Strategic Marketing Analysis of Thorntons - Case Study Example

WORD COUNT: 3,976

EXECUTIVE SUMMARY

Thornton’s, for years, has been attempting to convince UK consumers that it is a sophisticated and elegant brand with superior premium quality. However, in recent years, sales have fallen flat and all efforts to revitalise the brand under this urbane positioning system continue to cause the business to fall behind competition in this saturated market. Thornton’s requires a massive rebranding effort and repositioning strategy to make the product comparable to Mars, Cadbury, Kraft and other low-end chocolate competitors in a market that is now very price-sensitive and no longer believes in the sophistication of the Thornton’s brand. This report identifies that price promotions, entering the supermarket environment, engaging in celebrity recruitment to build brand interest, and changing supply chain methodology is necessary to achieve the type of market growth that the company demands. The rationales for these recommendations are discussed in detail throughout the report as well as theory supporting the direction for this massive change in brand personality needed for this traditionalist brand.

Strategic Marketing Analysis: Thornton’s

1. Introduction

Thornton’s is a premier chocolatier in the United Kingdom which has maintained a brand presence since the early 1900s. Despite turnaround efforts launched by the company in the mid-2000s, the company now faces critical challenges that are complicating achieving market and competitive successes. Currently, the business has revenues of approximately £220 million (Thorntons, 2012) which are captured through its retail stores, mail order model, via the Internet and its new specialty cafes which were a result of a turnaround plan launched in 2004. Being unable to achieve its intended organic growth, Thornton’s was acquired by the Ferrero Group under an acquisition which has increased its stock value.

2. Current State of the Business

Thornton’s realised that becoming part of the Ferrero Group, a multinational confectionary company, would be its most viable method to achieve growth. This acquisition came on the heels of being forced to close 120 to 180 of its stores due to flat sales and inability to control operating costs (BBC News, 2011; Hawkes, 2011). From many different perspectives, utilising the resources and brand presence of the Ferrero Group was the only realistic method by which the company might emerge as a company with strong revenues and capability to capture the chocolate market.

Thornton’s currently maintains a market competition against competition (a very saturated market) in relation to quality, utilising a variety of integrated marketing communications to express the premium nature of its products that are produced using very top quality ingredients. The company’s main slogan, The Art of the Chocolatier, has attempted to capture the urbane chocolate customer target segments and those who have resources to purchase high-end, premium products. However, there are changes in the consumer environment, the economic environment and the competitive environment which have complicated being able to position Thornton’s in this capacity, relying on its traditionalist brand identity that is failing to meet with growth expectations. A change of positioning is required in order to compete against major competition such as Cadbury, Nestle and Kraft (to name only a few competitors) that all have strong economies of scale and brand recognition in the United Kingdom if Thornton’s is to appeal to more than just the affluent market (Thorntons, 2011). In an environment where Thornton’s only maintains 7.7 percent market share in this industry (Thorntons, 2012), being part of Ferrero might be the only method to ensure longevity of this traditionalist brand.

3. The changing consumer environment

Post-recession, consumers have become more frugal and thrifty which has changed their spending behaviours (Neiburg, 2014; Kasriel-Alexander, 2013). One study which recruited many different British consumers identified that 22 percent of the participants would actively buy more chocolate products if these chocolates were more affordable (Mintel, 2013). Hence, this shift in consumer attitude related to price expenditures is evident in why companies such as Mars and Cadbury are able to capture much higher market share in the contemporary UK consumer environment. Whilst a Cadbury bar might cost £1.75, Thornton’s premium bars can cost upwards of £6 which would be not affordable to a less-affluent market; a target market proven to provide Thornton’s with very flat sales results.

Dawes (2004) finds that when a brand utilises price promotions, it often serves as a quality symbol in the minds of consumers. It is necessary for a business to understand the consumption behaviours of its main target market in order to formulate strategies to outperform competition. For many consumers, buying chocolates is an impulse decision which does not require substantial searching and exploration of alternatives. A study conducted by Kim and Kramer (2006) found that price discounts positively impact consumer purchase intention and such strategies instil a sense of novelty in terms of cost savings. Competition such as Lindt, Mars and Cadbury often engage in some degree of price promotion in order to entice consumers to purchase their products; a strategy which has apparently given more market share. Zhou and Wong (2004) assert that price is a significant influence in what drives impulse buying intentions.

