establish a valuable

long term relationship with students. This meant that students

could now be seen as an extremely important market segment,

and attracting new student customers became a significant

opportunity.

This internal understanding was vital. With this background,

Barclays designed a programme of market research. The purpose

of this was to establish what students really needed from a bank.

In this way it could offer appropriate products and services whichwould add value to students.

Types of market research

Barclays began a process that involved both primary and secondary

research. Primary research involves finding out new information. It

finds the answers to specific questions for a particular purpose.

These enquiries may take the form of direct questioning. For

example, it may include face-to-face surveys, postal or online

questionnaires, telephone interviews or focus groups. This type of

direct contact with people is valuable as it gives specific feedback to

the questions asked. However, it is important that the questions areclear and that the researcher is trained. This will ensure that the

results are not influenced. Although primary research can be

expensive and time-consuming, the up-to-date and relevant data

collected can give organisations a competitive advantage. This is

because their rivals will not have had access to it.

Barclays’ primary research process began internally with two key

questions:

• Who should our key customers be?

• What are their needs?

The insights from these questions provided a factual basis to

work from.

After this an external agency was employed to carry out an

opinion panel. This took the form of an online questionnaire. The

results of this delivered data about the market itself, as well as

Barclays’ market share among this target audience. Quantitative

research presents information in a numeric way, such as graphs,

tables or charts that can be used to analyse the information.

GL O

S S A R Y

Product proposition: The total mix of

benefits represented by a product and

offered to the customer.

Primary research: Acquisition of new

data to meet a specific objective.

Quantitative research: Research

resulting in numeric data capable of

statistical analysis.

EDITION

15www.thetimes100.co.ukBarclays | Discovering customer needs through research14


Who are ourkey customers?

1 2

3

4

5

6

7

What aretheir needs?

What propositionshould we offer

to meet theirneeds?

How should itbe delivered?

Delivery/ implementation

of product orproposition

In-linemanagement

Evaluation

Helpcustomers

Take ‘One Small Step’ to managing

their money better

every day


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For example, Barclays found from the questionnaire that 81% of

students surveyed held a savings account and 32% an

investment savings account (ISA).

The opinion panel also provided qualitative feedback on what was

of interest to students and what they wanted from an account.

Qualitative research provides information on consumer

perceptions, such as:

• how they feel about products and services

• what they like or do not like

• what they would want from a new product.

The panel produced valuable insights which Barclays used to help

re-evaluate its existing student account. It then used the

information to develop new features and benefits to meet the

established needs.

The enhanced student account proposition was then tested

directly with 100 existing and new Barclays Student Additions

account holders. This was carried out through bank branches and

an online questionnaire. The sample group provided more

qualitative feedback about what motivated students to choose a

particular bank. Although small, the sample allowed Barclays to get

a feeling for how students would respond to the proposition. For

Barclays, it was important to know what motivated a student to

choose a bank. Using existing students meant the bank was able

to assess if the new offer would meet their needs. The expectation

was that new and future students would also find it attractive.

Secondary research focuses on existing information. It uses

published data that previous research has already discovered.

This covers a wide range of materials, such as:

• market research reports

• sales figures

• competitor marketing literature

• government publications, e.g. national statistics.

Secondary research may be quicker to carry out but may give less

specific outcomes for the topic in question. This part of Barclays

research revealed that student accounts in 2009 amounted to

0.4 million out of a total market of 5.4 million new accounts.

Research findings

Numeric data gives a factual basis for planning - a snapshot of a

situation. On the other hand, qualitative information can find out the

things that really matter to consumers. For example, 80 out of 100

consumers questioned might say they preferred one brand of coffee

over another. However, more valuable information comes from

understanding what it is they prefer. Is it the smell, the taste, the

packaging or the price? To meet student needs for a valuable, helpful

financial service, Barclays needed to understand what students really

wanted. By using student focus panels and staff working in branches

with a high proportion of student customers, Barclays was able to

discover students’ concerns, priorities and strength of feeling.

The outcomes of the opinion panel and the sample of student

customers showed that:

• students relied heavily on different forms of credit. These

included an easily manageable bank overdraft to finance their

time at university

• students wanted and often needed to own high-tech gadgets

and electrical goods, such as laptops• students wanted to have separate accounts to manage their

student borrowing and spending

• any incentives offered would not alone motivate students to

choose that product. They were expected as part of any deal.

This insight was a real help to Barclays when considering the most

attractive proposition for students. Its objectives were to attract new

student accounts. It also wanted to retain students as customers

for life in a profitable relationship that met their financial needs.

EDITION

15 www.thetimes100.co.uk Barclays | Discovering customer needs through research 15


G L O S S

A R YQualitative research: Research that is

concerned with opinions, feelings,

perceptions and attitudes.

Secondary research: Collection of

already existing data, typically from

books, journals or websites.


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Barclays could now start to put together an offer that would

embrace the main concerns of the target market. These concerns

were financial security, credit availability, flexible banking and the

right sort of incentives.

Implementation and evaluation

In 2009, Barclays set up a working group to oversee the setting up

of the new student proposition. It used the insight from the research

to establish the key features and benefits of the student account:

• no monthly fee – to keep costs down for students

• an interest-free overdraft facility of up to £2,000 from starting

the account. Previously this started at £500 in the first year and

increased through the years of study. This extension helps

students manage their finances

• mobile banking and a network of local branches – for ease of

access to accounts.

These features are valid for the life of students’ studies.

Of several incentives tested with students, Barclays found that an

incentive based on a mobile or telecoms offer would have most

appeal. This idea was tested further with students on university

campus. The students expressed a clear preference for an

incentive offering mobile broadband:

‘The broadband offer looks good...I’d definitely go in to find out

more.’ ‘It’s good if the broadband offer is for the life of the

account…you may be in halls for the first year but not after that.’

To establish this incentive, Barclays researched broadband providers.

It then entered into partnership with Orange - the UK’s number 1

broadband provider. Orange’s strengths were a good business fit for

Barclays and ensured that the offer had credibility and perceived

value. Students who signed up for a Barclays student account were

able to obtain a 25% discount on the monthly cost of whichever

Orange mobile broadband scheme they chose.

Having developed a student banking proposition that Barclays felt

confident would appeal, it began to communicate the message

and promote the new student offer. An innovative marketing plan

was launched which involved:

• a word-of-mouth campaign through ‘100 voices’ (at

www.100voices.co.uk) which encouraged students to share their

experiences of managing money whilst at college or university

• promotional literature available in branches nationwide. This

proved useful information for Barclays colleagues as well as for

students and their parents to take away

• online advertising through barclays.co.uk

• direct mail to prospective students through the summer before

going to university.

Conclusion

The Barclays student account proposition shows how it is crucial

for a business to listen to its market. To do this effectively means

targeting specific market segments to discover their needs.

Barclays’ new student account proposition was an ‘insight-led’

approach. Using carefully constructed and phased market

research, the bank was able to gain an overall insight into the

thinking of students.

In the early stages of the research, it was discovered that the

student segment provided an opportunity to develop a long-term

relationship. It was found that students were not necessarily ‘here

today, gone tomorrow’. If the bank made a valuable and relevant

offer, students were likely to remain lifelong customers.

