United Cereal Case:
Brill’s Eurobrand Challenge |

1.a,b) United Cereal (UC) initially entered European markets by acquiring an established baked goods company (1952). By directly investing in other established companies, UC saved costs by using established distribution lines and were better able to brand their products using well-known subsidiaries. UC’s strong shared values influenced their strategies by ensuring the company did extensive market testing to maximize customer value and innovate to prevent stagnation. Furthermore, by proactively1 entering European markets, the company was able to increase its global market share and decrease its cost through economies of scale.
UC’s shared values of innovations led UC to use a brand management matrix structure, allowing UC to succeed in the European climate, second only to Kellogg’s. The structure allowed for trans-nationalization, by combining brand managers with country managers and functional units. Such focus gained local market shares by understanding the CAGE barriers. By treating brands as profit centers, UC created internal competition, promoting efficiency and cutting costs. The matrix structure has also led to R&D supremacy, with UC owning more product and process patents than any competitor.
UC’s next strategy established national subsidiaries,“mini UCs ”, through a multi-domestic strategy. This allowed CMs to customize and tailor products and processes to locally maximize profit. This strategy adopted the McKinsey 7-S Framework model with shared values and structure (through geographic departmentalization) being the center of their strategy.
Localization increased SG&A costs and decreased profit (~4% in 2009). UC’s VP, Olsen, adopted European Technical Team (ETT) for each major product group to combat this and invigorate the product portfolio. By combining central R&D with local developers, Olsen began a semi-globalized strategy. Through globalization, UC gained economies of scale by transcending markets, and gained market shares in areas by understanding local preferences, giving UC a competitive advantage.
In 2004 Olsen expanded ETT into “Europeanization Initiative,” a strategy to standardize products starting with UC’s frozen fruit juice. Olsen believed that some products were global in nature (free from cultural distance), and he saw a convergence of EU’s tastes. The fully globalized product, which disregarded cultural distance, had minimal support from CMs due to employee disenchantment, and led to stagnation. Responsibility was later returned to CMs.
2008/09 recession caused UC to leverage marketing resources. With profit stagnating, UC plans to create a semi-globalized Eurobrand strategy to decrease high SG&A costs and streamline production; this has yet to be fully implemented. With the convergence of EU countries’ administrative and cultural distances, the recession still poses economic barriers to marketing.

2.a) Benefits for entering France: A key shared value2 of UC is listening to customers. In the HBC focus group, 37/41 people liked the healthy branding of the cereal. Furthermore, with baby boomers becoming more health-conscious, and France amounting to 23% of UC’s Europe market, UC can reposition HBC in France as “organic/healthy” to gain market shares. Branding will be easier than with new products as HBC is a product extension of Healthy Crunch (reducing SG&A costs and time). Due to the fewer supermarkets in France, UC could create joint ventures with specialty stores, catering to specific segments and becoming a market driving company by changing public opinions of cereals/rebranding UC’s product. As UC is just entering France, it would be beneficial to prevent contending with Kellogg’s head on, as it has a first mover advantage and a cost leadership strategy. UC might choose a different marketing strategy (focus or differentiated) to command different segments than Kellogg’s. As a large proportion of SG&A expenses go towards advertising5, by repositioning the product extension as organic, UC can better use advertising budgets. In entering France, UC can gain a second mover advantage, learning from Kellogg’s mistakes and beating out Cheerios for market shares. Staff skills2 and experience dealing with CAGE and expanding internationally, will strengthen UC, as the company has successfully expanded its European market since 1952. UC can operate efficiently by: creating joint ventures using pre-existing networks, distribution and supply channels. UC can maximize profits by adapting to international differences. CM’s knowledge will ensure that local CAGE distance barriers are mitigated. ETTs can use this knowledge to improve products, based on local preference. EU’s standardization erodes market differences, decreasing administrative barriers, allowing UC to easily expand once set up in France. However, with the recession, EU countries are more differentiated based on income/GDP so gauging the stability of the EU is essential.
UC’s structure led to a recent decrease in company profits 1. As UC’s net income declines, the company must diversify their product mix to increase sales. Their profit3 shows UC has capital assets to risk expansion. Furthermore, introducing HBC to France is a good geographic choice, as France is a good extender7. France is geographically central and borders water, allowing for easy transport of goods to Europe, thereby decreasing distribution costs.
