Cadbury is a British multinational confectionary company headquartered in Uxbridge in Greater London. The company is owned by Mondelēz International and is the second largest confectionary company in the world after Wrigley’s. It operates in at least 50 countries across the globe and is renowned for its confectionary products which include Dairy Milk Chocolate, the Roses selection box and the Crème Egg. The main aim of this report is to evaluate the current market position of the company by analysing its external environment, internal capabilities and corporate social responsibility practices in order to determine its potential to expand into overseas markets. It is concluded that Mondelēz International should introduce one of its numerous brands into India under the Cadbury brand name as was the case with Oreo, which was introduced into the Indian market in 2011 as Cadbury Oreo even though it was marketed as Kraft Oreo in other parts of the world. This will drum up support and good will for the new brand, which would be adopted at a higher rate compared to other brands.
Table of Contents
1 Introduction 4
2 Competitive Position 4
2.1 SWOT Analysis 5
2.2 PEST Analysis 5
2.3 Porters Five Forces 7
2.4 BCG Matrix 8
2.5 Ansoff Matrix 9
3 Internal Capabilities and Culture 11
3.1 Recommendations 12
4 Current Approach to Corporate Social Responsibility 13
4.1 Recommendations 14
5 Overseas Opportunities for Cadbury 14
6 References 18
Table of Figures
Figure 1: BCG Matrix 10
Figure 2: Ansoff Matrix 10
Figure 3: Global Chocolate Market 16
Figure 4; Product Life Cycle 17
The Global confectionery market has registered remarkable growth over the last few years. Better still a positive trend has been projected in the future. “Retail growth for confectionery products in emerging markets was expected to be three times faster than that of developed regions from 2012 to 2017.” (Euromonitor International, 2012). Empirically, developing markets will account for 77% of the global growth. More importantly, a rising demand for more sophisticated, higher-priced products has emerged in developing countries as evidenced by the higher retail value gains compared to previous years in most of these economies. This will generate higher operating margins for manufacturers. The demand for confectionery product is generally driven by chocolates, which have been projected to outperform other products between 2014 and 2018 (Euromonitor International, 2013). The sale of chocolates and other confectionery products are expected to increase at an average constant rate of 13% from 2013 to 2017. Unit prices are also expected to increase at a constant rate of 5% and at least 10% overall (Euromonitor International, 2012). This report will evaluate the current market position of the company by analysing its external environment, internal capabilities and corporate social responsibility practices in order to determine its potential to exploit overseas markets.
2 Competitive Position
SWOT analysis will be used to evaluate both the company’s internal and external environment in order to determine its strengths, weaknesses opportunities and threats. PEST analysis and Porter’s Five Forces framework will on the other hand mainly focus on the macro-environment. While PEST analysis will be used to identify the political, economic, social and technological factors that have a considerable influence on the performance of the company within this environment, Porter’s five forces framework will be used to evaluate the attractiveness of the global confectionary industry (Vrontis & Thrassou, 2006; Vrontis & Vignali, 2012). By assessing the level of market growth and the share of Cadbury’s brands in the market, the BCG Matrix will be used to identify the characteristics of the company’s strategic business units in order to formulate an effective marketing strategy. Finally, the Ansoff matrix will be used to identify the various types of growth strategies that can be adopted by the firm by focusing on its present and possible products as well as markets.
2.1 SWOT Analysis
One of the major strengths of the company is its rich history and global presence. Established in 1831, the company is not only renowned world over but it has also over the years made every effort to stay at the top. Consequently, it is currently the second largest confectionery brand in the world and as such, it commands a considerable brand loyalty across the globe (Carroll, 2009). Moreover, it has a strong brand image, which can be leveraged to introduce new products into the global market. Other than that, chocolates are strongly associated with gifting, which serves to boost chocolate sales during festive seasons such as Valentines and Christmas. Finally, it also has the capacity to expand into overseas markets, which would further enhance its brand image.
