Marketing Nutella in the United Arab Emirates - Case Study Example

Marketing Nutella in the UAE Table of Contents Abstract 2 Introduction 4 Company Description: Ferrero SpA 4 Ferrero’s Marketing Environment 6 SWOT Analysis 6 Strengths 6 Weaknesses 6 Opportunities 7 Threats 7 Porters Five Forces 8 Threat of New Entrants into the Waste Management Industry 8 Buyer Bargaining Power 8 Supplier Bargaining Power 8 Threat of Substitutes 9 Intensity of Competition among Rival Firms Operating in the Industry 9 Product overview 10 Nutella’s Threats in the UAE Market 10 Pestle Analysis 11 Political and Legal Environment 11 Economic Environment 11 Socio-Cultural Environment 12 Technological Environment 12 Marketing Strategy 13 Target Market 13 Positioning 14 Price 14 Promotion 15 Promotion Strategy 15 Conclusion 17 References 17 Appendix 18 Appendix 1: Questionnaires 18 Sample Questionnaire for Students 18 Sample Questionnaire for Families 19 Sample questionnaire for hoteliers 21 Appendix 2: Study Results 22 Appendix 3: A three-dimension distribution approach 22 Abstract The contemporary business world is characterized by increased competition. Businesses must make every effort to secure significant market share, through customer loyalty while increasing their profits. This paper seeks to present a marketing report for marketing Nutella (Ferrero’s Bread spread product) in the United Arab Emirates (UAE). Four target markets have been chosen for Nutella in the UAE: children, teenagers, young women and Restaurants (and hotels). Three advertisement media will be used for marketing Nutella: television advertisement, magazines and internet advertisement. Promotion activities, in the form of road shows and school visits will also be used for creating brand awareness. A three-dimension distribution approach will be employed in the distribution of Nutella: selling directly to final consumers, selling to retailers and convenient stores, and following the traditional distribution channel (Manufacturer-wholesaler-retailer-consumer). Introduction Marketing is a crucial business activity that determines the success of a product and the profitability of the business under consideration. Effective marketing requires excellent understanding of the product or service under consideration and the target market in order to engage the right marketing mix. Market analysis is a crucial step when introducing a new product in the market, which facilitates the determination of the promotion mix. There are various analytical tools that are used in market analysis, some of which include SWOT analysis, Pestle analysis and Porter’s five forces analysis. A comprehensive market audit using the aforementioned tools, coupled by market research and analysis, enable companies to set up prices, determine promotion mix and distribution channels effectively. Company Description: Ferrero SpA Ferrero SpA is an Italian-based company that manufactures confectionary products, such as chocolate. The company was founded in 1946 by confectioner known as Pietro Ferrero, who started the company in Italy in a place known as Alba (Nutellausa, n.d). Ferrero started the company after he invented a food product, Pasta Gianduja, which was made of cocoa and hazelnuts derived from Gianduja. Pasta Gianduja is usually spread on bread, and it is considered a breakfast product (Nutellausa, n.d). Ferrero was established for producing and marketing the newly invented product, Pasta Gianduja, which was sold as the main company product until 1964 when Ferrero and his sons (who had joined the company as chief executives) decided to change the recipe of Pasta Gianduja to make Nutella (Nutellausa, n.d). The new product, Nutella, was introduced into the market in 1964. Currently, Nutella is a very popular food product all over the world making Ferrero the most popular company all over the world (Kneale, 2009). Pasta Gianduja and Nutella are the main and oldest products of the company. Ferrero manufactures and markets several other products all over the world, which include Hanuta Chocolate, Ferrero Rondnoir, Pocket Coffee, Ferrero Rocher, Confetteria Raffaello, Giotto, Tic Tac breath mints and Mon Cheri (Nutellausa, n.d). Further, the company manufactures and markets kinder products, such as Kinder Chocolate bars, Fiesta Ferrero, Kinder Surprise, Kinder Happy Hippo, Kinder Duplo, Kinder Maxi, Kinder Bueno and Kinder Delice (Nutellausa, n.d). The company continues to introduce new food products in the market, such as the recent introduction of Gran Soleil, which is a frozen food product (dessert) that is usually frozen before it is consumed. The introduction of the new food product enabled the company to be awarded for being innovative (Ferrero, 2011). Currently, Ferrero products, especially Nutella, are sold in several countries all over the world. Nutella is marketed as the brand name for hazelnut spread (Nutella, 2010). According to Nutella (2010), the company’s products are sold in various regions and countries as