"We may have made a mistake in not making a big deal in announcing these cuts to consumers," said Chairman-CEO Arnold Langbo. "We simply lowered the price without fanfare."
That, of course, is the way business had been done in package goods, a holdover from the 1980s when prices spiraled upward and marketers tried to keep increases quiet. But today, marketers are using every tool at their disposal-from press conferences and announcements on TV news to the old standby of large-scale ad campaigns-to get the word out as they cut prices.
Moreover, package goods marketing heavyweights such as Kraft Foods and Dowbrands-and Kel-logg-are turning to umbrella marketing campaigns and unified couponing to give them more bang for their corporate buck.
"The move to utilize the most efficient media for their brands and extend the budget across multiple brands" has become common, said Gary Stibel, principal at New England Consulting Group. "We've gone from brand management to category management," he said, changing the marketing impetus from one brand competing against others in the same company to a family of brands working together.
Kellogg, for example, is pooling its ad funds for the brands undertaking the deepest price cuts-Frosted Flakes, Frosted Mini-Wheats, Froot Loops and Raisin Bran-to introduce a network TV campaign scheduled for the end of this month.
"There will be no incremental [advertising] spending," said Thomas Knowlton, president of Kell-ogg North America.
Leo Burnett USA, Chicago, is handling the creative, which Mr. Knowlton said isn't yet set.
GETTING THE NEWS OUT
"I think we learned from Raisin Bran [that a price cut is useless] unless consumers know you've lowered prices," Mr. Knowlton added. "You need to use advertising and PR."
That's exactly what Kellogg did with a splashy New York press conference last week. It followed by several weeks Kraft's public announcement of a 20% price cut for its Post brands.
"It's a $9 billion category and the largest price rollback in the history of the industry," said Post President Mark Leckie. "Almost regardless of [the PR and advertising], it became a big media story."
Helped by a national TV campaign from Grey Advertising, New York, showing Post employees proudly touting the price slash, Post's share has soared 3 to 4 percentage points in a four-week period.
"Our volume is up 20% and we saw it coming from Kellogg," Mr. Leckie said.
TRIMMING AD BUDGETS
Both Kellogg and Post will have to trim individual brand ad budgets to fund the price cuts.
"Our advertising budget will be affected over time," said Mr. Knowlton, adding initial funding will come from savings gleaned from plant closings and the like.
The biggest shift, however, is coming from Post, which last week introduced a single coupon for its cereals (AA, April 22).
"We will still coupon but the brand frequency and the face value will be reduced," said Kellogg's Mr. Knowlton. He wouldn't comment on whether the company would follow Post's example of a group coupon.
ARE BIG G, QUAKER NEXT?
Whether General Mills or Quaker Oats Co. will follow is anybody's guess. But Big G has invested $40 million in Olympics marketing efforts, including Team USA Cheerios and Olympic Marshmallow Lucky Charms, an expensive strategy that would seem to rule out price cuts.
The slashing also will inevitably have an impact on cereal introductions. New cereals were practically a monthly occurrence in the '80s, but now companies are much more cautious.
"We felt we could be much more disciplined in the new-product process," Mr. Knowlton said. "It's easy-but expensive-to introduce a new product and withdraw it a year later."