Cons against entering France: The main issue for entering France is the $20 million price tag, and the risks attached. The focus group results were slightly above the minimum target6, this denotes France might not be profitable for HBC’s introduction. As cereal is not traditionally French, cultural distances may hamper customer satisfaction. As this test was only done in 6 cities, one must ask if cultural distances among the cities were indicative of all of France. Also, UC’s sample size might not be relative to the population. UC might have to forgo R&D to enter into France (less market research). However, entering France early will allow the company to save time, research costs, and give the potential to gain market shares before competitors. Kellogg’s is currently established in France, with a near monopoly of the cereal industry. Having first-mover advantage and economies of scale, UC will face barriers to enter. As the French cereal industry is relatively small, there might only be room for one large cereal retailer (similar to rural demand for Wal Mart)8. The final issue is HR-related. As the company needs 12 signatures to launch, UC will need everyone onboard to ensure the success of the HBC launch. However, the Eurobrand idea is causing some internal controversy among executives. This must be quelled and the company must work together to ensure the success of HBC.
UC should launch HBC in France. The possible gains can increase profit and expand the company’s stagnating portfolio. As UC has a transnational mindset, CMs can deal with CAGE4 distances, while ETTs and distribution networks efficiently deliver products. UC can use 2nd mover advantages to their benefit by learning from Kellogg’s mistakes (free rider effect), repositioning the brand on health, and capturing segments Kellogg’s hasn’t capitalized on, while creating barriers to entry for competitors.
2.b) There exist some negatives to entering France right away. Firstly, the cost of entering France is $20 million. There are also large cultural distances for food, so entering a market whose traditional breakfast is not cereal is a risk. Possible internal HR conflicts, as well as the need to collect all 12 signatures to enter France, could delay the process giving new competitors time to enter. However, the benefits for entering France now are staggering, and outweigh the risks. Firstly, UC would need $2 million and 3 months to do market research. In that time, competitors could enter France and steal market shares. Although UC will not get the 1st mover advantage, UC can get a 2nd mover advantage. This would let UC build market share, create customer loyalty, gain a competitive advantage by using the entrance as market research to improve their learning curve, and capture specific segments (all barriers to entry). Finally, as HBC is a product extension and UC’s structure and staff cater marketing towards local segments, repositioning HBC in the health segment early can lead to future profits.
3a) Benefits of the Eurobrand Strategy: The Eurobrand could cut product and marketing costs by 10-15% over 3 years. This is valuable for the company, as SG&A costs account for 35.10% of their sales (2009). By semi-globalizing the marketing and distribution process through the Eurobrand, UC can gain greater understanding of the CAGE distances of certain countries (local), and mitigate it.3 UC is also better able to increase sales within markets and decreasing SG&A costs by gaining economies of scale and buying power through increased standardization and a stronger presence in Europe (global). Furthermore, more standardized products, with slight product tweaks over complete marketing mix changes, allow UC to consistently brand their products and reduce marketing expenditures. As the EU is causing a convergence on administrative and cultural distance, this standardization is now feasible. In addition, by introducing HBC initially as the Eurobrand, UC increases its chance of being able to properly brand the cereal, as it is a product extension on Healthy Crunch. By centralizing power through the Eurobrand, UC can become more structurally efficient. Currently, requiring 12 signatures for approval takes time and increases costs. The Eurobrand would prevent this by creating a clearer chain of command. With profits stagnating, UC needs to create innovative marketing techniques. This reorganization based on standardized brands should invigorate the product profiles, by creating cross-functional teams with local brand managers in order to come up with products that can be efficiently marketed to the Eurobrand teams. In addition, the skill of the UC staff and UC’s reputation will also be an asset in gaining local partners. Being established and having experience entering markets, UC staff knows the nuances of entering markets. Furthermore, UC can use staffs’ transnational mindsets and relationships in Europe to leverage distribution and supply chains necessary to get HBC to market quickly. Finally, by entering the market quickly, and positioning itself in the health food segment, UC can capture second mover advantages in several European countries (ie. France) and prevent competition from copycats, as well as avoid mistakes made by competitors in distribution and branding.
Negatives of the Eurobrand: Risks, changes to structure1 and high cost are all large negatives for the Eurobrand. Firstly, the introduction of a Europe-wide brand would be a large investment for something that has little prior market testing. With focus groups only slightly above the minimum entry threshold in France, this might not be enough to enter Europe. Some UC employees believe the Eurobrand is complex and unnecessary, and CMs may perceive the strategy as a challenge to their local authority. Brill must therefore empower CMs and local brand managers (not just lead countries) to prevent stagnation of products. By encouraging CMs and brand managers throughout Europe to collect data and make the final decision on whether to launch HBC in their home countries, Brill can raise local morale to prevent stagnation, keep to UC core values of R&D to reduce risk, and gain greater knowledge of the demand for cereal to prevent entering unprofitable markets. Furthermore, the responses of the CMs could be used to aggregate countries with similar demands. A final issue is the established Kellogg’s brands throughout Europe. Kellogg’s is a first mover and a cost leader, creating market power. To succeed, UC will have to properly position HBC to customers and create value through distribution chains and marketing.