On the other end of the spectrum Cadbury’s expansion into overseas markets is limited by the fact that its prices are relatively high especially for emerging markets in third world countries which are characterised by very low incomes per capita. Additionally, the company faces stiff competition from brands produced by other companies such as Nestlé and Mars Foods.
2.2 PEST Analysis
Unlike domestic marketing, international marketing is characterised by a complex and multidimensional environment, which calls for a great deal of monitoring and vast knowledge in different cultures across the globe. There are immense social and cultural influences in the global business environment (Doole & Lowe, 2008). Particularly, different countries are characterised by different social conditions, material culture and religions which all affect consumer perceptions and consequently their tastes and preferences. These differences also have a significant impact on the potential for standardization and global branding. Failure to appreciate the social and cultural dimension of a specific market can prove to be a huge stumbling block to effective marketing strategies.
Cadbury is however well suited to adapt to diverse cultural dimensions because it is founded on social factors. First, the company was established by a Quaker family and because they opposed the consumption of alcohol, they run a business that specialised in non-alcoholic beverages such as coffee, tea, cocoa and liquid chocolate. Most of these products are acceptable worldwide, which makes expansion into the global market an easy task for the company (Vrontis & Thrassou, 2006). However, Cadbury has found it increasingly difficult to produce universal products that can be consumed by all customers across the globe. The company has for instance recently come under intense criticism from the catholic community for producing “halal certified” chocolates with some customers vowing to stop consuming the company’s products altogether (Noble & Tran, 2014). Moreover, the confectionery industry has also been associated with the rising cases of obesity especially in Western countries.
Western Europe is perhaps the largest constituent of the global chocolate market. In 2012, it was the largest chocolate market, accounting for 32% of the global market. As such, the external environment in this region has the most significant impact on the company’s operations. From a political point of view, the change in government from the Labour party to the liberal democrats will have a significant influence on the company’s operations in the UK. Cadbury has 8 factories in the UK which have employed at least 3000 workers. The restriction of skilled manpower from other parts of the continent, will limit the company’s labour market and therefore have a great bearing on future human resource decisions.
Other than that, several countries are still recovering from the sovereign debt crisis and as such the UK economy is generally characterised by low consumer demand owing to the recession which has had a dramatic impact on the company’s overall profitability (Lane, 2012). Finally, there have been several technological advancements, which have over the years reshaped the company’s production and packaging processes for instance through the introduction of state of the art brew machines, the use of pathogen tasting systems and the production of heat resistant chocolate.
2.3 Porters Five Forces
The global confectionery industry is generally characterised by a low threat of new entrants, high competitive rivalry and fairly similar margins for most competitors. There is a low threat of new entrants because of the high initial investment required to launch a chocolate company. Moreover, the key players in the industry enjoy considerable brand loyalty which translates to high switching costs for new entrants. (Abella, et al., 2013) Additionally, the government imposes very stringent regulations for new start-ups.
There is high competitive rivalry in the market because of the multiple industry leaders that are equally balanced competitors, with sizes and product offerings that are more or less similar and all them engaging in aggressive marketing strategies (Nguyen & Ha, 2013). The industry is also characterised by high fixed costs and storage costs, which limit the overall profitability of producers.
Suppliers have a high bargaining power because they are limited in number and the raw materials they offer have few close substitutes. This is because manufacturers have been restricted to use high quality cocoa that meets food regulations and consumer tastes. Because cocoa is cultivated in regions characterised by tropical climate, the number of suppliers is further threatened by natural calamities such as hurricanes that are rampant in such areas (Essegbey & Ofori-Gyamfi, 276-286.).
On the other hand, buyers have low to moderate bargaining power because of the high level of differentiation in chocolate and cocoa products. Moreover, the industry as aforementioned has a number of key player that have strong brand identification and brand loyalty, which translate to high switching costs (Abella, et al., 2013). Buyers also lack perfect information about the market and pose a minimal threat of backward integration due to the high initial and maintenance costs associated with the confectionery business.