Barclays’ initial target was to increase the overall number of

student accounts by 25%. This target was exceeded with an

increase of 34%. As a result, Barclays increased its market share

of the student market, moving from third to second among the

top four market leaders. The process of meeting customer needs

is an ongoing one. Barclays has a continuing plan for re-evaluating

its student proposition to ensure it remains relevant to the target

audience.

EDITION

15www.thetimes100.co.ukBarclays | Discovering customer needs through research16

Q UE S T I ON

S

1. Describe, with examples, the primary and secondary

research used by Barclays in this case.

2. Explain the main differences between qualitative and

quantitative research.

3. Analyse why Barclays needs qualitative research in this

context.

4. Evaluate the impact that market research has had in

enabling Barclays to meet the needs of its customers.


T h e T i m e s N e w s p a p e r L i m i t e d a n d © M B A P u b l i s h i n g L t d 2 0 1 0 .

W h i l s t e v e r y e f f o r t h a s b e e n m a d e t o e n s u r e a c c u r a c y o f i n f o r m a t i o n , n e i t h e r t h e p u b l i s h e

r n o r t h e c l i e n t c a n b e h e l d r e s p o n s i b l e f o r e r r o r s o f o m i s s i o n o r c o m

m i s s i o n .

www.bank.barclays.co.uk


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Introduction

Portakabin designs and delivers modular buildings. It provides

clients with inspiring buildings of outstanding quality. Its original

market was the construction industry, with its portable buildings

providing on-site storage and accommodation. In the last 40 years

its portfolio of modular buildings has extended to include offices,

medical centres and schools.

The two main Portakabin markets are both in the building sector.

It produces both modular buildings and single module buildings.

Modular buildings are permanent, all-steel ‘kits’ that can be used

to construct almost any size and shape of large building as

required. These are made in a factory and transported to sites to

be built. For example, schools, call centres and office space can

all either be extended or created as a new build. Single module

buildings include toilets, office space, shower blocks and storage

units. These can be transported directly to the client on a lorry,extremely quickly.

Portakabin operates in a highly competitive market. There are now

other businesses producing similar buildings. Portakabin needs to

provide products and services that satisfy customers’ needs.

Portakabin must also ensure that customers understand the

difference between Portakabin products and competitors’

products in terms of quality and levels of service. To keep its

leading position and market share, Portakabin focuses on two

areas: it seeks new customers and provides exceptional service to

retain existing ones.

This case study shows how Portakabin uses marketing to identify

and anticipate customer needs and then meet them.

The purpose of marketing

The Chartered Institute of Marketing (CIM) defines marketing as:

‘The management process responsible for identifying, anticipating

and satisfying customer requirements profitably.’

Marketing is therefore about finding and keeping customers.

Business writer Peter Drucker points out how important good

marketing is to a business:

‘Because the purpose of business is to create a customer,

the business enterprise has two - and only two - basic

functions: marketing and innovation. Marketing and

innovation produce results; all the rest are costs. Marketing

is the distinguishing, unique function of the business.’

Portakabin demonstrates innovation in its exciting range of

products and new ideas.

Curriculum Topics

• Purpose of marketing

• Market research

• Product and price

• Promotion and place

G L O S S

A R Y


Market: Any medium through which

sellers and buyers can negotiate a sale.

Market share: The percentage of sales

within a market that is held by one

brand or company.

EDITION

15 www.thetimes100.co.uk Portakabin | How the role of marketing drives business forwards 77

How the role of marketing drives business forwards


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Customers can choose from a range of applications. These may

be for nurseries and children’s centres or classrooms, surgeries,

clinics and hospital wards. These differ from competitors’ products

through their high quality specifications and the outstanding

service provided to the customer.

Portakabin divides the market into different market segments to

enable it both to identify and meet the needs of customers in

those areas. Three of its main segments are Manufacturing,

Education and Health. The business must understand what its

customers in each segment need and then provide goods and

services to meet needs. Marketing activities inform customers

about products and services and persuade them to buy. An

effective marketing campaign takes account of the AIDA model

principle - that it should raise Awareness of the product, excite

Interest in it, create a Desire for it and encourage Action to buy it.

Raising awareness and creating interest may involve the use of

promotional techniques such as exhibitions, websites, direct mail,

email and telemarketing campaigns. The sales force will then

capture the demand that has been generated and turn this into

sales. Satisfied customers then come back for more products but

also recommend the business to friends. Such customer loyalty

and word-of-mouth recommendation is essential to a business like

Portakabin. Portakabin regularly scores more than 9 out of 10 for

customer satisfaction and this translates into increased

recommendations. These, in turn, drive sales growth. This high

rate is one of the reasons why approximately 50% of the

Portakabin Group’s business is from past customers.

Market research

Portakabin uses both primary and secondary market research tofind out what its customers need.

• Primary research is first-hand research, such as interviews and

focus groups. Such research often gives better qualitative data

in the form of opinions, views and comments. Portakabin held

focus groups with customers and found that they wanted more

light in office buildings as this increased productivity. Portakabin

was able to respond with the Ultima Vision range, which lets in

more light through its increased window space.

• Secondary research uses data and information that has already

been published. It may provide market and industry quantitative

data, often in the form of statistics. Brand Vision quantitative

research showed the importance of ‘on time and on budget’

delivery. In 2009, Portakabin delivered 99.6% on time and on

budget. This compares very well against a construction-industry

average of 59% on time and 46% on budget.*

Portakabin also uses market research to find out what new

products or services customers may want. Sometimes it carries out

one-off research projects. This is called ‘ad hoc research’. These

may focus on developing a specific new product or finding out how

to develop an existing one. For instance, Portakabin developed the

new Ultima Vision range in response to the need to provide existing

buildings with more light. Portakabin Datakom has met the need to

deliver data cabling to office buildings by providing telecoms systems,

computer access points and air conditioning already installed. This

allowed customers to move in and begin work straightaway.

Portakabin market research focuses on two key performance

indicators (KPIs) - customer satisfaction and Net Promoter

Score (NPS). Using over 2,000 customer surveys a year,

Portakabin finds out if clients are happy and what issues affect

them. It asks customers to rate Portakabin on a scale of 1 to 10

on aspects such as administration, delivery and installation, the

quality of the building and their overall experience. The results are

used to target and improve customer satisfaction. The averagescore has risen from 8.2 per customer in 2003 to 9.1 in 2009.

Portakabin also uses mystery shopping, where researchers pose as

normal customers. The results of mystery shopping show that clients

are impressed with the 'human' skills of Portakabin staff. These

include courtesy, being helpful, building rapport and professionalism.

Such skills are a key factor in building customer satisfaction,

creating loyal customers and generating repeat business.

GL O

S S A R Y

Market segments: A recognisable

consumer group consisting of people

with similar needs and characteristics.Customer loyalty: The action of a

customer in returning to a business due

to a good previous experience.

Market research: The systematic

process of collecting and analysing

primary and secondary data aboutcustomers and their relationship with

products and brands.

Key performance indicators (KPIs):

Any significant variable that can be used

to monitor how well an organisation isfulfilling its objectives.