Therefore, it is evident that the Eurobrand is beneficial for UC. Entering into the Eurobrand is risky, however, it would be advantageous for the company to facilitate the Eurobrand now for two main reasons. 1.) If UC was to enter countries piecemeal, competitors would be able to enter markets and take market shares/create barriers to entry (exactly what occurred in the Podcafé debacle). By entering into markets quickly and uniformly, UC is able to establish strong branding. With tough competitors like Cheerios expanding into markets, UC must take risks and enter markets to create brand loyalty. 2.) By entering most of Europe at once, HBC is able to quickly brand itself and gain economies of scale by conglomerating distribution and operations. This drop in pricing will allow UC to decrease their SG&A costs through marketing and shared distribution channels. As HBC is a product extension, the Eurobrand will be less risky and expensive, especially if the company can reach scale economies. Based on CM’s opinions of the viability of markets, UC can aggregate countries based on potential market shares, and enter countries with similar viability with certain scales of entry (large scale entry for highly profitable markets).
3.b) Benefits of the Organizational Structure: The biggest benefit of the organizational structure is that Eurobrand’s matrix9 structure promotes diversity by combining area and product structures10. This provides broader perspective on local CAGE distances (through local brand managers), and creates a think tank to deal with Europe-wide issues. As a result, it fosters UC’s Spot the trend, Make the market strategy as UC can better aggregate similar countries and control their scale of entry, engaging in large scale expansion in certain countries. Furthermore, giving more power to three VPs creates clearer lines of communication and chains of command. This provides more efficient lines of communication and can reduce inefficiencies in the company. By creating decentralized teams11, and a departmentalized structure12 built around products, the company can provide employees with clear goals for specific products, as each team acts as a profit center. Furthermore, decentralization allows for adaptability which will be important in the recessionary climate in Europe.13 As competitors (Kellogg’s) have first mover advantages and are Europe’s cost leaders, Eurobrand’s success will be based on how well they can capture specific segments in the markets. However, different products will require different marketing mixes. The matrix structure and decentralization of product departments allow Eurobrands to diversify their purchases. By creating a more networked organization17, and not relying on just their HQ, the company is better able to integrate individual thought into corporate agendas, allowing the company to become “glocal” and respond to the differing CAGE differences across Europe.
Negatives: The new structural approach gives greater power to VPs, which could pose a threat to CMs. To continue having a semi-globalized firm, UC must ensure CMs work collaboratively with the Euroteam. Cultural distance means different countries in the same region may have significant variances in their tastes and preferences, so treating them the same may by disregarding CM’s opinions on differences, and will be a potential pitfall. Furthermore, adding layers to the organizational structure increases the complexity of communication structures and may hinder the exchange of information between departments by confusing the chain of command. This may discourage communication and trigger expensive turnovers. Another issue is the complexity of the organizational structure. Making VPs in charge of both products and geographic areas confuses reporting relationships. One way to fix this would be to hire 4 VPs. 2 VPs would be in charge of specific brands, while the other 2 could be in charge of Northern and Southern Europe (Appendix 1). This allows subordinates to trace who is in charge. Choosing similar geographic areas, UC can increase the probability of being able to aggregate16 companies based on similarities in culture and geographic distance. By further differentiating brand and department relationships, teams may become more manageable. A final issue would be that “lead countries” may concentrate power in certain large subsidiaries. Although UC must do what is most profitable, it must also ensure all CMs have sufficient power to make decisions and prevent stagnation.
Recommendations: Brill must establish proper communication structures between local subsidiaries (CMs) and the Eurobrand team to ensure local opinions on product launches are heard. This could be done by making CM committee work teams in charge of meeting with VPs and discussing local developments. Although the product concept and profile should be mandated by the VP, CMs should have a final say on if the product will be launched (more local knowledge), and should work with brand managers to decide on what scale of entrance UC should use for their respective countries. This will prevent power from accumulating in large subsidiaries, ensuring entrance into markets is well timed, CMs feel that they still have power and autonomy (preventing stagnation), and that costly advertisement dollars are used on viable markets. By empowering workers and understanding local CAGE distances, Brill can employ soft power to prevent another “Europeanization Initiative” through NIH syndrome14. Furthermore, the centralization of the chain of command will allow for greater efficiency in communication by decreasing the number of leaders in the organization. Although UC standardizes products, UC can follow a strategy similar to that of Coke15 and slightly alter their product, based on recommendations from CMs, for respective country while not changing the marketing mix.
Appendix
Figure 1: Proposed Organizational Structure Change