4. Competitive rivalry

Outside of the aforementioned pricing considerations, Thornton’s is also facing an environment where companies such as Mars and Cadbury are utilising lifestyle (psychographic) marketing in order to differentiate their brands and build a positive brand personality that stands out amongst competition. Cadbury created videos that were available on social media and on television which illustrated a gorilla who performed entertaining acts whilst playing the drums, including vomiting on the musical instruments which was a critical success for improving Cadbury’s brand appeal (Brand Republic, 2007).

Why is this an important consideration for Thornton’s? Research identifies that when the brand personality is directly aligned with the consumer self (their values, lifestyles, etc.), there is more predictability that the consumer will develop important emotional attachments to this brand (Zhang and Chan, 2009). Mars seems to recognise the importance of appealing to consumer lifestyles, using humorous advertising concepts to better engage consumers and make a connection between their target audiences and the brand. Figure 1 illustrates this concept.

Figure 1: Mars Lifestyle-Based Marketing Approach

Source: Coloribus. (2016). Mars chocolate bar: toe print ad by Darcy. Retrieved 9 April

2016 from http://www.coloribus.com/adsarchive/prints/mars-chocolate-bar-toe-3254855/

Personalisation of a brand in accordance to consumer attitude, values and beliefs is a more contemporary method of differentiating a brand in saturated markets (Boone & Kurtz, 2015). As many competitors have similar, homogenous products in the chocolate industry, creating a unique identity is critical for achieving market success and capturing consumer attention. As there is typically only a £.40 difference between different chocolate brands in the UK market, brand personality is a dynamic which predicts more success which was proven with Cadbury’s wide-ranging campaign of the vomiting gorilla that captured considerable social media buzz and improved the company’s sales volumes during the campaign.

Building a brand personality relevant to consumer lifestyles cannot be understated. Kumar & Raju (2013) find that when a promotional campaign is deemed engaging and exciting to consumers, they are more likely to find favour in this brand over that of competition. On the heels of Cadbury’s gorilla campaign, the company turned toward a sex-appeal campaign in order to make the brand appear sophisticated and exciting, two aspects of brand personality which predicts more consumer attention and interest in the brand (Aaker, 1997). Figure 2 illustrates this approach in promotion to differentiate the Cadbury brand.

Figure 2: Supermodel Naomi Campbell in Cadbury Advertising

Source: Englisc Gateway. (2011). Jesse Jackson forcing Cadbury to apologise to Naomi Campbell over racist chocolate advert. Retrieved 9 April 2016 from http://www.englisc-gateway.com/bbs/topic/28120-jesse-jackson-forcing-cadbury-to-apologise-to-naomi-campbell-over-racist-chocolate-advert/

As illustrated by the Cadbury and Mars advertising campaigns, promotional differentiation underpins the majority of efforts at gaining the attention of a mass market without discriminating for only a niche market as Thornton’s has attempted for over a decade; and met with flat success. Figure 3 illustrates Thornton’s approach to utilise its traditionalist brand to appeal to the upscale consumer.

Figure 3: Thornton’s Traditionalist Marketing Approach

Source: Dekku. (2007). Thorntons: Stuck. Retrieved 7 April 2016 from http://dekku.nofatclips.com/2007/12/thorntons-stuck.html

Thornton’s attempts to appeal to British ethnocentrism and building an urbane identity have been ineffective in providing growth for the business and effectively differentiating its brand. In fact, a competitor, Lindt, also utilises an effort to instil a sense of quality and premiumisation which does not represent originality in the brand identity being built by Thornton’s to achieve market differentiation. The Ferrero Group seems to recognise this, desiring to bring the Thornton’s brand into supermarkets such as Tesco in order to give the brand more exposure to a more diverse consumer demographic (Armstrong, 2015), which only reinforces that the Ferrero Group understands the brand cannot appeal to the affluent-minded consumer segments by which Thornton’s has, historically, placed its most significant emphasis. In an environment where British consumers are turning toward more affordable chocolates and where competition maintains very significant understanding of the contemporary consumer and the value of lifestyle marketing, why Thornton’s holds fast to reaching the ethnocentric consumer and the High Street-variety consumer segments is unclear. Even a predecessor of the Thornton family, Peter Thornton, believes that focusing on making the brand synonymous with British tradition is key to its turnaround (Clark, 2011). However, in comparison to more contemporary-minded competition utilising lifestyle-based marketing, this focus has left Thornton’s a stale brand that is quickly achieving irrelevancy to the modern, price-sensitive consumer segments in the United Kingdom.