shown in the table 1. The company’s trading branch in the United Arab Emirates is located in Thuraya Tower 1, in Dubai. Table 1: Countries where Ferrero products is sold Region Countries where Nutella is sold America United States and Canada Europe Belgium, Austria, Germany, Denmark, Italy, Greece, Poland, Netherlands, Russia, Portugal, Spain, United Kingdom and Switzerland Middle East Kuwait, Israel, United Arab Emirates (UAE) and Saudi Arabia Africa Morocco, Libya, Tunisia, Egypt and Algeria Oceania New Zealand and Australia Note: Table adapted from “Nutella®” by Nutella, 2010. Retrieved from Accessed April 25, 2012. Ferrero’s Marketing Environment As aforementioned, Ferrero is a reputable and famous company all over the with a significant market share in the production and sale of chocolate products. However, the company’s products face competition from several natural and manufactured bread spreads and other confectionary products. This section analyzes Ferrero’s marketing environment by focusing on its competitive advantage, as well as threats facing the company. Marketing environment analysis is done using three analytical tools: SWOT analysis, Pestle analysis and Porter’s five forces analysis. SWOT Analysis Strengths Ferrero is a reputable and famous company all over the with a significant market share in the production and sale of confectionary products in many parts of the world, such as America, Africa, Europe, Middle East and Oceania. Some of its brands, such as Nutella, Ferrero Rocher and Kinder Surprise have already gained a significant amount of loyalty and trust from consumers in various parts of the world. The company ranked high in its home country, as well as worldwide, which makes it famous and reputable. Therefore, its products are famous. Further, the company is innovative and produces unique products that are of high quality. Weaknesses From the countries covered by the company, it is apparent that it has not covered the entire world, which implies that its marked coverage is rather small. Further, the company’s expansion strategies, for example, in the UAE market, may not give it a competitive advantage since it only exports products to the market instead of establishing a manufacturing site in the region. Therefore, the company’s products may not compete well with locally manufactured products. Opportunities The company launches new products very often, which is an excellent opportunity for the company since it enables the company to be prominent in the confectionary industry. Further, the company offers high quality products, which enables the company to establish loyal customers thereby enabling the company to secure a significant market share. Threats Ferrero faces extensive competition from other manufacturers of confectionary products that operate at a global or local level. There are several multinational companies that are a threat to Ferrero, which include, for example, Unilever (competes with Ferrero’s bread spread products, such as Nutella), Cadbury and Nestle among other companies that manufacture products that can be substitutes to Ferrero’s products. Further, there are several substitutes to Ferrero’s products, such as hot chocolate especially during cold weathers. Recently, concern for healthy foods has grown, which poses a threat to the company considering that people may reduce the uptake of manufactured products, which will favor natural products, such as natural honey. This makes natural honey a major competitor for Ferrero’s bread spread products, such as Nutella, especially when concern for healthy foods increases. Porters Five Forces Threat of New Entrants into the Waste Management Industry Threat of new entrants in the confectionary industry is quite high due to lack of extensive legal procedures before a new firm is allowed to operate in the industry. Further, high investment, in terms of operating capital is not required for firms striving to enter the industry. Therefore, it is exceedingly easy for new firms, especially those aiming at operating at a local level, to enter the industry and stiffen competition. Buyer Bargaining Power Buyer bargaining power is moderate in the confectionary industry. There are two key categories of buyers in the confectionary industry: businesses (food catering businesses, supermarkets and retailers) and individuals (including individual households). Buyer bargaining power is low for individuals due to economies of scale. In other words, individual consumers will buy what is available at their disposal (such as bread spread), which is determined by wholesalers, retailers and other distribution channels. On the other hand, the business category of buyers has a high bargaining power. This category of buyers can purchase large amounts of products, which implies that they have the power to decide the company to buy their products from depending on price, quality and mode of operation. This decision determines a company’s success in the market since wholesalers, retailers