Finally, the threat of substitute products is moderate to high a variety of flavourings can be used in place of chocolates. Moreover, there is a tendency of buyers switching to substitutes such as non-chocolate snacks, candy, ice cream, fruits and potato chips because chocolates are considered to be unhealthy.
2.4 BCG Matrix“
In order to formulate a successful marketing strategy Cadbury should identify its various business units using the BCG Matrix. This will facilitate effective allocation of resources and formulation of market specific strategies that will enable it to meet its overall goals and objectives. The BCG matrix particularly assesses the level of market growth and the share of the company’s brands in the market.
Given its market position, Cadbury commands a considerable share of the global market and as such it will not require heavy investment to build its brand. On the other hand, the industry is characterised by low market growth, which implies that most of the company’s brands are cash cows. Nevertheless, Cadbury is not the market leader and in order to rise to this position, the marketing department has to come up with innovative strategies to attract more customers and target niche markets that have not yet been exploited. Moreover, it should make deliberate efforts to expand into overseas markets so as to enhance its overall market position. Underinvestment, might cause the company’s brands to become cash traps (dogs)
Stars Question Marks
Cash Cows Dogs (Cash Traps)
Figure 1: BCG Matrix
2.5 Ansoff Matrix
The Ansoff Matrix suggests that Cadbury should pursue market penetration, because the company’s products are not new to the market, neither is the market new. The main objectives of market penetration for the company include maintaining or increasing the market share of its current products, maintaining or improving its position in the market, increasing consumption by current customers and outshining its competitors.
MARKET PENETRATION PRODUCT DEVELOPMENT
MARKET DEVELOPMENT PRODUCT/MARKET DIVERSIFICATION
Figure 2: Ansoff Matrix
1. The SWOT analysis has revealed that the company’s products are fairly overpriced. So, in order tap into emerging markets in third world countries that are characterised by low per capita incomes, the company should make deliberate efforts to reduce the prices of its commodities. Because consumers in such markets are highly sensitive to market prices, the company could introduce an economy brand that is specifically targeted at these markets. Cadbury could also establish subsidiaries in these markets and employ cost minimization strategies to lower the prices of its products. This can be achieved because most developing countries have underdeveloped labour markets and as such, it could benefit from lower wage rates.
2. Cadbury should also pay close attention to different country cultures while attempting to penetrate overseas markets and evaluating the potential implications of its strategic decisions on existing markets. It should also consider the side effects of its products on the health of its customers. The negative health impacts associated with the company’s brands could encourage foreign governments to impose strict regulations on it operation or worse still, result in a negative brand image in overseas markets
3. In order to reduce the bargaining power of suppliers, the company could establish more branches in tropical countries in order to actively engage in the production of cocoa, which is the main ingredient for most of its products. By promoting cocoa production, the company will not only be in a position to reduce the bargaining power of suppliers but also lower its cost of production due to increased supply of raw materials. Additionally, increased competition in the cocoa sector could translate to the production of high quality cocoa and consequently high quality products for the company.
4. As pointed out in the BCG and Ansoff matrix, even though the company commands significant market share, it should make deliberate efforts to improve its market share through greater market penetration and product development. Given the level of competitive rivalry in the global confectionery industry, the company cannot afford to rest on its laurels. It should constantly ensure that it meets or even supersedes the expectations of its customers to enhance customer satisfaction and consequently promote brand loyalty.
3 Internal Capabilities and Culture
Cadbury Plc appreciates the value of innovation, more so, open innovation, which is believed to be a source of competitive advantage for the company (Bansal & Bansal, 2014). A major advantage of open innovation is that it helps the company to access ideas that would have otherwise not been generated internally. Since the open innovation initiative at Cadbury was launched in 2006, the company has developed a unique process for outsourcing ideas to solve its technological challenges. This move has so far generated novel ideas for the company’s products including gum, candy and chocolate. The company has borrowed scientific ideas from fields such as metallurgy, materials and polymer science, and the pharmaceutical industry. A dedicated open innovation team was established in 2008 to facilitate importation of new technology into the company and to develop and roll out best practice methodology, behaviour and tools to promote an open innovation culture throughout the organisation. Through the team, the company has developed a list of technical needs and grown its networks with external groups.
