Understanding and managing customers in the chocolate market - Essay Example

Understanding and Managing s in the Chocolate Market I. INTRODUCTION The chocolate market is one of the successful market sectors in the world. It targets a wide range of customers from children up to senior citizens. However, entering in this kind of market without sufficient knowledge and experience will just incur losses. It is important to know how the different chocolate companies like Hershey, Cadbury, and Nestle were able to achieve success in the chocolate business. This paper discusses the current events that are happening around the chocolate sector in order to provide relevant information to potential clients entering the chocolate market. It also provides information on the current size and value as well as the trends and development in the chocolate industry. This paper tends to analyze the risks and opportunities in entering this kind of market sector. II. THE CHOCOLATE MARKET A. BRIEF HISTORY The cocoa into which chocolate is created was discovered in the Amazon 4000 years ago (2000 B.C.). The cocoa was part of the Mayan culture (6 AD to 600 AD) and symbolized as the "god's food." For the Aztecs (1200 AD), cocoa beans were used for currency. In the early decades of the 16th century, the process of making chocolate drink 'Chocolati' was learned. In the same period, Hernando Cortez established the first cocoa plantation in Mexico. The chocolate arrived in Spain in 1528 and became popular in Europe not until the 17th century. The first chocolate made by machine was produced in Spain. Several chocolate factories were established in the United States, France, Great Britain, Switzerland, and Germany during the late 18th century up to the early 19th century. Switzerland took over the lead in chocolate innovation as Swiss Daniel Peter discovered the milk chocolate in 1875. In the early 1900's the Swiss chocolate became famous around Europe while in the United States, the New York Cocoa Exchange was established for buyers and sellers of chocolates. In the Second World War, chocolates were used as supplements for the soldiers. The U.S. astronauts also included chocolates, as part of their diets. (Chocolate Month Club) B. CURRENT SIZE AND VALUE United States and Europe Ryan Freund (2008) reports the global chocolate confectionary market had annual sales of 75 billion US Dollars in 2006. From the given figure, Europe contributed 35 billion US Dollars while the United States of America totalled for 16 billion US Dollars. They combine for a majority of the global chocolate market sales. Table 1 shows the average amount of chocolate the consumers spend per year. The United States has higher chocolate sales per capita of $53.16 compared to $48.08 chocolate sales per capita in Europe. Both spend at an average of $50 on chocolates every year. (Freund 2008) Table 1 Country/Region Chocolate Sales per Year Population1 Chocolate Sales per Capita United States $16 billion 301 million $53.16 Europe $35 billion 728 million $48.08 The British people are regarded as the biggest chocolate consumers in Europe consuming at an average of 10 kilos each person, every year. The British market is said to be around 4 billion Pounds. The two leading chocolate markets in United Kingdom are Cadbury and Nestle. (BBC News 2004) Table 2 shows the market value for chocolate confectionery in UK from 2004 to 2008. The chocolate market is sub-divided in to six (6) categories which are: "'boxed', 'moulded bars', 'Seasonal', 'Countlines', 'Straightlines' and 'other' Chocolate". (Business Insights 2008) Table 2 Germans and French are the next largest chocolate consumers in Europe eating annually at around 8.3 kilos and 5.8 kilos each respectively. (Food Production Daily 2005) Table 3 illustrates the value of chocolate confectionery sales in Germany from 2004 to 2008. Like in Table 1, the sales value is further divided into six (6) subcategories.2 Table 3 Asia In Asia, the Japanese eat at an annual average of 2.2 to 2.3 kilos each. In China, the Chinese are eating chocolates at an average of 100 -150 grams each every year although reports say that in Shanghai, China people are eating at 1 kilogram of chocolate per annum. The demand for chocolate in China has been increasing at the rate of 10 to 15 percent every year. (Patton 2006) Table 4 illustrates the comparison between two of the most populous countries in Asia and in the world, China and India, on chocolate confectionery sales. The combined chocolate sales per capita by China and India are only 1 percent of those of the United States and Europe. Table 4 Country/Region Chocolate Sales per