and supermarkets determine the company’s products that will reach the final consumer. Supplier Bargaining Power The main suppliers in the confectionary industry include workers (provide labor) and raw materials (sugar, cocoa among others) providers. It is apparent, therefore, that the industry has small, many but exceedingly important suppliers, whose failure to supply required facilities and services mean the end of business for companies operating in the industry. Therefore, supplier bargaining power is high in the industry since workers can easily switch companies in search for higher pay and better working conditions while providers of raw materials can sell raw materials to any company that promises them a good price. Threat of Substitutes Threat of substitutes is very high in the confectionary industry. All the products of Ferrero SpA have substitutes. For example, Nutella can be substituted with natural honey while Pocket Coffee can be substituted with Cadbury’s hot chocolate, Tea and coffee especially during cold seasons. Intensity of Competition among Rival Firms Operating in the Industry The confectionary industry is characterized by extremely high competitive rivalry, which compels firms to devise various competitive strategies to be successful. Large firms have strived to intensify competition by merging with or acquiring small firms, which give them an excellent, competitive stand while reducing competition. Ferrero stands a strategic, competitive position considering that it is a well-established firm and a market leader. The company is well equipped with numerous resources that enable the company to engage effectively in price competition. Porters Five Force Level Threat of New Entrants Very High Buyer bargaining power Considerably high Supplier Bargaining Power High Threat of Substitutes High Competition among Rival Firms Very High Product overview Nutella is the brand name for one of Ferrero’s hazelnut-based spread product. Nutella’s main ingredients include sugar, modified vegetable oils, cocoa, hazelnut and skimmed milk (Nutella, 2010). The ingredients are mixed at different proportions depending on the country under consideration. For example, Nutella for sale in Italy contains less sugar than Nutella for sale in France. The product is usually considered a healthy and nutritional food product that contains about 35 % fat content and about 55% sugar content. The product contains some amounts of vitamin E, does not have Trans-fats, has no cholesterol and has a low Glycaemic Index (GI). Nutella is often marketed as hazelnut cream especially in Italy where it cannot be marketed as a chocolate product since it does not meet the stipulated threshold cocoa concentration level to be considered a chocolate product (Nutella, 2010). Nutella’s Threats in the UAE Market The main natural bread spread that poses a significant threat to Nutella is honey, which is a product of bee farming that is used all over the world. Honey is also blended, with other products, to enhance its taste, flavor and color among other characteristics. Honey, especially natural honey, poses a significant threat to Nutella because it is naturally made implying that it is cheaper than Nutella. Further, people may not fear consuming honey on the basis that it may contain harmful elements, as is often the case with manufactured products. Manufactured bread spreads, which pose a major threat to Ferrero’s products, include cheese spreads, butter, jellies, jams, fruit spreads, fruit batters, mayonnaise, marmalades, nut spreads, peanut butter, Choco paste, Chocolate spreads, Choco Pudding and Choco dip among others. There are various multinational and local companies manufacturing and marketing the aforementioned competitor products. The United Arab Emirates (UAE) bread spread market has not been fully exploited. Therefore, Ferrero does not face stiff competition in the UAE market. Research on the UAE market reveals that there is no bread spread manufacturers in the environment. However, there are a number of suppliers of bread spread products in UAE, which include Bulgarri International Limited (UAE-based wholesale suppliers of jam), Monarch Trade-Link (India-based suppliers of jam) and Trafina Food Fzc (UAE-based suppliers of chocolate, creamers and jelly) among few others. Pestle Analysis Political and Legal Environment Political power in the UAE resides among individual emirates that form the UAE (seven emirates form the UAE). The political system does not have political parties, and every ruler is mandated with the control of natural resources while regulating all commercial resources (Anon, 2011, p. 81). Therefore, there is no extensive legal procedure before a firm is allowed to operate in any of the emirates. In fact, business operations are highly encouraged especially in Dubai (Anon, 2011, p. 81), which enables the region to achieve economic growth. Economic Environment UAE economy has shown tremendous growth in the recent past, which started at