How is it possible for Kellogs to offer Frosted Flakes for p

•How is it possible for Kellog’s to offer Frosted Flakes for prices ranging from $3.50 to $4.00 per box, when competitors such as General Mills and Ralston’s sell the same-sized box in the range of $2.10 to $2.50?

Solution

There are three explanations how this can happen.

(a) Brand identity.

If Kelloggs commands a higher brand image than its competitors, then it can sell its product at a higher price. Consumers will view high price as an indicator of higher quality (associated with strong brand image of Kelloggs), and will purchase accordingly.

(b) Product differentiation

If Kelloggs has been able to successfully differentiated its flakes relative to competitor products, it will be able to command a higher price due to the additional product feature (for example, added nutrients which rival products lack).

(c) Demand elasticity

If the target market for Kelloggs flakes is less sentivity to price (i.e. demand is inelastic), it can charge a higher price for its goods.