Chocolate Industry Is Becoming A Global Phenomenon Marketing Essay

Chocolate Industry Is Becoming A Global Phenomenon Marketing Essay Introduction Chocolate Industry is becoming a global phenomenon. Globally appetite for chocolates shows no signs of waning but a shift in consumption pattern is increasingly evident. In the year 2009 global confectionary market was estimated to be 88,740.2US $ million industry .From the year 2004-2009 it has grown by 33.2 % in terms of retail value .In terms of value chocolate confectionery market is the largest category accounting for almost 60% of the total sales. The giants of chocolate business have all dominated their respective regions for decades eg :-Kraft in Us,Cadbury In Britain. Cadbury Schweppes was formed by a merger in 1969 between Cadbury and Schweppes. Since 1842 Cadbury has gone from strength to strength. The most recent step to the success ladder for Cadbury is the takeover of the company by US food company Kraft which makes the company global confectionery leader. It has an outstanding portfolio of chocolate, gum, candybar .Since then the business has expanded into a leading international confectionery and beverages company. Through an active programme of both acquisitions and disposals the company has created a strong portfolio of brands which are sold in almost every country in the world. This report aims to throw light on Chocolate confectionery industry leader Cadbury with target market in India .A rapidly developing economy such as India would further gives me a chance for a much deeper analysis of the industry and overall market environment. Cadbury in India: Cadbury began its Indian operations as a trading company in 1947 with brands such as dairy milk, gems, 5star Bournvita and perk etc. Cadbury India Ltd is a local subsidiary of Cadbury Schweppes which holds in excess of 90 % shares in it. Cadbury in the last six decades has become synonymous with the word chocolate in India .It is one of the Classic examples of the brand coming to symbolise a product category. Innovation is also essential for ongoing success despite chocolate market being dominated by consistent performers .Cadbury India Ltd dominates the chocolate market in India with over 70%.It operates in four categories viz. Chocolate Confectionery, Milk Food Drinks, Candy and Gum category. Some of the key brands are Cadbury Dairy Milk, 5 star,  Perk,  Ãƒâ€°clairs  and  Celebrations. Market size The FMCG market in India is estimated to reach 27 billion in 2009. It is very highly fragmented market .In India the Chocolate confectionery market grew almost 22% in current value terms to reach Rs27 billion in 2009.Cadbury India Ltd is the leader in confectionary market in India Leading Brands in the market Nestle is the 2nd market leader with a share of 33% followed by Amul at 3.63%.Other competing products in the market are KIT KAT, NESTLÉ Eclairs ,Polo, Nestle Milky bar Nestle Bar one is one of the biggest competitor of 5 star ,Amuls Chocozoo product ,Amuls Milky Bar etc Brand Positioning A brand position is the market place a brand is perceived to occupy or what the brand stands for in a world of brands .This position includes the associations it has in the mind of the consumer .It includes the associations it has in the mind of the consumer .It includes all aspects of a brand: the product attributes, benefits and values. (MooijiMariekede, 2005). In a survey conducted by the Business world magazine in 2007 Cadbury had been ranked 5th in the FMCG sector in a survey on Indias most respected companies. PORTERS ANALYSIS New Entrants Rivalry Buyers Substitutes Suppliers Porter (1980) suggested that five main forces shape competition at the level of strategic business units and that a systematic analysis of each in turn can help managers identify the keys to competitiveness in their particular industry (Hooley, 2003) Rivalry among existing companies-Moderate Cadbury is undoubtedly the market leader in the Indian chocolate confectionery market .The main players in the chocolate confectionary market is Cadbury followed at 58.3% by Nestle at 33% and domestic brand Amul (Gujarat Co-operative Ltd) at a very small share of 3.63%.Private labels have not made an entry in chocolate confectionary .With Brands such as Cadbury and Nestle enjoying a strong brand equity as well as market dominance retailers have not ventured into the category as of 2009 .Since 2004-2009 the market shares by the companies have not seen a major change .Nestle is the only competitor with diverse range of product portfolio where as Amul core activity is in dairy products and it has a much smaller product portfolio than the leading players in India. Amul Chocozoo is the companys key innovative brand which does not have any parallels in the market. In India Cadbury enjoys very strong brand loyalty a classic example is the Worm Controversy in the year 2003 during the festiva l period in Diwali but a year later company was able to gain back the consumer confidence .Cadburys value share melted from 73 per cent in to 69.4 per cent during the year 2003.The recovery began in May 2004 when Cadburys value share went up to 71 per cent. This faster recovery was possible due the trust and loyalty of the consumers with the brand. Also due to strong brand loyalty Cadbury enjoys price elasticity and product differentiation plays a very small in competitive rivalry of the confectionery market. Threat of New entrants- Low In addition to considering existing rivals an organisation should also consider the potential for new entrants to emerge. Threat of new entrants in an industry depends upon the height of a number of entry barriers .In the chocolate confectionery market the capital cost of entry would be very high since Cadbury and Nestle being the only two companies with more than 70 percent share in the market. To compete with such well established MNCs it requires high investment making the threat of new entrants very low. Cadbury as a brand enjoys strong brand loyalty and emotional attachment by the consumers any potential new entrant will encounter resistance in trying to enter the industry .Brand loyalty will also be a significant factor in increasing the costs for consumers of switching to the products of new competitors. Threat of Substitutes-Low A substitute can be regarded as something that meets the same needs as the product of the industry .The extent of threat from a particular substitute will depend upon factors such as extent to which the price and performance of the industries product and performance of the substitute can match the industries product and the willingness of the buyers to switch to the substitute .In case of Cadbury the switching costs for the consumers is very low .Also consumers are very loyal to the brand making the threat of substitutes very low Bargaining power of suppliers- Moderate Cadbury Schweppes has around 40000 suppliers worldwide.  [1]  Parent company provided cocoa seeds and clonal materials for 8 years of operations to Cadbury India Ltd .It started cocoa farming in India to reduce dependence on imported cocoa beans. Cadbury India imports about 50 percent of the cocoa requirement .List of Key ingredients and their approximate percentage requirement is shown the below chart: Other Dry Fruits-3% Edible Oil-5% Malt Extract-9% Sugar Liquid Glucose-17% Milk (Powder/Liquid/Condensed)-20% Cocoa Beans/butter/powder -46% Like stated above key ingredients Sugar and Cocoa are bought from the commodity markets. Milk is bought regularly from farmers in the area near the factory to complement the supply coming from the original directly operated farm. Barley for malt is bought from four to five wholesalers. Manufactures have very little control over the prices of Sugar and Cocoa since they are mostly set by the government. Rest of the ingredients have less proportion as compared to cocoa and sugar hence their bargaining power is low. Over the recent years there has been growing concern of the trade policies and child labour issues in the cocoa industry Cadbury product Dairy Milk has been fair trade certified . Bargaining power of buyer- Moderate The extent to which buyer of a product exert power over an industry depends upon number of factors. To identify the bargaining power of the buyer for Cadbury its very important to identify who are the customers and consumers for the company .Customers are the people who sell the products to the people who consume them, for Cadbury they are the retailers and the distributors and consumers are the direct end people who consume. In the supply chain for Cadbury buyers include consumers, wholesalers, and supermarket chains. Market for the chocolate industry is highly fragmented. Existing brands such as Cadbury and Nestle have a strong presence of differentiation and brand loyalty leading to weakening of the buyer power. Major purchase in terms of volume is by the retailers giving them a better bargaining power but Cadbury enjoys good brand loyalty hence making it comparatively weak. Consumers have become accustomed to the brand and generally seem reluctant to shift loyalties to newer brands. Porters Generic strategy CADBURY Source: Competitive advantage As a competitive strategy, differentiation refers to a product or service that is different or somehow unique as perceived by the customer. (Grigsby Stahl, 1997)A firm can achieve differentiation for its products or services in a number of different ways .Cadbury India adopts the differentiation strategy to set itself in a unique way in the competitive envoirnment.Cadbury has over the decades build a brand image for the company through extensive advertising people have started associating with the brand emotionally and are very loyal. Cadbury has always tried to connect emotionally through its advertisement with the consumers .Company also regularly uses customer surveys as a means to align the advertisements with evolving consideration sets of customers and uses packaging as a tool to communicate quality. For example adds such as Kuch Meetha Ho Jaaye Is Diwali Ap Kisse Khush Karenge which means something sweet for the Diwali festival clearly shows the bond the company is trying to connect with the consumers. It also tries to add extra features into the product. Cadbury India invests heavily in advertisement for its products .This plays a very important role in differentiating strategies because the customer gets convinced that there is something different about the product. Differentiating firms usually employ substantial consumer research efforts to identify changing consumer tastes. Cadbury regularly invests in consumer research and research and development for its products .It regularly tries to innovate with the products. Company goes by the value it sets for itself i.e. performance driven, values led. Resource Based View A resource based view inside out perspective is fundamentally different from Porters outside in perspective. A resource based view of the firm draws an important distinction between comparative parity and competitive advantage (Barney ,1991).Parity is achieved by choosing and executing a business strategy comparable to that of competition firms .Generic strategy models are seen as leader to parity with the competition .By contrast ,competitive advantage requires that firms be unique by developing and deploying resources in unique ways that add value and are difficult to imitate (Gerhart Rynes, 2003).Resource based view says that a organization possess resources that are inputs into its production process .There are three such capital inputs: Physical, human and organizational .The use of these resources is determined by characteristics inside the company .When these characteristics are appropriate and an organization can achieve both competitive and a sustainable superior performanc e-usually expressed by relatively high levels of return on investment .The organization acts a collection of assets and capabilities providing a capacity for a sets of resources to effectively perform activity tasks. A firm can sustain a competitive advantage by the organization responsive to rapidly changing market conditions by both maintaining the development of existing resources and capabilities and creating new ones. An organization needs to identify these capabilities which provide it with a competitive advantage. Resources are of two types tangible and intangible .These resources for the company can be intensified using the VRIN model. Valuable Rare Imperfectly Imitable Non Substitutable With the Cadburys analysis of the external as well as internal environment of the firm i found below resources which can help to sustain competitive advantage in the market. Tangible assets Ranking from level 1-5 (Where 1 is the highest) Financial capital 1 Human resource 2 Intangible assets Brand reputation 3 Loyalty of customers 1 Goodwill 2 Research and development 5 Distribution network 4 Distinctive Capabilities Culture and values 1 Cadbury India has been decades in the Indian market and now enjoys a strong reputation and has maintained its market leader position for many years it has the largest market share in the Indian chocolate industry of more than 70 percent. Thus I would rank financial capital as no 1 tangible asset of Cadbury India. Cadbury India has been ranked as the 7th Great Place to Work and the No. 1 FMCG company in India in 2008, by the Great Place to Work Institute.  