Examination of a customer review website (by which many consumers judge their opinion of brands), Thornton’s received a very low rating out of 83 different consumer postings about Thornton’s. The basic sentiment was that the quality of the chocolates has decreased, its products have poor taste and the company provides dismal customer service (TrustPilot, 2016). If these real-world consumer reviews from disparate UK demographics are any indication of the sentiment of Thornton’s in the broader national population, consumers no longer believe in the superior, premium quality of Thornton’s confectionary products which justifies moving away from this positioning strategy in order to revitalise the brand effectively. Several consumers even complained of mouldy product once opened for consumption (TrustPilot, 2016). Examination of several different consumer review websites indicated similar sentiment, illustrating a growing lack of consumer satisfaction and belief in Thornton’s as a top quality, price-justified product in the premium range.

5. The power of celebrity

As was illustrated by Figure 2, Cadbury turned to celebrity marketing as a means of creating connection between brand and consumer. Mars has recruited such celebrities as Katie Price (a British glamour model and television personality) and Rio Ferdinand (a famous football player in Britain) to promote and endorse their products (Whiteman, 2012). This, too, illustrates an attempt by confectionary competitors to build a differentiated brand personality through the promotional process.

Research has consistently found that brands which affiliate themselves with aspirational or desirable celebrities achieve sales increases and improve emotional affection toward these brands (Elberse & Verleun, 2011). Celebrities are considered to be potent aspirational reference groups by which consumers judge themselves in relation to their values, attitudes and attractiveness. Koering & Boyd (2009) assert that celebrity endorsements are worth the investment for companies as the fame, status and recognition achieved by these famous persons give a brand more credibility and trust.

Thornton’s has not utilised this strategy, recruiting famous persons with high levels of trust, credibility or influence in UK society. In social media, the two celebrities recruited by Mars, Rio Ferdinand and Katie Price both have millions of Twitter followers, illustrating significant prominence and identity in the United Kingdom, making them potentially worthwhile endorsers for Mars’ chocolate products.

6. The ethical consumer and corporate social responsibility

There is considerable growth in ethical consumption in the United Kingdom, where consumers are turning toward brands that illustrate a focus on environmentalism, philanthropy or active involvement in social issues. A study conducted by Oh & Yoon (2014) which recruited real-world consumers found that the majority of participants showed more favourable impressions and potential loyalty for firms that have a well-publicised ethical ideology. The ethical consumerism movement has become so widespread that consumers realise their power in the markets and will punish or boycott firms that do not maintain an ethical culture or set of ethical principles; occurring in the form of patronising competitors that are more focused on environment or other social issues.

Lindt has been a competitor that attempts to utilise quality as a positioning tool, and actively publicises its effort at reducing packaging waste, its efforts at sustainable procurement of raw materials, and meeting advanced food inspection and safety regulations (Lindt & Sprungli, 2016). In 2015, Lindt maintained sales volumes in the UK that were significantly higher than competition in this market. This success was achieved in the face of rising supply chain costs throughout the world and where many competitors were struggling to achieve positive organic growth in a very difficult and price-sensitive consumer marketplace. Whilst other competitors struggled with higher operational costs and administrative costs, Lindt’s success has not been adequately explained in the premium chocolate markets.

Hence, some of its success could potentially be founded on the basis of ethical consumption as a business that actively promotes its many CSR-related activities. Research indicates that when the public is effectively educated about a firm’s ethical policies and activities, it serves as a quality symbol of the firm or its brands (Servaes & Tamayo, 2013). Hence, this well-publicised, strong emphasis on corporate social responsibility and sustainability would theoretically be aligned with its quality-based positioning when consumer segments see such actions as being a quality symbol.

Research did not indicate that Thornton’s is utilising any publicity or social media PR campaigns to foster a sense of CSR in consumer segments, despite the growing trend for ethical consumption and preference for the ethical organisation. The company does seek to source sustainable cocoa and sustainable palm oils used in its products which is promoted on the company’s sales website (Thorntons 2016). However, opportunities to engage with consumers on this particular aspect of the Thornton’s business model are being under-utilised in social media and other low-cost PR avenues.

