Competition, Internet Sparked Kellogg's Online Loyalty Program

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Facing increased competition from longtime rivals and new media forms, Kellogg Co. had little choice but to launch the cereal industry's first Internet-based loyalty program, analysts said.


Kellogg's "EET and ERN" program at www.EETandERN.com is aimed at increasing consumption of Kellogg's products in a slow-moving cereals market, which is seeing a tight race for No. 1 status between the Battle Creek, MI, marketer and rival General Mills.


"The strategy is really to reward long-term product usage," said Rick Herbst, vice president and general manager of electronic commerce at Kellogg. "So, we want to reward the same people to consume more and more of our products [and] touch those on the margins who are making choices between ourselves and our competitors."


Matt Stamski, an analyst at Gomez Advisors, Lincoln, MA, said the online loyalty program was a necessary move for Kellogg, whose rival, General Mills, is selling hard-to-find company products on its site.


"One of the largest concerns of consumer packaged goods companies is that the Internet, if left to its own devices, can really erode some brands because, in its current state, it does allow for a lot of price comparison shopping and cherry-picking of deals," Stamski said.


"That being said, tools such as this really help build relationships and strengthen a brand," he added. "So I think overall, it's a solid move because you're combining a natural tendency on the Internet and using it to foster loyalty."


The EET and ERN program is another milestone: It is the first time Kellogg owns all the points of the loyalty program. Under other arrangements, it has to split them with a third party. In the offline world, for instance, Kellogg has a joint loyalty program with American Airlines.


Kellogg's move online coincides with a recent Jupiter Communications study that found loyalty programs alone do not create loyal online consumers. Only 22 percent of those surveyed said loyalty programs were an incentive to purchase online, according to the research.


To participate, consumers must find a 15-digit encrypted code inside Kellogg's cereal boxes and then sign up at the EET and ERN site. After registering, an account will be opened and the consumer must enter the code.


Consumers can collect or redeem the points from Kellogg's three online partners -- toysmart.com, Schoolpop.com and fogdog.com. More partners are expected to join.


Kellogg has supplied retail stores with cereal boxes that bear the EET and ERN symbol. More than 300 million boxes of Kellogg's cereals, such as Frosted Flakes, Froot Loops and Mini-Wheats, among 18 products, will carry the encrypted codes.


The program will be advertised through print media, TV and the Internet, supported by the introduction of "EET," a cereal-loving horse, and "ERN," a prudent pig that saves for cool products. Both mascots are the first characters Kellogg has created in more than 30 years. Kellogg hopes the twosome will catch the eye of children.


TV ads will run on stations like Nickelodeon and the Cartoon Network, featuring lines such as, "Eat Kellogg's cereals, get stuff," and in magazines like Disney Adventures and S. I. for Kids. Kellogg has bought online space on Disney Online, Kids Domain and the MTV sites.


Leo Burnett USA, Chicago, and Capps Digital handled the creation of the online loyalty program as well as the advertising.


Herbst said the Internet is key to Kellogg's plans for future growth. Based on the success of the online loyalty push, Kellogg will extend it to other product lines and convenience foods, including toaster pastries, wholesome snacks, frozen waffles, vegetarian foods and cereal bars.


"We think it's a great way to have a dialogue with our consumers without some of the limitations of either in-store or on-box real estate," Herbst said.
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