Strategic Management #2

1. Understanding how the external landscape (macro-environment, industry) is changing to determine how to compete effectively in it.  Should strategy change in response to the changing landscape?

A: Before the 1990s the Ready-to-Eat Breakfast Cereal Industry was synonymous with being stabile and achieving above average profitability. Kellogg, General Mills, and Philip Morris held dominant positions. As a result, in 1972 the FTC filed a major antitrust suit against the big three. The Landscape changed when demand slowed and private labels were able to gain market share. The Big Three continued to increase prices and promotions. In 1993 Kellogg announced their third price hike of the year bring the year’s total increase to 6.2%. Following this announcement Malt-O-Meal’s CEO released a statement that “The era of price hikes are over.” Private label cereal was on average 40% cheaper than the Big Three. With improved quality improved in simple cereals and steep increases in cereal price private label cereal became a substitute. From 1991-1994 private label sales grew by 50%. I would argue the Big Three should not have changed their strategy during the 1990s. By increasing advertising, promotions, and pricing they took a basic food and made it a luxury item. “Competitive tactics led primarily to stockpiling and brand-switching by the most fickle consumers.”

2. What are the important trends and events that are changing the external landscape?

A: Slotting Allowances provided the big three with a position advantage. These bigger firms were able to purchase prime shelf space, coupons, and in store advertisement at supermarkets making it difficult for smaller brands to position for a majority of consumers. However, in the 90s distribution of groceries changed. Supercenters, drug stores, convenience stores, and discount retailers became new channels of distribution. The division of shelf space was less entrenched than a supermarket. This allowed private labels and...