According to statistics, 72 percent of all adults in the United Kingdom have presence on at least one social media platform. There are 30 million subscribers to Facebook and millions of subscribers on Twitter and Instagram (Rose McGrory, 2016). These high levels of end users on major, popular social media websites illustrates that this could be a viable platform for engaging with consumers about corporate social responsibility and efforts being undertaken by businesses to engage in ethical programs and activities. Research indicates that social media provides a very significant return on investment when used for public relations purposes, a statistic which has been consistent since 2005 (DiStaso, et al., 2011).

7. Enacting strategies viable for Thornton’s revitalisation

This section describes various strategies which can be enacted from a marketing perspective to change the image and growth opportunities for Thornton’s.

7.1 Entering the supermarket environment and ethical promotion

In a situation where Thornton’s now has access to the vast resources and scale advantages of being part of the Ferrro Group, administrative costs and operational costs are of less concern than when the business was in independently-operating entity. Revenue growth is the main problem that has plagued the company in previous years and an area requiring consideration to achieve market and competitive success. This growth is achieved directly from the consumer.

From a business-to-business and business-to-consumer perspective, Thornton’s should capitalise on opportunities to expand the brand into hypermarkets and supermarkets, a situation which has historically been a resistance factor since the 1990s. Sainsbury’s, one of the UK’s largest supermarket chains, has developed a very strong brand identity in relation to its corporate social responsibility efforts which differentiates it from other major competitors. Sainsbury’s has spend years developing a variety of steering committees which report on their activities in relation to creating a more positive workplace, in sustainability, environmental policy and quality corporate governance. Trust and loyalty has been built substantially through this effort and promoting its focus to consumers (Sainsbury’s, 2011). Through agreement to carry Thornton’s products, the business would be aligning itself with a brand that has an established, positive CSR reputation that could have substantial impact on the growing ethical consumerism movement. Sainsbury’s boasts 12 million annual shoppers at its stores of varying demographics and lifestyle characteristics which would give Thornton’s more mass market exposure in the United Kingdom.

Such a partnership with Sainsbury’s would also give the business opportunities to use social media to promote its entry into this environment and how the Thornton’s brand chose this particular market because of its strong and reliable ethical record. Customers who regularly follow Sainsbury’s could engage with Thornton’s when linked with this supermarket chain, illustrating how the partnership was founded on ethical beliefs and values and how both companies are working cooperatively to build a more sustainable planet and improve the lives of suppliers and customers throughout the United Kingdom.

7.2 Celebrity recruitment

As the ROI and effectiveness of celebrity endorsement is understood (Elberse & Verleun, 2011), Thornton’s has an opportunity to align its brand with influential famous persons relevant to the target market that Thornton’s is seeking as it moves away from just the affluent, niche markets. Whilst the expenditure for this activity is often quite high, Thornton’s now has opportunities to use the resources of the Ferrero Group for this effort. Ferrero is deeply concerned that Thornton’s needs a brand improvement and revitalisation and their financial capabilities now can allow Thornton’s to become affiliated with important reference group figures with high-profile status in the UK.

This would give Thornton’s a new lifestyle-based edge with important target consumers identified in the mass market. Coupled with clever and innovative promotions, similar to those shown by Cadbury and Mars (Figures 1 and 2), Thornton’s can break away from the stuffy and stale traditionalism that has driven a great deal of its market failures and seems to be no longer relevant to the modern UK consumer. It will be necessary for Thornton’s to move away from its quality-based positioning (due to Lindt’s focus in this area) if the business wants to create a brand personality that is seen as being exciting and engaging to consumer audiences today. British ethnocentrism focus can be replaced with more contemporary imagery and promotional focus that has similar values and attitudes to the consumer.

7.3 Pricing

Clearly, the evidence in the research shows that the current UK consumer is frugal, thrifty and willing to defect to confectionary brands that have a more affordable price tag (Neiburg, 2014; Mintel, 2013). Based on real-world consumer sentiment about the Thornton’s brand online, the general belief is that quality has shifted and Lindt, a major competitor, has managed to convince consumers of the quality of its products in much higher fashion than Thornton’s has been capable of achieving.