Year3 Population4 Chocolate Sales per Capita China $813 million 1.3 billion $0.63 India $394 million 1.1 billion $0.36 C. MARKET GROWTH, TRENDS, AND DEVELOPMENT In the United States, the premium chocolate category increased by 24 percent in 2006 as well as the overall chocolate market by 3.9 percent. The figures were provided by AC Nielsen. Doraswami (2007) highlights the report of US Market for Chocolate and cites that premium chocolates are expected to conquer 25 percent of market sales or generate 4.9 billion US Dollars by 2011. Mars Snackfood US has focused on the sales of black chocolates since the 49 percent increase and 2.1 billion US Dollars total sales in that category from 2003 to 2006. (Net News Publisher 2008) The reason for the growth in the chocolate market in 2006 is due to the increase in prices and not because of the increase in sales. The trend in increasing prices also contributed to the decline of sales of other categories like sugar-free/diet, gift and novelty products. (Doraswami 2007) In the United Kingdom, one-third of the chocolates that the British eat are made by Cadbury. In 2003, their market grew by around 13 percent. However Nestle incurred losses of 10 million Pounds or 1.7 percent in the same year. (BBC News 2004) In Russia, the chocolate market increased by 400 000 tonnes or 8 to 9 percent in 2001 as predicted by Nestle marketing manager, Steven Watson. (Eurofood 2001) According to a study by TNS Market Research, the chocolate market in Saudi Arabia and United Arab Emirates remains strong despite of health consciousness. In the study 99 percent of the Saudi Arabian respondents claimed to have eaten chocolates in the past seven days while 98 percent of the respondents in UAE claimed the same too. The figure was 4 percent higher from the previous result in 2004 for Saudi Arabia while UAE retained its previous result of 98 percent. (AME Info 2007) The data provided by the Euromonitor International describe the 100 percent or the double increase in the chocolate confectionery sales in China in the last 5 years. For India, the chocolate confectionery sales also increased by 64 percent at the same period. It is estimated that China's chocolate sales will reach 1.23 billion US Dollars or 50 percent increase. (Freund 2008) Furthermore, Hershey arrived to deal with South Korea's Lotte Confectionary in allowing its candy to be produced in China. The deal will contribute to increase in the market sales as Hershey will have access on the huge Chinese market of 1.3 billion. Also, Cadbury and Mars have increased their sales by 26 percent and 40 percent respectively while Nestle has increased its sales by two times in China since 2001. (Freund 2008) The global chocolate confectionery grew by 1.9 billion by 2006 and was regarded as the strongest performer in the confectionery division despite the anti-obesity concerns. The reason for the increase is that some markets focus on the health benefits of eating chocolates in response to growing health concerns. (Confectionery News 2007) Many reports and articles suggest that the chocolate market is continuously increasing in the global market despite of several issues and concerns regarding health. D. MAIN COMPETITORS Kolli (2007) reports on four (4) main competitors in the chocolate market. These are (1) Hershey, (2) Cadbury Schweppes PLC, (3) Nestle SA, and (4) Mars. This section provides profiles for these companies as well as their customer perceptions and business principles. HERSHEY COMPANY Background Profile The Hershey Company is the largest chocolate and sugar confectionery products manufacturer in North America. It has revenues of 15 billion US Dollars and employs 13,000 workers around the world. The net sales of the company in 2007 amounted to 4.9 billion US Dollars. (Hershey's) The company's current chairman is Kenneth L. Wolfe and its main office is located at Hershey, Pennsylvania, USA. (Yahoo Finance) Its consumer website address is www.hersheys.com while its corporate website address is www.thehersheycompany.com. (Hershey's) Products Hershey's major brands and product lines include Hershey's, Reese's, Kit Kat, Kisses, Twizzlers, Jolly Rancher, Ice Breakers, Snack Barz, and Hershey's Solution Center5. The Hershey's Chocolate Bars are of different flavours like milk chocolate, dark chocolate, cookies and crme, chocolate caramel, milk chocolate with peanut butter, chocolate with almonds, sandwich cookies, and brownies. Kit Kat is a light crispy wafer bar that is available in different flavours like milk chocolate, white chocolate, and caramel. Twizzlers are candy twists that have four flavours: