C2.Strategy.Hang.Tough.in.tough.times

C2.Strategy.Hang.Tou - Hang Tough in Tough Times In the late nineteen-twenties two companiesKellogg and Postdominated the market for packaged

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Hang Tough in Tough Times In the late nineteen-twenties, two companies—Kellogg and Post—dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn’t see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player. You’d think that everyone would want to emulate Kellogg’s success, but, when hard times hit, most companies end up behaving more like Post. They hunker down, cut spending, and wait for good times to return. They make fewer acquisitions, even though prices are cheaper. They cut advertising budgets. And often they invest less in research and development. They do all this to preserve what they have. But there’s a trade- off: numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts. In 1927, the economist Roland Vaile
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This note was uploaded on 03/12/2011 for the course MKTG 365 taught by Professor Staff during the Spring '11 term at North Texas.

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C2.Strategy.Hang.Tou - Hang Tough in Tough Times In the late nineteen-twenties two companiesKellogg and Postdominated the market for packaged

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