Marketing - Ferrero Group - Case Study Example

Ferrero Group Name Professor Institution Course Date Ferrero Group Executive Summary Globalization has significantly increased the competition in business markets. In the process, companies seek for new markets to maximize their profits. However, customers have become rigid and difficult due to advancement in technology and easy access to information. Customers ask the tough question and offering the traditional products can no longer guarantee companies more sales. To meet the new challenges, companies now continuously use new product development strategies and innovation to satisfy consumer ever-changing needs. Therefore, this paper focuses on Ferrero Group’s development of new product into the market. Also, the report will evaluate the external and internal environment (SWOT) in which a new product is to be realized, identify a relevant strategy such as S-O and W-O, and define strategies appropriate to its realization. Table of Contents Ferrero Group 2 Executive Summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Market Description 5 3.0 SWOT Analysis 6 3.1 SWOT analysis table explanation 7 3.1.1 Strengths 7 3.1.2 Weaknesses 8 3.1.3 Opportunities 9 3.1.4 Threats 9 4.0 Recommendations 10 4.1 Target Market 10 4.2 New Product Description 10 4.3 Customer value proposition 11 4.3 Justification of the new product using strategies 11 5.0 Conclusion 12 6.0 References 13 1.0 Introduction With China becoming a business hub and opening to foreign businesses, numerous companies are currently seeking entry to this market. Jayaraman (2009, p.56) claims that the increase in business in the Chinese market has been boosted by the ever-increasing population of the middle class who have a high disposable income to not only buy products, but luxury ones too. The situation has created an opportunity for the companies making the luxury products like Ferrero Group. Ferrero Group is a company which manufactures chocolate and other confectionery products. The company was started in Piedmont, Italy in 1946 and has since grown to become the largest chocolate maker globally (Ferrero Group 2015). Currently, the company has 18 factories worldwide with the biggest factory being in Germany. Ferrero Group has 21,500 employees who help both in operation and sale of its products which include Nutella, Ferrero Rocher, Mon Chéri, Pocket Coffee, Giotto, Hanuta chocolate, Kinder Surprise, Confetteria Raffaello, and Tic Tac mints among others (Ferrero Group 2015). Agriculture and Agri-Food Canada (2012, p.3) argues that due to consumer behavior changes and health issues awareness, customers all over the world including China now prefers products with low calories away from traditional chocolate. For that reason, Ferrero Group decided to manufacture chocolate made from vegetables to introduce into the Chinese market. Therefore, this paper focuses on Ferrero Group development of new product into the market. Also, the report will evaluate the external and internal environment (SWOT) in which a new product is to be realized, identify a relevant strategy such as S-O and W-O, and define strategies appropriate to its realization. 2.0 Market Description Over the years, the Chinese confectionary market has tremendously. Agriculture and Agri-Food Canada (2012, p.3) posited that today, the China is ranked as the largest market in Asia-Pacific and second largest confectionary market in the world after Western Europe. The Chinese confectionary market is worth US$10 billion in size followed by Japan at US$9.5 billion (Euromonitor 2014). This represents an increase of sales volume by 8.8% which is attributed to the growth of customers’ purchasing power, and rise in the use of the confectionery in special occasion such as marking birthday, New Year day, weddings and marking marriage anniversaries. Foreign influence together with increasing purchasing power of consumers has led to the rising trends of snacking just after meals (Euromonitor 2014). The rising disposable income is contributing to demand for the luxury and premium products. The Chinese citizens today perceive foreign chocolate products to have a high quality and better taste compared to local ones (Agriculture and Agri-Food Canada 2012). The makes this market looks promising for foreign players like Ferrero Group which intends to stamp their authority in few years to come. However, the competition is intensifying with foreign companies dominating the scene. Mars Inc is leading the pack as the most preferred company with its brands such as M&M's, Dove, Maltesers and Snickers with a market share of 42% (Euromonitor 2014). Mars is followed by Nestlé SA with a market share of 12.5% while Ferrero Group comes third with 12.5%. Euromonitor (2014) predicts that the Ferrero Group is likely to stage a fierce competition in the coming years. A fierce competition posed by Ferrero Group has made Mars Inc to drop some of its market share percentages. The ongoing competition and trend have left multinational corporations to acquire local firms to increase their production and also market share. For example, Euromonitor (2014) stated that in 2011, Nestlé SA acquired Dongguan Hsu-Fu-Chi Food Co while The Hershey Company purchased Shanghai Golden Monkey Food Company in 2013 to increase competition. The strategy is likely to have a considerable impact on the confectionery market particularly the chocolate. According to Kneale (2009), the company stands as one of the key producers of chocolate and its brands in China, and has created a premium reputation and image by utilizing gold color packaging and effective advertising which conveys a high-end lifestyle to the customers. Both candy and chocolate were preferred in the previous years; however, of late Chinese consumers are finding these two products not health since they have much sugar which is not recommended for regular consumption. Also, Chinese favor packages which are smaller compared to those of Western standard (Euromonitor 2014). However, now consumers in Chinese market prefers low fat content chocolate which are mainly available in white and milk chocolate. Such chocolate are not good for health and can raise antioxidants in the body and blood. For that reason, Ferrero Group instead of acquiring local which sell high fat content chocolate it has resolved to develop a new chocolate made from vegetable to introduce in the Chinese market. 