Net Promoter Score (NPS): A way to

measure customer loyalty through those

who would recommend the business tocolleagues.

EDITION

15www.thetimes100.co.ukPortakabin | How the role of marketing drives business forwards78


awareness

interest

desire

action

a

i

d

a

*Construction Statistics Annual 2009, Office for National Statistics


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Business writer Frederick Reichheld, who devised the Net

Promoter Score tool, claims that the only real question a business

needs to ask its customers is: 'How likely are you to recommend

us to a friend or colleague?' The NPS score shows how popular

Portakabin is with existing customers. This is important as

procuring a building is a large and often long-term commitment.

A high score shows that customers are happy with Portakabin

and ready to recommend them. NPS also predicts sales growth –

the higher the score, the faster the business grows. Portakabin

uses NPS to measure the strength of this customer loyalty. The

results are extremely positive. On average, across the UK hire and

sales businesses, Portakabin achieves an NPS score of 89. That

compares very well with the scores of other industry leaders, such

as Google (78), Waitrose (73), Nokia (60), and Starbucks (56).

Customers are clearly happy with the quality of Portakabin

products and the service they receive. This is vital in the

competitive industry Portakabin operates in as repeat business is

an important and cost-effective way of generating sales.

The marketing mix: product and price

Traditionally the marketing mix – the balance of elements needed

for effective marketing – is referred to as the ‘four Ps’. These are

Product, Price, Promotion and Place. Portakabin adds a fifth ‘P’

to this mix with ‘Positioning’. This shows how the business

intends to position itself to customers so that it is different from its

competitors. It is closely linked to its Unique Selling Point

(USP). Portakabin has positioned the brand at the top end of the

market, offering high quality buildings and high levels of service.

It gives customers added value in terms of confidence and peace

of mind. This is supported by the Portakabin Customer Charter

which promises buildings will be delivered on time and on budget.

This promise gives Portakabin a significant competitive edge over

traditional-build suppliers. The Portakabin Hire Customer Charter

has built in penalties of one week’s free hire for every day that the

project is late. The Portakabin Sales Customer Charter gives an

additional 12 months product warranty free of charge if there is

delay. Since the launch of its innovative warranty package in

January 2004, Portakabin has sold over 2,000 buildings and only

0.17% of customers have made a claim against the warranties.

Portakabin assures product quality through a process called the

‘3 stage gate’. This is the planning, manufacturing and delivery of

the solution. Its external accreditation process also

demonstrates approval of its standards by an independent body.

An example of getting the product right can be seen in its

Portakabin Decant School concept. The process of moving aschool into new buildings is often a difficult and lengthy one. Many

short-term buildings may be needed during the move. The

Portakabin Decant School provides a total accommodation solution

designed to enable a school to transfer with minimum disruption.

To understand what teachers and students needed, Portakabin

referred to government recommendations for standards of space

and light in schools. The buildings it provided exceed government

standards for space per pupil. A variety of other products and

services such as access ramps and steps, security and fire alarms,

air conditioning, interactive whiteboards and data cabling mean that

Portakabin provides a ‘one-stop-shop’ for all the needs of a school.

This makes the transition from old to new buildings quicker and

minimises disturbance to students’ learning.

The price of Portakabin buildings is set at a competitive level.

However, this may be higher than rivals to reflect the better levels

of building quality and service that are offered. High quality,

support services and the Customer Charter mean that Portakabin

can charge a premium price for its premium service.

EDITION

15 www.thetimes100.co.uk Portakabin | How the role of marketing drives business forwards 79


G L O S S

A R YUnique selling point (USP): A specific

benefit of a product or service that

competitors do not or cannot offer.

Brand: A name, design or symbol that

gives a product, product range or

company an identity that is distinct fromcompetitors.

External accreditation: When an

outside body is used to ensure quality,

usually up to preset industry, national orinternational standards.

Product

Place

PricePositioning

Promotion


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GL O

S S A R Y

Above-the-line: Promotion through

advertising: TV, radio, internet, press

etc.

Below-the-line: Indirect sales

promotion other than advertising e.g.

price promotions and point-of-salesdisplays.

B2B: Sales by one business to another,

rather than B2C which involves selling

directly to the final consumer.

EDITION

15www.thetimes100.co.ukPortakabin | How the role of marketing drives business forwards80


Portakabin has moved away from its original focus of construction

site accommodation (now only a small part of the business) to

office, education and health environments. For example, it wasable to replace the health centre facilities destroyed by floods in

Cockermouth, Cumbria in 2009 in just 15 days. It provided 21

consulting rooms, patient waiting areas and ample office space.

The new building offered a standard which, according to the

clinical director ‘exceeded expectations’.

Promotion and place

Promotion helps to turn ‘prospects’ (i.e. possible customers) into

actual customers. Research shows that it takes around five

‘touches’ to turn a prospect into a customer. A ‘touch’ can be a

communication, such as advertising, or a sales contact.

Portakabin uses both above-the-line and below-the-line

methods. Above-the-line involves paid-for advertising through

targeted channels such as trade magazines.

Below-the-line promotion is generated in other ways. Portakabin

methods include direct mail, public relations and open days. Its

website (www.portakabin.co.uk) is also a point of promotion as it

gives customers immediate access to the scale and capability of

Portakabin product and services. It seeks to persuade them to

buy its products and services through detailed information and

product images on the website.

In the case of the launch of the new Decant School product,

Portakabin targeted local education authorities (LEAs) and

education contractors. It used several methods to reach them.

For instance, it placed a double-page spread advertisement in

relevant education and construction magazines. It also used

several methods of below-the-line promotion:

• Direct mail. This was a letter, with a printed leaflet that showed

a decant school complex.

• Email. Promotional emails were sent out to a key database of

prospects.

• Public Relations. This took the form of press releases toappropriate education and construction publications.

• An additional targeted web page was added to the Portakabin

website to support the campaign.

• Time lapse construction videos showed the stages of a project

on the Portakabin website and on YouTube.

• Special school open days were organised through Portakabin

hire centres.

Place refers to where customers can buy products or to

distribution channels. Portakabin is a business-to-business (B2B)

operation, which has 45 hire centres across the UK. This means

no customer is more than a one-hour drive away. Service teams

are therefore close to customers so can resolve issues quickly.

Conclusion

Portakabin supplies premium working environments to clients who

demand ever-higher standards. It maintains its leading position in

a competitive market with a balanced marketing mix. This is

designed to provide clients with quality products and highest

service levels. It has developed as a trusted brand.

Market research is particularly important in helping to measure the

effectiveness of the marketing mix. Customer loyalty is measured

by how likely a client is to recommend the business to colleagues.

High satisfaction scores show that Portakabin is providing goods

and services which continue to delight customers.

Q U

E S T I ON S

1. Describe how a business such as Portakabin uses

marketing to drive business.

2. Explain how Portakabin uses different types of market

research, both primary and secondary, and different

methods within these.

3. Analyse the balance of price, product, promotion and

place in Portakabin. Explain why the balance of the

marketing mix is more important than any single

element.