Whilst traditionalist grandchildren of the Thornton’s family might see that moving the product from a premium status to a more mass-market focused product would cheapen the brand, the Thornton’s family no longer carries the same level of governance influence in the future direction of the business. Now, it is the Ferrero Group that controls decision-making in relation to strategic marketing and carrying a premium positioning is no longer viable and the company cannot afford only to reach the affluent, niche market.

It is therefore recommended that Thornton’s shift to price promotions within the supermarket environment in order to attract consumers who see this as a quality symbol and affects impulse buying (Kim & Kramer, 2006; Zhou & Wong, 2004). Throughout the years, since the mid-2000s, Thornton’s has struggled with very high operational costs to maintain its cafes and specialty stores which are not meeting with the type of traffic expected to achieve revenue growth. Now that Thornton’s has closed many of these retail outlets, it has freed up capital that can be utilised for strengthening the investment in the supermarket which can translate into a lower pricing model for consumers to make the product more attractive. Granted, Thornton’s will lose its once-prestigious and exclusive brand reputation it experienced in the 20th Century, however with such a saturated market and a consumer environment where price is relevant to their decision to buy, Thornton’s can no longer hold onto this elitism belief system about its brand.

Price promotions, coupled with lifestyle-based (psychographic) marketing, will assist Thornton’s in becoming a direct competitor with Cadbury, Mars, and other lower-cost confectionary companies throughout the United Kingdom. If Thornton’s continues to assert its premium/quality positioning, in a market where consumers are clearly shifting away from this belief about the integrity of Thornton’s products, it is unlikely that the business brand will survive into the future. Through the new retail agreement with Sainsbury’s, various coupons for discounting can be provided that will give Thornton’s a new price-based edge that it never experienced in its 100+ years of operations in the United Kingdom.

7.4 Changing procurement

Some of Thornton’s higher operational costs experienced by the business have been a product of buying higher priced products in the global supply chain to maintain a position as quality producer. With the brand no longer maintaining this niche market positioning for affluent markets, there are opportunities to reduce supply chain costs by changing to more standardised products typically procured by such organisations as Cadbury and Nestle. These are well-developed supply chain networks that have multiple distribution modes into Europe and, if shifting to this procurement model, Thornton’s has many opportunities to save costs and improve its cash flow and balance sheet in the process.

The Ferrero Group also maintains influence and bargaining power in this confectionary supply chain and Thornton’s can leverage this expertise and capability in order to scale-down its high-end production costs. As indicated, many consumers seem more concerned about affordability than the tangible quality nature of chocolate products (at least in the current consumer marketplace) and it seems that maintaining this focus on premiumisation is, essentially, a waste of time for Thornton’s (a brand that has become stale and tired as a traditionalist, ethnocentric-focused brand holding onto the legacy of British history).

The company would experience massive operational costs savings by moving downward in areas of raw material procurement and altering production for a mass-production system rather than hiring expensive labour to perform intricate decoration on its many confectionary products. These cost savings can be effectively transferred to celebrity recruitment, social media promotion and consumer engagement through various PR tactics, and to strengthen any retail partnerships with Sainsbury’s or, perhaps, other supermarket environments.

8. Conclusion

As shown, the key to success with Thornton’s is to establish a new, lower-price structure on its products in its shift from premium positioning to positioning in terms of creating a consumer-relevant brand personality. So much of the firm’s potential, future successes are reliant on effective promotional strategy that is in accordance with benchmarks established by Mars and Cadbury that bring their product brands more market interest and excitement. Opportunities to express the business’ focus on CSR in an environment with strong ethical consumerism and where new supermarket partners can assist in affiliating the Thornton’s brands with established ethical business will position this company effectively in markets that care about sustainability and other ethical issues.

Thornton’s cannot continue with its premium positioning in an environment where consumers are turning toward Lindt, another premium and quality-focused business, when Thornton’s requires a massive change of brand image and personality in order to achieve growth. Making the product relevant for the consumer market is absolutely critical for this tired brand and years of efforts to revitalise the brand (using quality-focused positioning) has proven to be an incorrect strategy. Hence, it is time for change for Thornton’s and for the brand to come off its proverbial soapbox and align the brand with more budget brands that are finding massive market and competitive successes.