Some of the core technical needs of the company include “food grade ideas for novel (and pleasant) sensations or textures, healthy mouth benefits (such as breath freshening) and aeration for [its] confectionery products.” (Pearson, 2008). These needs among others on the list are used to find solutions from networks set up by the company to help groups link into knowledge and technology that would, under different circumstances, be difficult for it to access. Moreover, the company has developed and grown its networks with other groups in numerous divergent sectors. This has been achieved through the dedicated team’s personal contacts and relationships with suppliers, open innovation managers in noncompeting firms, targeted universities and research institutes. Additionally, the team engages in networking at trade shows and conferences and pursues linkages with other networks such as Knowledge Transfer Networks.
Apart from open innovation, Cadbury also practices lean management. Through JIT production, the company has been able to reduce costs substantially and improve productivity, competitive advantage and job satisfaction. In 2010, the inventory costs were reduced from $ 670,000 to $ 200,000 while productivity was improved by cutting the assembly time by 95% due to reduced stock holding (Dhillon et al., 2010). JIT production also improves communication between the company and its suppliers and customers enabling it to be more receptive to market demands. This creates flexibility, which translates to competitive advantage. Furthermore, JIT facilitates active participation of employees in the production process, hence increasing their skills, giving them greater responsibility and fostering an interest in the company’s performance. This results in motivation of the employees and increased job satisfaction.
Cadbury Plc has an exemplary open innovation strategy, which will facilitate the exploitation of emerging and developing countries. However, for open innovation to thrive within an organisation, it must exist within a collaborative environment that facilitates a free flow of information and ideas. For this reason, apart from promoting open innovation within the organisation, the company should also promote open innovation in the macro environment, especially in the emerging markets. This can be achieved through the promotion of networking and collaboration, human capital and entrepreneurship culture, IP management and technology markets, access to finance and the knowledge science and technology base in developing countries (EURIS , 2012 ). Networking and collaboration will entail, supporting intermediaries and platforms for open innovation, building strong networks and supporting transnational and global collaboration. Building human culture and entrepreneurial culture on the other hand will involve supporting governments in developing countries to modify existing curricula in educational institutions to incorporate various aspects of open innovation, extending and simplifying mobility schemes and setting up innovation communications in order to increase global awareness of open innovation. Furthermore, it should Promote IP management and technology markets to facilitate the commercialisation of patents and ensure easy access to patent systems hence increasing its Knowledge base about emerging markets (Reed et al., 2012 , p.58). The company should also facilitate greater access to risk capital and cross border investment to enhance open innovation by making charitable donations to open innovation institutions in emerging markets. Moreover, it should provide better exit opportunities for its contributors. Finally, it should be actively involved and advocate for cooperation and political coordination in emerging markets, which are characterised by fragmented research landscapes. For lean management, the company should use the knowledge of the goods demanded in the market to control inventory levels. In this case, production of chocolates should be higher than the production of other product lines.
4 Current Approach to Corporate Social Responsibility
Cadbury’s core purpose is “creating brands people love” while its governing objective is to deliver superior shareowner returns. Its vision is to be the world’s biggest and best confectionery company. To this end, the company makes deliberate attempts to foster corporate social responsibility by Promoting responsible consumption of its products through thoughtful marketing, product innovation and better nutritional labelling. Additionally, it ensures ethical and sustainable sourcing of raw materials and other supplies, which is exemplified by the Cadbury Cocoa Partnership. The company also prioritizes quality and safety, promotes the reduction of carbon, packaging and water use, as part of the Purple Goes Green campaign. To add on to that, it nurtures and rewards colleagues, facilitates diversity and invests in communities in which it operates (Cadbury, 2008).