4. Evaluate the contribution of customer feedback to the

success of Portakabin. Suggest at least one other way

by which Portakabin could collect feedback and give

reasons for your suggestion.

T h e T i m e s N e w s p a p e r L i m i t e d a n d © M B A P u b l i s h i n g L t d 2 0 1 0 .

W h i l s t e v e r y e f f o r t h a s b e e n m a d e t o e n s u r e a c c u r a c y o f i n f o r m a t i o n , n e i t h e r t h e p u b l i s h e

r n o r t h e c l i e n t c a n b e h e l d r e s p o n s i b l e f o r e r r o r s o f o m i s s i o n o r c o m

m i s s i o n .

www.portakabin.co.uk


9/20

Introduction

The Intellectual Property Office is part of the Department for Innovation, Universities and

Skills. It is the official government body responsible for granting intellectual property

rights in the UK. The Intellectual Property Office supports innovation by granting intellectual

property rights. This is property that originates in the mind as an idea, such as a design of a

car, a piece of computer software or the words and music of a pop song. Businesses take

steps to protect their physical property, such as equipment, raw materials and buildings, but it

is just as important that they protect their intellectual property.

Consider the development of a product such as a mobile phone. The manufacturer needs

physical resources such as offices, factories and machines - but what really makes the

difference between different phones? The value in many products is not the physical materials

– for example, the metals and plastics that are used. Mobile phones are shaped by ideas:

improved technology leading to, for example, faster communications, music and digital

photography, ‘cool’ designs and world-class brands. Think of the value in an iPod or a

downloadable song. Intellectual property is often more valuable than warehouses and office

blocks. This may be described as a knowledge economy . There are several ways in which

the Intellectual Property Office can help a business to protect its intellectual property (IP).

Patents provide exclusive rights to exploit an invention for a limited period – usually 20years.

Designs protect the appearance of a product and can be registered for legalprotection.

Trade marks such as brand names and logos can be registered and protected.

Copyright is an automatic entitlement to stop others copying any kind of written or recorded material.

A company like Apple uses these safeguards to patent its inventions and register its designs.

These protections can be applied across the world. For example:

• it has registered its brand names as trade marks, such as iPod, Macintosh and iMac. This

prevents competitors directly copying these brand names

• its distinctive logo (the apple with a bite taken out of the side) is registered as a trade mark

• products sold through iTunes are also protected under copyright. The writers of each song

usually own these rights.

To see how important IP protection is in practice, this case study looks at how one technology

company, Forensic Pathways, has used these legal safeguards for a new development.

In the UK there are now over 70 million mobile phones in use. The vast majority are used

legitimately, but mobile phones are also used by criminals and terrorists. Computer

technology can now analyse calls and messages from many different mobiles at once.

A computer program that could plot, map and analyse that data so that criminal networks

could be identified would be valuable. How would the developer protect the product before

reaching the market?

81

Protecting the marketing mixthrough intellectual property rights


CURRICULUM TOPICS

• Marketing mix

• Innovation

• Business expansion

• Intangible assets

GLOSSARY

Intellectual property rights:

The rights of the owner to protect

their ideas.

Knowledge economy: The use

of knowledge technologies (such

as knowledge engineering and

knowledge management) to

produce economic benefits.

Patents: A legal right that

establishes for the holder of the

patent the right to be the sole user

or producer of a new process or

product.

Designs: The appearance of a

product.

Trade marks: Unique logo or

symbol displayed on a company's

products.

Copyright: Legal protection for

authors, composers and artists

from having their work copied or

reproduced without their

permission.


10/2082

Forensic Pathways is a highly innovative company based in Staffordshire that provides

products and services for the police and security services. It specialises in investigative tools

for crime, security and fraud. The company exploited rapidly-advancing computer technology

to develop a new product, the Forensic Phone Analyser. This allows police and security

services to search for phone numbers, SMS text messages, contacts and images, across all

the data available, not just case by case. Marketing planning showed that the product could

secure substantial sales so the company invested time and money developing the product.

If a competitor developed an equivalent product based directly on Forensic Pathways’software, all Forensic Pathway’s work would be undermined. The company would incur the

development costs but not have the opportunity to recover those costs by being first to

market. To prevent this happening, it took steps to protect its intellectual property rights from

the beginning of the development process.

The marketing mix

Marketing is about projecting the right product at the right price in the right way to the right

customers. This is how value is added. Bringing a product to a market involves balancing

several key ingredients. This is called the marketing mix : the 4Ps of product, price,

promotion and place. Every offering will need a slightly different mix of these factors,depending on the product itself, the target audience and the market. The logical starting point

is always the customer. A product must deliver value to customers in the target market by

meeting customer requirements.

• Forensic Pathways had carried out detailed market research and understood the needs of

its target market: the police and security agencies that have the legal right to access

mobile phone data. This research enabled Forensic Pathways to identify what features the

product would have to meet these customers’ needs. However, before investing in

development, Forensic Pathways needed to check whether such a product already existed.

By searching the patent database on the Intellectual Property Office’s website, a business

can verify that its idea is entirely new. A patent gives protection from copying or imitation

by competitors.

• Price needs to be competitive and offer customers value for money. Forensic Pathways

needs to make positive return on its investment and recoup its development costs. The

ability to protect intellectual property is crucial here. If a competitor could simply ‘take’

Forensic Pathways’ technology and software to develop a similar product, it could price

this product much lower because it would not need to recover research costs. In effect,

taking out a patent gives a company time to exploit its research in the marketplace.

• Forensic Pathways uses its specialist knowledge of the market and personal links with key

customers to promote its product. By registering the company name and the product

name, the Forensic Phone Analyser, as trade marks, it prevented other companies using

these names. This provides clarity for customers. Rival businesses cannot offer similar and

perhaps inferior products with identical names. Companies use trade names to build andidentify their brands.

• The final P in the marketing mix is place – the channels to market. This is the process that

enables customers to buy and receive the product. This can include the use of wholesalers

and retailers, the work of the sales force and direct marketing techniques. This activity can

be compromised if the product is confused with similarly named rival products. This legal

protection for product and brand identity is also important when it comes to the sales

process itself.

Product

Forensic Pathways has high levels of knowledge in electronics and computer programming.

For its new product, Forensic Pathways wanted to do far more than simply extract data from

mobile phones. It wanted to be able to alert investigators to patterns in the data. Powerful

analytical computer programs could reveal ‘pictures’ in the data that might spark new lines of

enquiry and provide evidence of criminal networks.

GLOSSARY

Marketing mix: A series of

variable factors (product/price/

place/promotion) used by an

organisation to meet customer

needs.

Target market: The specific part

of the population to whom a

product offering is aimed and all

marketing communication is

tailored.

Brands: Name, symbol or design

used to identify a specific product

and to differentiate it from its

competitors.



11/2083


GLOSSARY

Reverse engineering: The

process of discovering the

technological principles of a

device, object or system through

analysis of its structure, function

and operation.

Capital: Money, buildings,

machinery, equipment etc.

Profit margin: The percentage

of sales value that is profit.

Skimming: A pricing strategy

where a relatively high price is set

for a product or service at first,

then lowered over time.