around 2003. Between 2003 and 2008, the economy of UAE has been recorded to grow at an average of 32.2 annual growth rate (Oxford Business Group, 2009, p. 58). This has resulted into growth in businesses, such as banks and the construction industry, which interprets to increased employment and increased disposable income. Increase in disposable income, in turn, interprets to increased consumption of non-essential products, such as Nutella. Positive economic growth may be linked to the region's oil production and business activities. For instance, Abu Dhabi and Dubai are major oil producers in the world while Dubai is a global business epicenter. Socio-Cultural Environment Kotler and Keller postulates that the society has a key role in the definition of tastes and preferences since it shapes values beliefs and norms that are followed by the members of the society under consideration (2006, p. 87). Peoples’ consumption of products and services is considered unconscious by Kotler and Keller, which defines how people within a society relate to themselves, others, organizations within the society, the larger society and to nature, in general (2006, p. 87). Based on Kotler and Keller’s argument, the society can enhance or limit the consumption of Nutella in the UAE market. UAE, especially Dubai is a global business center that attracts business people from all over the world, which results to a mixture of several cultures into the same market thereby neutralizing any cultural aspect that could hinder the use of confectionary products. Technological Environment Technology is a pertinent issue in the confectionary industry, all the way from manufacture to consumption. This report does not seek to analyze Ferrero with respect to the manufacture of Nutella. Rather, it aims at analyzing the marketing of Nutella in the UAE market. Therefore, the technology aspect of market auditing will concentrate on the marketing aspect. Electronic commerce is a contemporary business strategy that is meant to enhance business activities including marketing. E-business is a promising business strategy that has been implemented by several businesses especially multinational corporations. Its success is very much dependent on consumers’ access and capability to use associated technology, such as computing devices and computing software among others (Lilischkis, 2002, p. 79). According to Oxford Business group (2008), there is a rapid expansion of e-business and related technology in UAE with e-business and internet penetration growing at about 25 percent every year (p. 156). Marketing Strategy Target Market According to Kotler, Habib and Armstrong (2011), establishment and development of a target market is a process that involves the evaluation of the attractiveness of all the market segments of a company, which facilitates the selection of the most attractive segment(s) to enter (p. 96). During market targeting process, the organization under consideration must evaluate its strength in relation to its industry competition, which enables the organization to consider how many segments it can choose so that it can serve all of them effectively (Kotler, Habib and Armstrong, 2011, p. 96). Any company operating within the confectionary industry should consider children and teenagers. Ferrero is no exception, and it should consider the impact of children and teenagers on the consumption of Nutella. A research study that involved the determination of the consumption of bread spreads in the UAE revealed that children and teenagers had a significant influence in the use of bread spreads (appendix 2). The analysis revealed that about 30 percent of families agreed that a majority of confectionary products (including bread spreads) they buy is chosen by children in the family. Further, analysis of a study carried using college students revealed that about 60 percent of students use bread spreads of which about 43 percent is female students. Men, especially beyond 40 years of age, do not provide a good market for Nutella since only 6.3 percent of men agreed that they purchased a bread spread without influence from their children or wives. Therefore, Ferrero should consider young women as a target market. Another target market, although not as promising as children, teenagers and young women, is the food catering business. UAE, especially Dubai is a global business centre that attracts business people from all over the world. Quite often, these foreigners sleep in lodgings and hotels where they also take their meals, including breakfasts, in restaurants and hotels. A study conducted with respect to this target market revealed that about 68.9 percent of business people and tourists who take their breakfast in hotels and restaurants usually use some type of bread spreads (Appendix 2). Positioning Ferrero is a multinational company that has positioned itself as a company that provides its consumers with new products of high quality. The company’s intention to market Nutella in the