• Ad Age, Wednesday, August 2, 2006 1:30 PM

Cereal marketers are about to start offering less product for a higher price. This fall, Kellogg's says it will institute a 2 percent price hike for its cereal products while simultaneously decreasing the size of product packages. Ad Age says the company's rivals in the $6 billion ready-to-eat-cereal category are likely to follow suit. The magazine says the move will allow more money for marketing expenditures, and is part of a trend among many marketers to defy long-held discounting strategies in favor of increased prices. "When you have to hit profit-margin targets and there is no pricing power, marketing has tended historically to be the offset," says Andrew Lazar, an analyst at Lehman Bros. "But if companies can take pricing, it's a good sign they won't be skimping on the marketing side." Kellogg tested the price increases in April, when it shrunk its 19 oz. box of Rice Krispies to an 18 oz. box without a price change and saw no decrease in sales. Now, similar downsizings will follow on at least seven other items.

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