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Diversification Strategy at Kellogg's Company

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Table of Contents

  • Strategic Choice of the Company
  • Strategic Choice of Kellogg’s in the Divestment
  • Conclusion

The financial level of the Proctor and Gamble company due to their diversification increased as the diluted net earnings fell. Current diluted earnings per share was about $3.77 to $3.93, on completion of the sales of Pringles but if not the diluted net earnings per share is expected to be at the range of $3.30 to $3.43 not including the gain from the transaction. Looking at the above figures the divestment brought about a boost financially.

Also worth noting statements made by the chairman P and G said “This is an excellent development for P&G, Pringles and Kellogg, creating value for our shareholders and representing an outstanding opportunity for Pringles employees with a leading company in the Food sector. Kellogg shares similar values and principles to us and we are confident that the Pringles business will thrive under Kellogg’s leadership” (P & G, 2012).

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Strategic Choice of the Company

With Proctor and Gamble seeking for growth in its own market such as personal products i.e. body care and global household products its reason for diversifying of its Pringles brand although this was a resourceful business unit thereby making it hard decision but was a strategic one as this wasn’t its main focus for growing the Pringles brand at the time. From Kellogg’s view point this was a major opportunity and better fit for their market as they were focusing on the food market. This also offered taking new market as a this was a means of penetration for them.

In 1967 the brand Pringles was developed and the marketing done by Procter and Gamble. Proctor and Gamble had a good understanding of the brand as they were the brand parents. With the business growing and had long time of success all this duration with the share in the market and price of the stock was immensely increasing. The goal for creating and establishment of the brand Pringles was to take on new grounds in the market by breaking into this new market which in turn would lead to an increment in the sales alongside its brand names, still considering this was not their main line of business. But the problem was that despite this good understanding the value was still not been added as it was mainly focusing on its market of household and personal products.

(Goold, 1995) highlighted that the “Parent and business fit” is an important question that must be asked although this was bringing a good market share to the business as well as profits to Proctor and Gamble with even becoming its ‘Crown Jewel’ this fit wasn’t there. Form this situation we could draw that the brand Pringles was within the Ballast business unit. Ballast businesses can be major way for obtaining stability, as they give steady cash flow and earnings that are reliable. But ballast businesses can also be a drag on the company, as the growth can slow down in value creation and divert the attention of parent managers from activities that could be more productive. “Moreover, there is a danger that changes in the business environment can turn ballast businesses into what we call alien territory” (Goold, 1995).

To enable them getting out from the value trap and alien business diversification was the best method in altering their structure of business. When a business is value trap this can be risky as they appear attractive due to the fact the parent has an understanding of the business but if diversification doesn’t occur will be leading to an alien business. Proctor and Gamble through this diversification has been able to revaluate their ‘feel and ‘benefit’ for their several business units alongside giving analysis into its parental focus that is geared towards household and personal products. This has been seen by the chairman Proctor and Gamble as an excellent development for all parties involved and with shareholders getting a creation of value for shares and gives a wonderful chance for the staff of Pringles with a top firm in the sector of food. The values that Kellogg possess are similar and its principles too which makes it more likely for the Pringles brand to flourish under the leadership of Kellogg’s.

Strategic Choice of Kellogg’s in the Divestment

Kellogg shares went up by 5% as it bought the Pringles brand and was described by the chief executive manager as a “game changer” as this was a strategic plan to become a worldwide company for snacks and cereals. (Zoe & Julia, 2012). Kellogg are popularly for focusing on food as its main business and ranked highly for their products especially food that have been processed such as cereals. In the year 2012, the right to acquire the Pringles brand was gotten and was able to be added to its several business units. Overall it can be said that Kellogg has ‘feel’ as well ‘benefit’ for the Pringles brand as well as becoming a heartland business for them as time goes on, possessing an understanding as they also are an addition of value to the business. Kellogg main aim is for the growth and development of their worldwide snack business with Pringles been a spot on and lucrative target for them, serving as a major booster for growth which can hardly be achieved organically.

Conclusion

In conclusion this report has looked into the Pringles diversifying from Proctor and Gamble P and G into Kellogg’s. Using the parenting matrix from the discussion from section 1 along its business units, reviewing this as in connection to the diversification of P and G. In addition, the parental developer was looked into as another reason to this diversification as chosen by the management as a strategy. As earlier analysis made we’ve come to an understanding that the sole reason for this diversification of Pringles was aimed at a break free from value trap and alien businesses. As these business units have a characteristic of been dangerous, with an appearance that is deceitfully attracting because of the parent having a good understanding of the business. Finally, from Kellogg’s point of view this is to monopolise and dominate this market worldwide as it also operates as heartland businesses.         

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