In line with its core purpose, the management has also made great strides towards making the company a service oriented business (The Times 100, 2013). Early in 2013, Cadbury plc launched a personalised gift service that enables customers to design and personalise the wrapper of a chocolate bar (London, 2013). The service, which enabled customers to put any word, message or even a photo on the wrapper, was launched ahead of Valentine’s Day obviously as a sales promotion strategy. Notwithstanding, this clearly indicates that the company is a customer oriented business. Other than that, the company outsourced development work to a Europe based supplier in 2011 to create and maintain a digital platform to support online customer engagement activities (Flinders, 2011). Furthermore, the company participates actively in social media such as Facebook, Twitter, Pinterest and Google+ in order to maintain close contact with its online customers (Moth, 2013).
Despite its numerous attempts to engage in sustainable supply chain management, the company has overlooked the health implications of its products, which have resulted in ta significant loss in its market share. In order to counteract that negative health impacts of its products, the company should sensitize customers on the importance of exercise and fitness.
5 Overseas Opportunities for Cadbury
From the figure below, it is evident that the Middle East, Africa and Australasia have the least share in the global chocolate industry, which is a likely indicator that they have a huge potential for growth. Nonetheless, given the number of years the confectionery industry has been in existence, this could not be the case. Asia on the other hand accounted for 17% of the global chocolate market in 2012 coming in in third place after Western Europe and North America. This market can therefore not be overlooked. Apart from having the highest population in the world, the Continent has the third highest GDP, which suggest that it has the potential to generate considerably high revenues for the company.
Cadbury should target a rapidly growing market in the Asia, such as India and enhance its market penetration in the country in order to gain sustainable competitive advantage over other players in the industry.
Figure 3: Global Chocolate Market
The Indian chocolate industry has been projected to grow at a constant average growth rate of 23% by volume between 2014 and 2018 to reach a total of 341,609 tonnes per annum. The key drivers in this market include the increase in disposable income occasioned by rising income levels, attractive pricing, chocolate gifting and the growth potential of the Indian market (Gupta, 2011). On the other hand confectioners are also faced by numerous challenges including, the rise in cocoa prices, lack of government initiative to promote the confectionary industry in the country, price sensitive consumers and high excise and import duties.
In India, chocolates were traditionally consumed mainly by kids. Globalization has however played a significant role in the transition of consumer tastes and preferences in favour of chocolates as an ideal gift for most festive seasons. Consequently, premium chocolates have over the years replaced the traditional “mithai” which was considered as a snack for kids. Chocolates are now consumed by people of all age groups.
The company already controls at least 69% of India’s chocolate market share. Because Dairy milk was introduced into the country back in 1905, the product is currently at the maturity stage which implies that the revenue and overall profitability of the product has already started to decline as illustrated in figure 4 below (Balagopalan & Nirav Parekh, 2012).
Figure 4; Product Life Cycle
Mondelēz International should therefore introduce one of its numerous brands into India under the Cadbury brand name as was the case with Oreo, which was introduced into the Indian market in 2011 as Cadbury Oreo even though it was marketed as Kraft Oreo in other parts of the world. This would drum up support and good will for the new brand, which would be adopted at a higher rate compared to other brands. This will however be similar to the introduction of a new brand, which will call for extensive market research and advertising. Moreover, unlike Cadbury’s Dairy Milk which targets premium customers, the new brand should target the mass market because Indian consumers are highly price sensitive. Basing on the Ansoff Martix described in previous sections of this report, the company should also engage in product development, which will mainly be driven by market research. Having studied the country’s culture for a long period of time the management team at Cadbury India have a very good idea of the consumer tastes and preferences. As such, coming up with a product features that are tailor-made for the Indian market should be a walk in the park for the product development team. Once the brand has been adopted, the company should engage in continuous product improvement and aggressive advertising in order to retain and enhance its market share.
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