First mover advantage: Thefirst company to introduce a new

product to market has the

opportunity to extract the greatest

long term benefit from the product,

compared to that which following

companies would be able to gain.

Niche: An area of a market that

has a particular group of

customers with specific

requirements.

Competitive advantage: A

strategic element that enables an

organisation to compete more

effectively than its rivals.

3

2

1

4

The Forensic Phone Analyser was the first product of its type in a specialised but growing

market. While the Analyser was in development, its intellectual property (the specialised

combination of technical know-how and computer software) was not at risk. Only a few

trusted employees knew the underpinning technology and software. All electronic information

on the project was held on secure servers and networks. However, once a product is

launched on the market, it 'breaks cover’. A competitor might be able to unravel the finished

product, working backwards to reveal its design and operating principles. This is known as

reverse engineering. The resulting slightly different but essentially copied product might

then be fast-tracked into the same market.

Forensic Pathways knew the product would add real value but it would only prove profitable if

it were protected with the safeguards offered by the Intellectual Property Office.

The first step was to patent the technology. A company can apply to patent a product

or a process if it is a clear ‘inventive step...capable of industrial application’. A patent

stops anyone else copying the invention for up to 20 years. The patent owner can

take legal action against anyone imitating or copying the idea during that time and

can also license or sell the patent rights. This gives the developer time and opportunity

to recover development costs.

The next step was to claim copyright for the software. This provides the same

protection as copyright on books and music. Software cannot be copied, stored on a

computer or converted to other computer languages without the owner’s permission.

Forensic Pathways could also make the visual elements of its product a “registered

design”. This prevents a competitor attempting to copy its distinctive features.

The company also registered the name Forensic Phone Analyser, along with its brandand logo as trade marks.

With all these safeguards in place, Forensic Pathways was able to commit capital to the

phone analyser development with confidence.

Price

Pricing depends on the market. There are many different pricing strategies that a business can

apply. Setting a relatively low price can attract customers but reduce the profit margin. This

approach is called market penetration. It is often used in highly competitive mass markets

with large volume turnover of goods, for example, tins of beans in a supermarket.

However, Forensic Pathways operated in a very different type of market. It was targeting a

relatively small customer base – police services and security agencies – with a new product

that had no immediate rivals. This meant the company could choose to set a relatively high

price that carries a higher margin. It would allow the company to generate a realistic return

on its high development costs. This approach is called market skimming. It is often the

chosen strategy for innovative products. Reductions in price can follow later as competitors

enter the market. The company would enjoy first mover advantage, achieving

penetration of its market niche without major price concessions.

This strategy relies on IP protection to give competitive advantage over rivals, based on

the product’s technological capability and the reputation of the Forensic Pathways brand. If

other firms steal or imitate these assets, then Forensic Pathways would see slowing sales.

Worse, the competition for customers could force the company to push down prices, lowering

profit margins and reducing potential for future investment.


12/2084

Promotion and place

The most innovative product in the world will still fail if potential customers do not understand

the value it brings to them. The most effective method of promoting sales will depend on the

type of product and the target market. For a mass-market product, such as a new blockbuster

movie, above-the-line promotion such as internet, television and press advertising may be

appropriate. This usually has high costs and is less easy to measure the impact, except by

specialised market research.

The Forensic Phone Analyser is a specialised product in a niche market. It needed a different

approach to promotion. The company’s main strategy is to use below-the-line promotions

to contact potential customers directly. Below-the-line promotion has the advantage of being

less expensive and more under the business’ control:

• The product was showcased at trade fairs and exhibitions attended by key buyers in the

security industry.

• Emails and mail shots were sent to possible customers.

• Forensic Pathways also used its relationships with existing customers to introduce the new

product by direct mail or telephone sales.

With its product and brand identity protected within the UK by intellectual property,Forensic Pathways could confidently promote the Forensic Phone Analyser in this market.

However, with over 2.5 billion mobile phones in use worldwide, the company also wanted to

target overseas markets. It therefore needed to protect the product worldwide. The World

Intellectual Property Office based in Geneva, Switzerland is heading the development of a

global system for protecting intellectual property. Businesses can now make a single

registration of original designs giving protection across most countries. However, the law

enforcing protection varies in effectiveness from country to country. Globally there is a huge

trade in counterfeit products and some countries are not strict in enforcing copyright. Forensic

Pathways still needs good legal advice to deal with risks. It is possible to challenge any

infringements by taking companies to court.

Conclusion

The balance sheet of most businesses still emphasises the value of physical assets such

as buildings, plant and equipment. Yet typically, around 75% of a firm’s value is in its

intellectual property, such as knowledge, copyrights and brands (trade marks). The business

writer Charles Handy calls it the 3Is - information, intelligence and ideas.

Many businesses are able to exploit their intellectual property but they need to be aware of

the risks. Ideas could easily be copied and the whole basis of a new product could be lost.

This is why the services of the Intellectual Property Office are so important.

The Intellectual Property Office offers innovators and creators protection for their new ideasand products, without which there would be less investment in innovation and brand

development. It also enables future generation of new ideas. Although protection of a patent

remains in place for around 20 years to prevent direct copying, the knowledge content of

patents is made public after 18 months. This stimulates further innovation and competition.

Questions

1. What is intellectual property (IP)? How can a business gain legal protection for its IP?

2. Explain how IP protection can be essential to the marketing mix.

3. Analyse why protecting IP has become so important to firms such as Forensic Pathways.

4. To what extent do you think IP protection is in the public interest?

GLOSSARY

Above-the-line promotion:

Direct expenditure on advertising,

such as for a TV commercial.

Below-the-line promotion:

Use of indirect promotional

methods such as public relations

and advertorials; promotional

activity other than advertising.

Balance sheet: A financial

document that shows what a

business owns (assets) and what it

owes (liabilities) at a particular

moment in time.

Assets: Something that is of worth

to an organisation e.g. people,

cash, financial claims on others,

machinery, buildings.


www.ipo.gov.uk


13/20

Introduction

Businesses need to set themselves clear aims and objectives if they are going to succeed.

The Kellogg Company is the world’s leading producer of breakfast cereals and convenience

foods, such as cereal bars, and aims to maintain that position. In 2006, Kellogg had total

worldwide sales of almost $11 billion (£5.5 billion). In 2007, it was Britain’s biggest selling

grocery brand, with sales of more than £550 million. Product lines include ready-to-eat cereals

(i.e. not hot cereals like porridge) and nutritious snacks, such as cereal bars. Kellogg’s brands

are household names around the world and include Rice Krispies, Special K and Nutri-Grain,

whilst some of its brand characters, like Snap, Crackle and Pop, are amongst the most well-

known in the world.

Kellogg has achieved this position, not only through great brands and great brand value, but

through a strong commitment to corporate social responsibility . This means that all of

Kellogg’s business aims are set within a particular context or set of ideals. Central to this is

Kellogg’s passion for the business, the brands and the food, demonstrated through the

promotion of healthy living.