UAE is to provide consumers with high quality, and nutritive bread spread that will not only ensure healthy people, but also super active people, especially children and youths. Some of the product characteristics will be altered, such as packaging material and design while introducing different product flavors. This, according to Simpson (2000), is effective in reaching the different target markets while differentiating the product from competitors’ products. Price Analysis of the research study conducted on the UAE confectionary market indicates that even if bread spreads are considered non-essential products, they are essential to some families, especially families having children aged between 3 years and 14 years. Parents must buy bread spreads especially if they are asked to do so by their children. Therefore, there is often conflict between parent’s budget and demand from children. On the other hand, there are affluent families where a bread spread must be considered in the family budget irrespective of the price. In order to ensure that every category of consumers is satisfied, product price will be set such that it is convenient to every consumer category. This will be facilitated through packing the product in different sizes, packages and flavors, which will determine product price without compromising quality and nutritive content. Promotion Promotion Strategy The primary aim of promotion is to create product awareness. Ferrero will use various promotion drivers to market Nutella in the UAE market. According to Habib, Kotler and Armstrong (2011), the choice of the marketing mix, which is aimed at communicating the product or service to the consumer, depends on the target market (p. 315). Therefore, different communication media shall be used for marketing Nutella, which will comprise the promotion mix. Advertising Television (TV) advertising TV advertising is aimed at creating brand awareness to children, who will force parents to buy Nutella. Analysis shows that a majority of homesteads has a television set, which makes television advertisement an excellent option. Therefore, TV adverts will be designed in such a way they are suitable to children with respect to timing and content. For instance, TV adverts will be scheduled for evenings and weekends when children are out of school. Magazines Magazines are aimed at reaching business people and tourists who take their breakfasts in hotels and restaurants. The magazines will take the form of tour guides that help foreigners (tourists and business people) on various issues, such as best hotels, restaurants and shopping malls among others. Within the magazines, Nutella will be featured such that as these people go through the guide, they will come across Nutella. Internet advertisement Considering that the growth of the internet and e-business is expanding, internet advertisement is an excellent advertisement approach for reaching young women and teenagers, especially those in colleges. Internet advertisement will involve the use of Ferrero’s website to advertise Nutella. Further, Nutella will be advertised through other prominent internet sites, such as Yahoo, Facebook, Google, Twitter and Orkut among other social sites that attract several people. Promotion Promotion activities will be intensified to create awareness especially among people who do not have access to televisions and magazines. Promotion will be carried out in the form of road shows and school visits upon approval by relevant authorities. Product Distribution A three-dimension distribution approach will be employed in the distribution of Nutella (appendix 3). Ferrero will sell products directly to consumers especially if consumers represent a significant size, such as hotels and restaurants. The company will also sell Nutella to retailers and convenient stores who will, in turn, sell to the final consumer. Finally, the company will follow the traditional distribution channel of selling to wholesalers, who sell to retailers until the product reaches the final consumers. Conclusion The marketing plan outlined has considered internal and external marketing environment, which has enabled the establishment of the marketing mix. Upon implementation of the marketing plan, Ferrero will be sure to succeed in marketing Nutella in the UAE market. References Anon. (2011). Dubai Investment and Business Guide. USA: International Business Publications, p. 81. Ferrero. (March 3, 2011). Ferrero Gran Soleil Receives the “Excellence in Innovation” Award. Retrieved from Accessed April 25, 2012. Kneale, K. (May 6, 2009). World’s Most Reputable Companies: The Rankings. Forbes. Retrieved from Accessed April 25, 2012. Kotler, P., and Keller, L. (2006). Marketing Management, 12th Edition. Harlow: Pearson. Lilischkis, S. Determinants of e-Business Success in Selected European Countries. In. B. Stanforrd-Smith, E. Chiozza and M. Edin (Eds). (2002). Challenges and Achievements in E-Business and E-Work. Amsterdam, Netherlands: IOS Press, Inc., p. 