strawberry, cherry, chocolate, and licorice. (Hershey's) Mission Statement The mission statement of Hershey is "bringing sweet moments of Hershey happiness to the world every day." For the each stakeholders, the meaning of this statement as quoted in the Hershey website is: "Consumers - Delivering quality consumer-driven confectionery experiences for all occasions Employees - Winning with an aligned and empowered organization while having fun Business Partners - Building collaborative relationships for profitable growth with our customers, suppliers and partners Shareholders - Creating sustainable value Communities - Honoring our heritage through continued commitment to making a positive difference "(Hershey's) Corporate Philosophy The company's goal is to balance its desire for profitable growth with its obligations to various constituencies. In order to achieve that, the company must: 1. "Protect and enhance the corporation's high level of ethics and conduct. 2. Maintain a strong "people" orientation and demonstrate care for every employee. 3. Attract and hold customers and consumers with products and services of consistently superior quality and value. 4. Sustain a strong result orientation coupled with a prudent approach to business." (Hershey's) CADBURY Background Profile Cadbury is one of the world's largest confectionary companies and ranks at top 20 largest confectionery markets around the globe. Cadbury creates three kinds of confectionery products which are chocolate, gum, and candy brands. (Cadbury) The total revenues for 2007 are 15.92 billion US Dollars. The company's current chairman is Roger M. Carr and its main headquarters is located at Uxbridge, Middlesex, United Kingdom. (Yahoo Finance) The company operates in 60 countries, works with 35,000 direct and indirect suppliers, and employs around 50,000 employees. Its website address is www.cadbury.com. (Cadbury) Products Cadbury's chocolate products include Dairy Milk, Creme Egg, Flake, Crunchie, 5 Star, Bournvite, Caramilk, Cherry Ripe, Freddo, Mieszanka Wedlowska, Milk Tray, Moro, Mr. Big, Old Gold, Perk, Picnic, Poulain, Roses, Turkish Delight, and Wedel. Cadbury Dairy Milk is one of the best seller chocolate products with flavours Fruit & Nut and Wholenut aside from Dairy Milk. (Cadbury) Corporate Philosophy Cadbury Company has a "clear vision, performance scorecard, priorities, and sustainability commitments." The company's values include performance, quality, respect, integrity, and responsibility. The members work as "one team across geographic and functional boundaries to be the best." They give importance to the "consumers, customers, suppliers, shareowners, colleagues and communities [through] understanding and responding to their needs. " (Cadbury) Business Principles The company's business principles serve as guides in their management processes while observing ethical standards to make the company a great place to "work for and to work with." (Cadbury Schweppes 2003). The management's principles include: "promoting ethical business practices respecting the environment and communities in which [they] operate assuring equal employment opportunities valuing diversity in the workplace providing healthy and safe working environments respecting human rights and trade ethically" (Cadbury Schweppes 2003) NESTL Background Profile Nestl is the largest industrial company of Switzerland as well as the leading "Nutrition, Health and Wellness Company". Its main headquarters is located at Vevey, Switzerland. The company operates 480 factories and employs 276,000 workers worldwide. (Nestl 2007) The company is headed by Chairman Peter Brabeck-Letmathe. (Yahoo Finance) Its net sales last 2007 totalled 107.552 billion Swiss Francs. Its website address is www.nestle.com (Nestl 2007) Products Nestl's main products include beverages, milk products, nutrition, ice cream, prepared dishes and cooking aids, confectionery, professional products for food services, and pet care. Its brands of chocolate products are Nestl, Crunch, Cailler, Galak/Milkybar, Kit Kat, Smarties, Butterfinger, Aero, and Polo. (Nestl 2007) Business Principles The company's corporate business principles reflect its "fairness, honesty, and general concern for the people." (Nestl) The business principles are: "Nestl's business objective is to manufacture and market the Company's products in such a way as to create value that can be sustained over the long term for shareholders, employees, consumers, and business partners. Nestl does not favor short-term profit at the expense of successful long-term business development. Nestl recognizes that its consumers have a sincere and