The company divides its market into six key segments. Kellogg's Corn Flakes has been on

breakfast tables for over 100 years and represents the ‘Tasty Start’ cereals that people eat to

start their day. Other segments include ‘Simply Wholesome’ products that are good for you,

such as Kashi Muesli, ‘Shape Management’ products, such as Special K and ‘Inner Health’

lines, such as All-Bran. Children will be most familiar with the ‘Kid Preferred’ brands, such as

Frosties, whilst ‘Mum Approved’ brands like Raisin Wheats are recognised by parents as being

good for their children.

Each brand has to hold its own in a competitive market. Brand managers monitor the success

of brands in terms of market share, growth and performance against the competition.

Key decisions have to be made about the future of any brand that is not succeeding. This

case study is about Nutri-Grain. It shows how Kellogg recognised there was a problem with

the brand and used business tools to reach a solution. The overall aim was to re-launch the

brand and return it to growth in its market.

The product life cycle

Each product has its own life cycle. It will be ‘born’, it will ‘develop’, it will ‘grow old’ and,

eventually, it will ‘die’. Some products, like Kellogg’s Corn Flakes, have retained their market

position for a long time. Others may have their success undermined by falling market share

or by competitors. The product life cycle shows how sales of a product change over time.

The five typical stages of the life cycle are shown on a graph. However, perhaps the most

important stage of a product life cycle happens before this graph starts, namely the

Research and Development (R&D) stage. Here the company designs a product to meet

a need in the market. The costs of market research - to identify a gap in the market and of

product development to ensure that the product meets the needs of that gap - are called

‘sunk’ or start-up costs. Nutri-Grain was originally designed to meet the needs of busy

people who had missed breakfast. It aimed to provide a healthy cereal breakfast in a

portable and convenient format.

1. Launch - Many products do well when they are first brought out and Nutri-Grain was no

exception. From launch (the first stage on the diagram) in 1997 it was immediately

successful, gaining almost 50% share of the growing cereal bar market in just two years.

89

K E L L O

G G ’ S

Extending the product life cycle


CURRICULUM TOPICS

• Product life cycle

• Ansoff’s matrix

• Marketing mix

• Extension strategy

GLOSSARY

Aims: the end purposes towards

which a business focuses its activities.

Objectives: the end purposes that

an organisation or individual seeks

to achieve.

Brand: a name, symbol or design

used to identify a specific product

and to differentiate it from its

competitors.

Corporate social

responsibility: how a business

shows it cares not just about

products, but its people and

communities, its place in society.

Market share: the percentage

slice of a particular market

occupied by a product.

Product life cycle: the way sales

of a product change over time.

Research and development:

processes that involve investigating

new ideas for products and taking

them forward to be test marketed.

Start-up costs: those costs thathave to be paid once to establish a

business or brand - also called sunk

costs.


14/20

90

2. Growth - Nutri-Grain’s sales steadily increased as the product was promoted and became

well known. It maintained growth in sales until 2002 through expanding the original

product with new developments of flavour and format. This is good for the business, as it

does not have to spend money on new machines or equipment for production. The market

position of Nutri-Grain also subtly changed from a ‘missed breakfast’ product to an

‘all-day’ healthy snack.

3. Maturity - Successful products attract other competitor businesses to start selling similar

products. This indicates the third stage of the life cycle - maturity. This is the time of

maximum profitability, when profits can be used to continue to build the brand. However,competitor brands from both Kellogg itself (e.g. All Bran bars) and other manufacturers (e.g.

Alpen bars) offered the same benefits and this slowed down sales and chipped away at

Nutri-Grain’s market position. Kellogg continued to support the development of the brand

but some products (such as Minis and Twists), struggled in a crowded market. Although

Elevenses continued to succeed, this was not enough to offset the overall sales decline.

Not all products follow these stages precisely and time periods for each stage will vary

widely. Growth, for example, may take place over a few months or, as in the case of

Nutri-Grain, over several years.

4. Saturation - This is the fourth stage of the life cycle and the point when the market is

‘full’. Most people have the product and there are other, better or cheaper competitor

products. This is called market saturation and is when sales start to fall. By mid-2004

Nutri-Grain found its sales declining whilst the market continued to grow at a rate of 15%.

5. Decline - Clearly, at this point, Kellogg had to make a key business decision. Sales were

falling, the product was in decline and losing its position. Should Kellogg let the product

‘die’, i.e. withdraw it from the market, or should it try to extend its life?

Strategic use of the product life cycle

When a company recognises that a product has gone into decline or is not performing as well

as it should, it has to decide what to do. The decision needs to be made within the context of

the overall aims of the business. Kellogg’s aims included the development of great brands, greatbrand value and the promotion of healthy living. Strategically, Kellogg had a strong position in

the market for both healthy foods and convenience foods. Nutri-Grain fitted well with its main

aims and objectives and therefore was a product and a brand worth rescuing.

GLOSSARY Market saturation: when there

is no room for any more competitor

products; the market is ‘full’.



15/20

Kellogg decided to try to extend the life of the product rather than withdraw it from the

market. This meant developing an extension strategy for the product. Ansoff’s matrix

is a tool that helps analyse which strategy is appropriate. It shows both market-orientated and

product-orientated possibilities.

Extending the Nutri-Grain cycle –identifying the problem

Kellogg had to decide whether the problem with Nutri-Grain was the market, the product or both.

The market had grown by over 15% and competitors’ market share had increased whilst Nutri-Grain

sales in 2003 had declined. The market in terms of customer tastes had also changed – more

people missed breakfast and therefore there was an increased need for such a snack product.

The choice of extension strategy indicated by the matrix was either product development or

diversification. Diversification carries much higher costs and risks. Kellogg decided that it

needed to focus on changing the product to meet the changing market needs.

Research showed that there were several issues to address:

1. The brand message was not strong enough in the face of competition. Consumers were

not impressed enough by the product to choose it over competitors.

2. Some of the other Kellogg products (e.g. Minis) had taken the focus away from the core

business.

3. The core products of Nutri-Grain Soft Bake and Elevenses between them represented over

80% of sales but received a small proportion of advertising and promotion budgets.

4. Those sales that were taking place were being driven by promotional pricing(i.e discounted pricing) rather than the underlying strength of the brand.

Implementing the extension strategy for Nutri-Grain

Having recognised the problems, Kellogg then developed solutions to re-brand and re-launch

the product in 2005.

1. Fundamental to the re-launch was the renewal of the brand image. Kellogg looked at

the core features that made the brand different and modelled the new brand image on

these. Nutri-Grain is unique as it is the only product of this kind that is baked. This

provided two benefits:

• the healthy grains were soft rather than gritty• the eating experience is closer to the more indulgent foods that people could be eating

(cakes and biscuits, for example).

The unique selling point, hence the focus of the brand, needed to be the ‘soft bake’.

91

GLOSSARY Extension strategy: a way of

extending the life of a product,

for example by changing it,

re-branding it or re-pricing it.

Ansoff’s matrix: a model

developed by business writer Igor

Ansoff for deciding the risk of

possible courses of action.

Brand image: the lifestyle or

other image associated with a

brand.

Unique selling point: a specific

benefit of a product or service that

competitors do not or cannot offer.


