The cereal market is a booming industry. It has been around for over one hundred years and continues to attract millions of customers’ everyday. The market structure of the cereal industry is an Oligopoly. This is because there are four large firms, Kellogg, General Mills, Post, and Quaker Oats, which dominate the industry.
There are also a few small firms who are involved in the cereal industry as well. The cereal industry targets all different age groups from young kids to adults. They also target people who try to eat healthy. Their main pricing strategy is price discrimination. They use this by handing out coupons, so that people can get their cereal at a discounted price.
Price competition is rarely used in the …show more content…
Either way, this allows cereal companies to receive high profit margins. Price competition has rarely been a pricing strategy in the cereal industry until recently. Many of these cereal companies attempt to slash the prices of their cereal in hopes that customers will buy the cheaper box of cereal. This strategy has been pretty unsuccessful thus far though. There is a serious lack of competitors in the cereal industry. With the lack of supplier power as well, it is pretty simple for an entrepreneur to think of ways to innovate and create a new cereal brand. “However, there are a variety of barriers to entry in the industry which makes in near impossible to enter this potentially profitable market.” (Roy, Matthew) The main barrier to entry that new cereal companies are faced with is the extremely large advertising budget that the main cereal firms have. Recently, it is reported that approximately 1.3 million advertisements for cereal are aired on American television each year. (Roy, Matthew) The cost of these advertisements were said to be $762 million. (Roy, Matthew) This advertising budget was the second largest in the United States behind auto manufacturers. This is a barrier to entry because new start-up cereal companies will not be able to afford such lavish and constant advertisements that the large firms are able too. The other main barrier to entry is brand recognition. Consumers have