79. Nutella. (2010). Nutella®. Retrieved from Accessed April 25, 2012. Nutellausa. (n.d). Nutella History. Retrieved from Accessed April 25, 2012. Oxford Business Group. (2008). The Report: Dubai 2008. Author, p. 156. Simpson. M. (2000). Market Segmentation and Target Markets. The Dryden Press. Appendix Appendix 1: Questionnaires Sample Questionnaire for Students Dear respondent, Ferrero SpA is a multinational confectionary company aimed at providing consumers with high quality and nutritive confectionary products. The company intends to intensify the marketing of Nutella, one of the main products, in the United Arab Emirates with the main aim of providing consumers with the nutritive product. The company is conducting a research study to understand customers’ needs and preferences. Therefore, the company wishes to request you to take part in this research activity, which is on a voluntary basis. Feel free to participate in the survey since all information collected will be confidential, and no reference shall be made on your name even during analysis. Best regards Please answer the questions below. 1. Please provide your age group. 17-21 22-26 27-31 32-36 37-41 Over 41 2. Sex: Male ______ Female _______ 3. Do you take bread for breakfast? Every day___ Often_ Never_ 4. Do you use bread spread when taking bread or similar food for breakfast? Yes ___ No ___ Often ____ 5. Do have a television at home? Yes _____, No ______ 6. Do you have access to the internet? Yes ____ No __________ How do you agree or disagree with the following statements? Strongly agree Strongly disagree 1 2 3 4 5 6 7 I switch bread spreads in search for high quality products Flavour affects my choice of a bread spread Price affects my choice of a bread spread Sample Questionnaire for Families Dear respondent, Ferrero SpA is a multinational confectionary company aimed at providing consumers with high quality and nutritive confectionary products. The company intends to intensify the marketing of Nutella, one of the main products, in the United Arab Emirates with the main aim of providing consumers with the nutritive product. The company is conducting a research study to understand the needs and preferences of its customers. Therefore, the company wishes to request you to participate in the survey, which is on a voluntary basis. Feel free to participate in the survey since all information collected will be confidential, and no reference shall be made on your name even during analysis. Best regards Please answer the questions below. 1. Please provide your age group. 17-21 22-26 27-31 32-36 37-41 Over 41 2. Sex: Male ______ Female _______ 3. Does your take bread for breakfast? Every day___ Often_ Never_ 4. Does your family use bread spread when taking bread or similar food for breakfast? Yes ___ No ___ Often ____ 5. Do have a television at home? Yes _____, No ______ 6. Do you have access to the internet? Yes ____ No ________ How well do you agree or disagree with the following statements? Strongly agree Strongly disagree 1 2 3 4 5 6 7 My family switches Bread spreads in search for high quality products Flavour affects my family’s choice of a bread spread Price affects my choice of a bread spread I buy bread spread because my children demand it Sample questionnaire for hoteliers Dear respondent, Ferrero SpA is a multinational confectionary company aimed at providing consumers with high quality and nutritive confectionary products. The company intends to intensify the marketing of Nutella, one of the main products, in the United Arab Emirates with the main aim of providing consumers with the nutritive product. The company is conducting a research study to understand customers’ needs and preferences. Therefore, the company wishes to request you to take part in this research activity, which is on a voluntary basis. Feel free to take part since all information collected will be confidential and no reference shall be made on your name even during analysis. Best regards Please answer the questions below. 1. How many people take bread or other related food for breakfast in your hotel, in a week’s time? _____________ 2. How many of them request for a bread spread? ______________ 3. Do you indicate in your menu the types of bread spreads that you have? Yes ___ No __ 4. If No to (3) above, do they ask for specific bread spread? Yes _____, No _____ 5. Do you have access to the internet? Yes __, No ____ Appendix 2: Study Results Criteria Sample Size Value Percentage Students who use bread spreads 67 40 59.7 Students who have access to the internet 67 64 95.6 Families where confectionary products is chosen by children 30 9 30 Men above 40 years who use bread spread without influence 16 1 6.3 Families that own a television set 30 27 90 Families that have access to the internet 30 9 30 Business people and tourists who take breakfast in hotels and use bread spreads 29 20 68.9 Hotels that have access to the internet 29 28 96.6 Appendix 3: A three-dimension distribution approach Read More