K E L L O

G G ’ S


16/20

92

2. Researchers also found that a key part of the market was a group termed ‘realistic

snackers’. These are people who want to snack on healthy foods, but still crave a great

tasting snack. The re-launched Nutri-Grain product needed to help this key group fulfil

both of these desires.

3. Kellogg decided to re-focus investment on the core products of Soft Bake Bars and

Elevenses as these had maintained their growth (accounting for 61% of Soft Bake Bar

sales). Three existing Soft Bake Bar products were improved, three new ranges introduced

and poorly performing ranges (such as Minis) were withdrawn.

4. New packaging was introduced to unify the brand image.

5. An improved pricing structure for stores and supermarkets was developed.

Using this information, the re-launch focused on the four parts of the marketing mix :

• Product – improvements to the recipe and a wider range of flavours, repositioning the

brand as ‘healthy and tasty’, not a substitute for a missed breakfast

• Promotion – a new and clearer brand image to cover all the products in the range along

with advertising and point-of-sale materials

• Place – better offers and materials to stores that sold the product

• Price – new price levels were agreed that did not rely on promotional pricing. This

improved revenue for both Kellogg and the stores.

As a result Soft Bake Bar year-on-year sales went from a decline to substantial growth, with

Elevenses sales increasing by almost 50%. The Nutri-Grain brand achieved a retail sales

growth rate of almost three times that of the market and most importantly, growth was

maintained after the initial re-launch.

Conclusion

Successful businesses use all the tools at their disposal to stay at the top of their chosen

market. Kellogg was able to use a number of business tools in order to successfully re-launch

the Nutri-Grain brand. These tools included the product life cycle, Ansoff’s matrix and the

marketing mix. Such tools are useful when used properly.

Kellogg was able to see that although Nutri-Grain fitted its strategic profile – a healthy,convenient cereal product – it was underperforming in the market. This information was used,

along with the aims and objectives of the business, to develop a strategy for continuing

success. Finally, when Kellogg checked the growth of the re-launched product against its own

objectives, it had met all its aims to:

• re-position the brand through the use of the marketing mix

• return the brand to growth

• improve the frequency of purchase

• introduce new customers to the brand.

Nutri-Grain remains a growing brand and product within the Kellogg product family.

Questions

1. Using current products familiar to you, draw and label a product life cycle diagram,

showing which stage each product is at.

2. Suggest appropriate aims and objectives for a small, medium and large business.

3. Explain the difference between market

orientated routes and product orientated routes

in Ansoff’s matrix.

4. Consider the decision taken by Kellogg to optfor product development. Suggest a way in

which it could have diversified instead. Justify

your answer.

GLOSSARY

Investment: putting funds to use

in the hope of securing returns later.

Marketing mix: a series of

variable factors such as the four Ps

(product/price/place/promotion)

used by an organisation to meet its

customers' needs.

Point-of-sale materials:

information that is used where the

sale actually takes place, such as

displays in stores and by tills.

o f i n f o r m a t i o n

, n e i t h e r t h e p u b l i s h e r n o r t h e c l i e n t c a n b e h e l d r e s p o n s i b l e f o r e

r r o r s o f o m i s s i o n o r c o m m i s s i o n .

www.kelloggs.co.uk



17/20

Introduction

The Kellogg Company is the world’s leading producer of cereals.

Its products are manufactured in 18 countries and sold in more

than 180 countries. For more than 100 years, Kellogg’s has been a

leader in health and nutrition through providing consumers with a

wide variety of food products. These are designed to be part of a

balanced diet and meet the different tastes of consumers. Kellogg’s

focuses on sustainable growth. This involves constantly looking

for ways to meet consumer needs by growing the cereal business

and expanding its product portfolio.

Market research is a specific area of marketing that informs

businesses like Kellogg’s about the things consumers need, how

best to design products to answer those needs and how to

advertise those products to consumers. Market research goes

beyond finding out what consumers are thinking today. It can

identify what consumers might want in the future. In this way

market research helps a business to make more informed choices.

This reduces the risks for any new product development (NPD).

It also increases the likelihood that products will be well received

by consumers when they are launched.

Kellogg’s launched Crunchy Nut Cornflakes in the UK in 1980.

Since then, it has become one of the most important brands for

Kellogg’s with a sales value of £68 million*. In 2003 the Crunchy

Nut brand created a brand extension. This involved using the

Crunchy Nut name to launch a new product called Crunchy Nut

Clusters. This variant has two varieties, Milk Chocolate Curls and

Honey and Nut. Both of them have enabled the brand to reach a

wider group of consumers. This brand extension is now worth

£21 million in annual value sales.*

This case study focuses on the importance of market research

during the development and launch of Crunchy Nut Bites, a more

recent extension to the Crunchy Nut brand. The objective of this

innovation was to provide a new flavour and texture for consumers,

helping Kellogg’s extend its share of the breakfast cereals market.

Curriculum Topics

• Market research

• Types of research

• Quantitative and qualitative

• Product development

G L O S S

A R Y


Sustainable growth: Developing the

business to meet the needs of

consumers today, while respecting the

needs of future generations.

New product development (NPD):

Term used to describe the processes

involved in creating a new product.

Sales value: The value of sales made

over a fixed period of time.

Brand extension: The use of a well

known brand to launch a new and

complementary product.

Variant: Alternative to the core product

introduced by the maker of the brand.

EDITION

15 www.thetimes100.co.uk Kellogg’s | New products from market research 53

New products from market research

*IRI sales data


18/20

Why carry out market research?

Many organisations are described as product orientated. This

means they develop a product and then look for a market to sell

to. Kellogg’s is market orientated. This means that the whole

organisation focuses on the needs of its consumers. It is therefore

essential that it identifies and anticipates changing consumer

needs before the development of new products.

Market research adds value to businesses like Kellogg’s by

identifying consumers’ needs. It helps Kellogg’s to plan ahead, for

example, looking at what products or extensions it should develop

and for whom. It focuses the business on the needs of its

consumers. An organisation that does this can improve its

competitive advantage.

In an established market, such as breakfast cereals, there is little

room to increase the overall sales in the market. Kellogg’s is

therefore always looking for ways to strengthen its own portfolio.

Designing new products is a good way of doing this. However,

this can take a long time and may involve considerable costs. In

addition to the resources required during development, suppliers

must produce an advertising campaign to raise awareness of the

product among consumers and encourage retailers to stock the

product. Launching a new product can be a risky business.

Of the hundreds of products launched every year in consumer

goods markets, very few reach significant market share. In order

to reduce risks, market research is, therefore, essential.

A product extension is a less risky way of increasing market share

by providing consumer products with new features under an

existing brand. New product extensions give more choice to

consumers and help them to feel more favourably about the

existing brands.

Types of research

To develop a new Crunchy Nut brand extension, Kellogg’s

commissioned primary research. This is research gathered first-

hand to answer questions that are specific to the project.

Although primary research is often time-consuming and expensive,

it is considered as a reliable source of information because it is

directly from the consumer and is specifically designed to meet the

objectives of a project. There are a number of different ways of

collecting primary data. Sometimes agencies are employed to

collect data using, for example, street interviews or a questionnaire.