legitimate interest in the behavior, beliefs and actions of the Company behind brands in which they place their trust, and that without its consumers the Company would not exist. Nestl believes that, as a general rule, legislation is the most effective safeguard of responsible conduct, although in certain areas, additional guidance to staff in the form of voluntary business principles is beneficial in order to ensure that the highest standards are met throughout the organization. Nestl is conscious of the fact that the success of a corporation is a reflection of the professionalism, conduct and the responsible attitude of its management and employees. Therefore recruitment of the right people and ongoing training and development are crucial. Nestl continues to maintain its commitment to follow and respect all applicable local laws in each of its markets." (Nestl 2004) MARS Background Profile Mars is owned by the Mars family which makes it one of the largest private owned companies in the United States. John Franklyn Mars is the current chairman of the company. Its main office is located at McLean, Virginia USA. The company employs at around 48,000 workers around the world. Its revenues in 2007 amounted to 25 billion US Dollars. (Yahoo Finance) Products Mars produces different products like chocolate snack food, pet care, food, and drinks. For the chocolate products, Mars is famous of its chocolate brands like Snickers, M&M's, Mars, Twix, Skittles, Dove, and Starbust. Snickers is regarded as the world's most famous candy bar while M&M's has been the world's most favourite candy snacks since 1941. (Mars) Business Principles Mars Incorporated shares its five (5) principles which compel the management and employees to "think and act differently towards their associates, brands and businesses." These principles are: (1) quality6, (2) responsibility7, (3) mutuality8, (4) efficiency9, and (5) freedom10. (Mars 2003) E. CUSTOMER SEGMENTS Arthur Middleton Hughes and Paul Wang identify the different methods in classifying customer segments with common purchasing behaviors. These methods are: "Geographic: North, South, Urban, Rural Income: Upper Class, Middle Class, Lower Class Industry: SIC Code, Annual Sales, Number Employees Age: Newlyweds, Families with Children, Empty Nesters, Senior Citizens Product End Use: Wholesalers, Retailers, End Users" (Hughes and Wang) Analysing the different customer segments, the income, age, and product end use are identified in the chocolate market industry. For income, the differences in income affect the consumption of chocolates with the upper class having the luxury to spend more money in eating chocolates compared to the middle and lower classes. For the age, children are the major target since they love chocolates the most compared to the older ones although reports say that older people are now consuming more chocolates than children. The people on the higher age brackets have the liberty and power to purchase chocolates than children who rely on their parents or other people. For the product end use, the wholesalers have the biggest demand and influence in the market because they can purchase in larger quantities (bulks) compared to the retailers. However, the incomes of the wholesalers and retailers depend on the end users who buy the products. Maxine Frith (2005) reports the increase in consumption of chocolates by older people, aged 55 years above, in Britain. According to Datamonitor, 21 percent of confectionery sold in Britain belongs to the old people. They spend on eating chocolates at approximately 700 million UK Pounds every year. However the British children spend less on chocolates compared to the elders amounting to 390 million UK Pounds a year. According to John Band, Datamonitor's Senior Consumer Analyst, "There is now a growing tendency to view confectionery as a premium, indulgent and adult product, moving away from traditional sweet shop favourites towards more luxurious chocolates." (Frith 2005) In response to the report, Frith (2005) suggests that manufacturers must make radical changes in their chocolate products to make them appealing to the upper age market like making the wrappers easy to open. The Cadbury promoted a marketing drive in 2003 entitled 'Get Active' which targets the children in Britain. With the participation of the Youth Sports Trust, the marketing drive aims to promote sports development in children through exchanging chocolate wrappers for school equipments. The program was supported by the government however issues and criticisms were raised by the National Union of Teachers as well as health experts. According to