It is the fourth time that they have featured amongst the Great Places to Work in India. Cadbury India has also been awarded the Bronze Award for Excellence in People Management in the Great Place to Work 2007 survey conducted by Grow Talent Company Limited and Business world. The award recognizes Cadbury India as a national leader in the area of Human Resource Management. Thus making it very useful tangible asset for the company.  [2]  Cadbury India is a built upon reputation for fine products and services. Capabilities are more difficult to delineate and are often described as invisible assets .For Cadbury India undoubtedly it is the culture and value of the organization which it has carried on decades .It is a value driven company To summarise the essential elements of the resource based view from Cadbury Indias point of view are the resources stated as above which give the firm its distinct advantage and sets its apart. Also the role of management in converting these resources into positions of sustainable competitive advantage leading to a superior performance in the marketplace. Cadbury Indias Business Relationships with Stakeholders: Stakeholders are the customers, shareholders employees, suppliers, communities. I would be aiming to analyse the business relationships Cadbury has with its stakeholders, how it builds up long term relationship which is mutually beneficial and a collaborative effort Government Communities Employees Customers Stockholders Cadbury India Educational institutes, Future generations, Poor Media, Competitors, Suppliers Trade associations, Public Interest Group Unions, Political parties, Creditors Environment, Religious Groups A firm must satisfy the interests of all its participants since this will promote the interest of the shareholders. A Firm should try to enhance the interest of all the stakeholders. It should have a stakeholding approach to business behaviour. Cadbury India take part in various programs and activities for the overall community its shareholders etc.As part of its corporate social responsibility programme they promote physical activity and education that helps improve consumer health and prevent obesity  .They are also helping to build understanding of the energy equation particularly amongst children. Cadbury India does not vend its confectionery or carbonated soft drink products in primary schools and only vend these products in secondary schools by invitation and in line with nutritional guidelines set by the school. Company regularly invests in new science and increasing our scientific resources within our business. Were working with others (including government, campaigners, shareholders and customers) to help find solutions. weve withdrawn from advertising directed specifically at children aged less than eight years where theyre the majority of the audience and weve introduced a global Marketing Code of Practice, whi ch includes specific reference to children. Cadburys Marketing code Supporting sensible consumption and balanced life style also signifies the company values towards the consumers  [3]   Good relationships with supplier and other stakeholders can also provide an increased repertoire of insights and responses, greater efficiencies and more opportunities for creating problem solving. This is especially important for Cadbury constantly tries to innovate its products and services to maintain their market share .Since Cadbury has a strong stakeholder relationship it also provides the company with a measure of stability in a turbulent environment. During the Worm infest crisis of 2003 it was very difficult time for the company but due to the solid relation it has with its customers, stakeholder it was able to win back their trust and gain the largest market share by 2004. Analysis and Conclusions: Cadburys competitive advantage comes from highly related and producing similar products lines based on existing technologies .For example Cadbury dairy milk, Dairy milk shots. I feel since Cadbury targets similar product market some of the customer bases Moreover it has the ability to offer big portfolio to meet customer needs .Since Cadbury is already the market leader in the chocolate confectionery in India it can focus on the current portfolio effectively using this as a base to venture into new products or entering into similar industry. Also it can be noted that the markets that it has already captured are in to the maturity stage and product needs constant innovation and development to sustain in the long run. India has a vast population though Cadbury has a very large and diverse distribution network still there would be lot of untapped market potential it should concentrate on getting the best distribution system. Also as the market develops consumers become more experienced and discerning and look for more benefits from the products they choose. Cadbury should regularly try to re-work exiting brands and develop new ones to meet consumer demands. Bibliography Abbott, John C..  Agricultural Marketing Enterprises for the Developing World: With Case Studies of Indigenous Private, Transnational Co-operative and Parastatal Enterprise. New York: Cambridge University Press, 1990.   Barney, J.B., (1991), Firm Resources and Sustained Competitive Advantage. Journal of Management; 17, (1), pp.99-120 Campbell, David J., Bill Houston, and George Stonehouse.  Business Strategy: An Introduction. Manual ed. 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