3.0 SWOT Analysis Ferrero Group efforts to maintain its position in the market as the largest chocolate and confectionary globally based on the market share is credited to its ability in the internal environment and unappeasable need to dominate the external environment (Kneale 2009). All levels of management have are passionate to increase the company sales and dominance of the Chinese in order to attain the competitive edge. To completely do this, the company first has to understand its internal environment and align it with the external one through analysis of its SWOT. Strengths Weaknesses 1. Ferrero Group is a strong confectionary brand in the world 2. Ferrero Group has a larger customer base who are also very loyal 3. The company trades many products 4. Ferrero Group has effective advertising, marketing and promotion 5. Large financial base 1. Chocolate with high fat and calories contents 2. High prices 3. Economic fluctuations 4. Cultural diversity Opportunity Threats 1. Adding a new product portfolio 2. Adding new product made from vegetable 3. High disposable income in China 4. Using home delivery strategies 5. Embracing of the new technologies 1. Competition from Mars Inc, Nestle SA and The Hershey Company. 2. Consumer and health consciousness 3. Fluctuations of Chinese currencies 3.1 SWOT analysis table explanation 3.1.1 Strengths According to Agriculture and Agri-Food Canada (2012, p.4), Ferrero Group is a strong brand known not only in its home country Italy but also across the globe. In fact, it is the largest maker and seller of chocolate and other confectionaries. The company has a large customer based which has made the largest company based on revenue. Even though, it stands at number three in Chinese based on market share, it produced a fierce competition in the last few years, making the market leader Mars Inc to drop its market share (Euromonitor 2014). The introduction of the new product with low fat content is likely to steer Ferrero Group to the top. The company also trades other several products which has always complimented its profits. Some of the company products include Nutella, Ferrero Rocher, Mon Chéri, Pocket Coffee, Giotto, Hanuta chocolate, Kinder Surprise, Confetteria Raffaello, and Tic Tac mints among others (Euromonitor 2014). The company also uses effective marketing on its website, print media, fliers, billboards, partners and Television to reach its customers. The process has improved its sales significantly in the recent years. 3.1.2 Weaknesses Chinese consumers are fast becoming conscious of their health status and currently do not like confectionaries with a high content of fats. The situation might affect traditional milk and white chocolate the Ferrero Group has been offering. Howard et al. (2008, p.53) contended that consumers from China links milk and white chocolate to diabetes, obesity and cardiovascular disease, a situation that can make the company to lose most customers to companies which make low fat content chocolate, thus getting low revenues. Agriculture and Agri-Food Canada (2012, p.5) Ferrero Group has positioned itself as a premium company charging high prices for its chocolate which could make its customers move away to competitors. As much as Chinese consumers have high disposable income, like any customer, they prefer high quality products at low prices (Jayaraman 2009, p.53). Cultural differences between Italy and China are another weakness which affects the company operations. For instance, Chinese consumers like products packaged in small portion unlike Italian consumers who like big packages. 3.1.3 Opportunities In the recent years, different targeting to created health awareness has been done across the globe including China. Therefore, Chinese consumers have been enlightened and now wants chocolate with, low fat content (Swinburn et al. 2004, p.125). The company is likely to be effected in terms of profits if alternative chocolate is not developed. However, the demand for low fat chocolate has just created a new opportunity which Ferrero Group is now pursuing. Acxcording to Ferrero Group (2015) the company is now developing chocolate with low fat content made from vegetables. In other words the company is now putting an effort to develop healthier chocolates. The Vegan Nuttella is made from vegetable oil which is rich in nutrients. The advancement of technology has provided the company with an opportunity to improve its market of a new product. The large financial base is an advantage in improving its technology, develop new products and market them effectively (Kneale 2009). 3.1.4 Threats Ferrero Group receives strong competition from other markets players who look to solidify their positions in the Chinese market (French & Smith 2013, p.1361). Currently Mars Inc is the market leader and does not ready to relinquish any time soon. Other players such as Nestle SA and the Hershey Company have all moves in to acquire local companies to increase their market presence (Euromonitor 2014). Also, these companies are likely to embrace Ferrero Group strategy o making vegetable chocolates. Fluctuation in the economic is also a threat to Ferrero Group. Fluctuation in the economy is likely to reduce disposable which chocolate sales highly depends on (French & Smith 2013, p.1358). Also, it can lead to weakening of Chinese currency. 