them, the costs of buying and consuming chocolates outweigh the real value of the sports equipment. For example, in order to earn a netball which has a real cost of 5 Pounds, the children would need to spend about 40 Pounds on chocolates plus the additional 1 kilogram of fat and 20,000 calories from the purchased chocolates. (Food Magazine 2003) F. CUSTOMER EXPERIENCE John Wyckoff11 (2004) stresses the influence of emotional decisions than the intellectual decisions to the customers in choosing which products to buy. He also identifies the different stimuli that affect the emotional response of consumers when buying products. These are colour, contrast, shadows, motion, sounds, touch, and smell. For colour, it should be colourful and grouped. For contrast, light and dark areas should be in order to create drama. For sound, music should be chosen from the customer's perspective and should not also be distracting. For smell, Wyckoff mentions that chocolate has an intoxicating smell that stimulates habit-forming. (Wyckoff 2004) StartupNation identify 5 ways to enhance customer experience. These ways are used by the different chocolate companies as reflected on their vision and mission statements, goals and business principles. These are: 1. "Formalize a Customer Relationship Management (CRM) Strategy 2. Create a Culture 3. Provide incentives for Return/Repeat Business 4. Offer Bonuses to Reward Loyalty 5. Cultivate Passionate, Engaged Employees" (StartupNation) Of the different approaches mentioned, creating a culture is the most significant for the chocolate market. Creating a culture involves cultivating a passion among the employees and the consumers. (StartupNation ) The culture of a company identifies itself with its identity, values, principles, and the products that they offer to the consumers. Establishing a culture would make loyal consumers who patronize the products of a company and thus, would create a harmonious relationship between the company and the customers. This is beneficial for both parties since the customers are the ones keeping the survival of every company through their payments and the companies are the one's providing the service and products needed by the customers. III. RECOMMENDATIONS AND CONCLUSION For new businesses who wish to enter the chocolate market, they must consider the following: (1) product originality, (2) strong relationship with customers, (3) familiarity and right strategy, and (4) love and dedication. Product Originality. Since many various kinds of chocolates have entered the chocolate market, the addition of another product will create lesser impact. This is the task for the marketing division on how will they make the product unique in terms of packaging and looks. The first years of promotion will be challenging but maintaining a constant result in sales in during its first years of entry will be an achievement. What is important with the success of a product especially of a chocolate product is the taste which is addictive that leaves the buyer craving for more. Strong Relationship with Customers. Having a harmonious communication with customers of different segments will contribute to a binding and lasting affair between the two parties. In order to have this, a company must earn the trust and loyalty of every consumer possible through its honest programs and schemes. It also must make the customers feel its pure intentions in serving them. The continuing success of the four major companies in the chocolate market is because they have established a good relationship with their customers as well as their employees. Familiarity and Right Strategy. New businesses entering a certain market must be familiar with how the market works, current size and value and its major competitors. Proper knowledge of the existing market will enable starters to generate specific and right strategies for them to be inserted and to survive in a competitive market like chocolate market. Love and Dedication. This factor is often disregarded because the main purpose of every business entering a market is gaining profits. However without the love for the business, it is hard to think of new methods, new formulas, or new flavours which will challenge the existing ones. The new businesses must have the passion of providing quality service and not focusing only on gaining profits. List of References All about Nestl. Nestl. [Online]. Available at: http://www.nestle.com/AllAbout/AllAboutNestle.htm [accessed 10 August 2008] Cadbury wants children to eat two million kg of fat - to get fit! Food Commission. [Online]. 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