This is a systematic list of questions that obtain feedback from the

consumers. For the development of Crunchy Nut Bites, Kellogg’s

used various different methods of primary data collection.

Primary market data may involve qualitative research or

quantitative research. Both types of data are valuable in

understanding what consumers want or need. Qualitative data is

concerned more about opinions, feelings and attitudes.

Quantitative data is in numerical form and is usually gathered from

a large sample of respondents.

GL O

S S A R Y

Product orientated: A business

strategy that focuses on the product

rather than the customer.Market orientated: Focusing an

organisation on the needs of its

customers.

Competitive advantage: A strategic

element that enables an organisation to

compete more effectively than its rivals.

Primary research: Research that is

carried out for the first time to meet a

specific objective.

Qualitative research: Associated with

consumer responses, feelings, attitudes

and descriptions.

Quantitative research: Associated with

figures or numbers that help to make the

research more objective - usually taken

from a large number of consumers.

EDITION

15www.thetimes100.co.ukKellogg’s | New products from market research54


Seeking a market

for the product

Building a businessaround the needs of

the consumers

Product orientated Market orientated

eeking a market

Product orientated

Building a businessround the needs of

Market orientated


19/20

Qualitative research establishes a conversation with consumers.

It prompts consumer reaction to, for example, a new product idea

and helps researchers understand what they think of it, how it

makes them feel, why they find it interesting or not. Qualitative

research may be obtained through focus groups, where a

moderator captures feedback from a group of six or seven

consumers to the ideas shown to them. Those ideas may take

the format of drawings or having new food prototypes to taste.

Quantitative research may use questionnaires administered to

large numbers of respondents. This allows statistical analysis,

such as the calculation of a mean score or percentages. It aims

to give a representative picture of what consumers think of a new

product idea or a new (real) food. It may involve the use of scales,

so numbers get associated with a particular meaning – for

example, on a evaluation scale of 1 to 7, where 1 means ‘very

poor’ and 7 means ‘excellent’. Crucially those numbers need to

be interpreted to enable the business to understand the

consumer’s overall response.

In addition, Kellogg’s used secondary research which is existing

research that has already been collected by other organisations.

Sources of secondary data include books, journals, the internet and

government statistics. Market research agencies collect a range of

data which they process and use to provide organisations like

Kellogg’s with research. The benefits of secondary research are that

it is quicker and often less expensive than primary, although it may

not always be completely related to the needs of a specific project.

Information gathering –discovery to selection

For Kellogg’s, the order in which the information is gathered is as

important as the type of information being gathered. In order to

develop the new Crunchy Nut Bites, Kellogg’s undertook four

distinct stages of research.

Stage 1: Discovery

Initial research aimed to identify a set of new food ideas that

would be suitable for developing a new Crunchy Nut product.

Secondary research from Mintel and Datamonitor was used to

find out about innovation trends in the cereal market. It was also

used to find out about new products, flavours and foods from

around the world. Food developers at Kellogg’s used this

information to come up with a number of new food ideas.

Focus groups were used to provide qualitative research. These

were used to show consumers the new food ideas in the form of a

number of different (real) food prototypes, including a mini crispy

lattice product and a nutty triangle. The focus groups captured the

attitudes and feelings of consumers towards the new foods. This

primary research helped Kellogg’s to find out how new product

suggestions could be developed and still fit in with the Crunchy Nut

brand. It helped Kellogg’s to establish what consumers were looking

for in terms of potential new flavours and textures.

The results allowed Kellogg’s to discard some ideas. Other ideas

were appealing for consumers but needed refining and further

development. At the end of this stage, Kellogg’s had a number of

new food ideas that all seemed to appeal to consumers.

Stage 2: Selecting the best idea

This stage aimed to select the best idea arising from the stage 1research. Kellogg’s put the ideas from the focus group on boards.

The boards had pictures showing product ideas and a description

of what the new product would be like. These boards were then

shown to a large group of representative consumers in a

quantitative survey. They were asked to rate those ideas against a

number of scales, so Kellogg’s could identify which product ideas

consumers liked best or disliked.

EDITION

15 www.thetimes100.co.uk Kellogg’s | New products from market research 55


G L O S S

A R YFocus groups: Small group, usually of

6 to 8 people, used as part of a process

of research to elicit feedback.

Prototypes: A single example of a

planned product that can be tested and

modified before entering production.

Mean: Average of all values. Secondary research: Uses data that

has already been collected and/or

published e.g. in newspapers, books orreports.

Product decisions

Analysis of research

Primary data

(project specific)

Secondary data

(data published byother organisations )


20/20

The quantitative data created specific statistical information that

indicated that a new Crunchy Nut Bites idea was perceived as the

most appealing amongst all the ideas tested.

• It established what proportion of people liked the new product

idea enough to buy it.

• It also identified those product ideas that had the best or least

sales potential.

Information gathering –

development to launch

Stage 3: Crafting the idea into a complete new product

Once the best idea had been selected from stage 2, Kellogg’s

needed to make this idea become a real product. The CrunchyNut Bites food prototype recipe was refined using the feedback

from another qualitative and quantitative survey.

The qualitative research helped Kellogg’s food technologists to

explore the taste and texture of the new food idea in more detail.

Kellogg’s needed to understand the ‘eating experience’ of the

consumer before a decision could be made about how to develop

the recipe in more detail. Following this stage, four product

recipes were developed and these prototypes were then tested

with representative groups of consumers in a quantitative survey

to see which product consumers preferred. This enabled Kellogg’s

to select the best one.

Also, at this stage, the pack design for the new Crunchy Nut Bites

was developed. Several designs were developed aimed at giving

the new product the same look and feel as the rest of the

Crunchy Nut family. The packaging designs were tested with

consumers, which enabled Kellogg’s to select the final packaging

design for Crunchy Nut Bites

Stage 4: Forecasting sales for the new Crunchy Nut Bites

At Kellogg’s, every product has to undergo one final test prior to a

new product launch. This is called the ‘In Home Usage Test’. The

consumers are given the product to try for several days and this

enables Kellogg’s to capture how consumers interact with the

product for the first time. At the end of the trial, consumers

complete a report on what they thought of the food in the form of

a questionnaire. This final survey measures how appealing the

new product is to consumers and how likely they would be to buy

it in real life.

The data collected also helped to calculate a sales forecast for the

new product for the first and second year in market. The forecast

was used by the finance department to set budgets, organise the

supply chain and to schedule food production. Once the data

was analysed and the product concept tested, Kellogg’s was able

to make the strategic decision to go ahead with the new product.

Production could then take place.

Conclusion

Kellogg’s used market research throughout the whole development

process for a new product for the Crunchy Nut range, from the

initial idea to the planning of production and delivery. During the

earlier stages of research, consumer responses helped Kellogg’s to

explore lots of different ideas in an open way. It then crafted some

ideas in more detail and screened those ideas with consumers to

select the one which seemed to have the highest appeal.

The idea became real by testing several recipes, refining the food

prototype selected and developing the design for packaging.

Once the food and packaging elements for the new product had

been developed, the whole product was tested with consumers to

ensure it met their needs. The data also provided a sales forecast

to predict the first two years of sales of Crunchy Nut Bites.

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