4.0 Recommendations 4.1 Target Market Ferrero Group often target customers which are divided into three segments including children, teens and adults (Euromonitor 2014). Therefore, it can be argued that Ferrero Group target market is general customers. Agriculture and Agri-Food Canada (2012, p.3) asserted that this is because chocolates are used for birthdays for all ages, wedding and marriage anniversary for adults and marking New Year day by everyone. Chocolates are also consumed by children during a family day out and picnics. However, due to health issues affecting every age, the company is developing Vegan Nuttella which is made from vegetable and target general customers. However, Ferrero Group will highly be targeting high consumer who are particularly affected with junk foods. This group of customers also has a high income to spend on luxury and premiums products like chocolates. 4.2 New Product Description As mentioned before, Chinese chocolate consumers have become health cognizant are considering new ways to improve their health statues (Jayaraman 2009, p. 57). Therefore, these consumers are seeking for confectionaries with low calories in content. Ferrero Group has considered developing the new product into the market called, Vegan Nuttella. This is a chocolate made from vegetable oil and has no dairy milk or sugar (Healthyblenderrecipes 2015). The product is rich in vitamins and has low fats compared to traditional Nuttella. Swinburn et al (2004, p.128) opined the vegetable oil has several benefits such decreasing the danger for contracting heart diseases such as blood pressure, cardiovascular diseases and obesity. 4.3 Customer value proposition In the emergence of strong competition in confectionary market, Ferrero Group is putting efforts to provide customer value proposition so as to attract and retain its customers. When the company fails in achieving this practice, the company loses its important customer which also affects the revenues (Anderson, Narus & Rossum 2006, p.92). Development of a new product called Vegan Nuttella made with vegetable oil is an indication that the company is aware that its current crop of products cannot maximize customer value proposition as before. The company has now diversify its products to satisfy health conscious Chinese who are becoming the majority in the market. The company is likely to maximize their profits with is new development in the market. In return, customer is also likely to improve their health status and prolong their life expectancy (Swinburn 2004, p.131). 4.3 Justification of the new product using strategies Ferrero Group development of Vegan Nuttella as a new product into the market is strategy to use to target a health conscious market segment so as to attain competitive advantage. according to Kotler & Armstrong (2010) embracing new product development strategies and introducing it to new market segment is a manifestation that the company is applying Strength-Opportunity (S-O). The strength is lies in the company internal strengths and strategies such as creativity and innovation which it uses which its uses to develop new products. However, before the new product development, it must have spotted an opportunity to pursue (Kotler & Armstrong 2010). The company also use S-T strategies in that it employees its strengths to minimize external threats. Developing Vegan Nuttella; a chocolate made from vegetable oil and components demonstrates that the company is trying to reduce criticism that it promotes unhealthy confectionaries. 5.0 Conclusion From the research, this report established Ferrero Group is a strong brand based on the fact that it is the largest maker and seller of chocolate in the world. However, in Chinese market the company only comes in position due to stiff competition from its rivals, Mars Inc., The Hershey and Nestle S.A. This is an indication that the company has a lot to do to dislodge its competitors dominating the Chinese market. The new opportunity in health confectionary provides Ferrero Group with an opportunity to overtake these two companies. Developing of new product Vegan Nuttella which provides Customer value proposition is likely to stamp it authority in Chinese market in the coming. However, it this can only be done through effective marketing and positioning as a healthy food company. 6.0 References Agriculture and Agri-Food Canada 2012, Consumer Trends Confectionery in China, pp. 2-10 viewed 13 March 2014, Anderson, J. C, Narus, J. A & Rossum, W. V 2006, Customer Value Propositions in Business Markets, Harvard Business Review, Vol.84, No.3, pp. 90-99. Euromonitor 2014, Confectionery in China, Euromonitor, viewed 13 March 2014, Ferrero Group 2015, Ferrero Group Official website, viewed 13 March 2014, French, A & Smith. G.2013, ‘Measuring brand association strength: a consumer based brand equity approach’, European Journal of Marketing, Vol. 47, pp.1356 – 1367 Healthyblenderrecipes 2015, Vegan Chocolate Hazelnut Spread, Healthyblenderrecipes, viewed 13 March 2014, Howard et al. 2008, ‘Severe obesity: Investigating the socio-demographics within the extremes of body mass index’, Obesity Research & Clinical Practice, Vol. 2, No.1, pp. 51–59. Jayaraman, K 2009, Doing business in China: A risk analysis, Journal of Emerging Knowledge on Emerging Markets, Vol.1, No. 1, pp.55-62 Kotler, P. & Armstrong, G 2010, Principles of Marketing, 13th (Global) ed, Pearson Education Inc, Boston Swinburn, B, Caterson, I, Seidell, J & James, W.P 2004, ‘Diet, nutrition and the prevention of excess weight gain and obesity’, Public Health Nutrition, Vol. 7 No. 1, pp. 123-46. Kneale, K 2009, ‘World's Most Reputable Companies: The Rankings’, Forbes. Read More