CASE: U.S.

CHOCOLATE CONFECTIONERY: DYNAMIC MARKETING PLANNING

1A. Briefly describe the elements of Porter's five forces model and explain how it is being or
could be utilized by Nestle?

The Porter's five forces model is a framework for analyzing, understanding and making decisions
on business development based on the competition in a business environment. It basically looks at
five (5) forces or elements that shape competition in an industry and these are: threat of new
Entrants, threat of substitute products or services, bargaining power of the buyers, bargaining
power of the suppliers and, rivalry among existing competitors.

Threat of new Entrants: This basically looks at how a new entrant or new entrants can impact on a
firm’s current market share and customers’ loyalty which in turns would have impact on sales and
profitability. The threat is determined by factors such as how high or low the barriers to entry of a
new playing into the market is, economies of scale, capital requirements, brand loyalty, switching
cost, government policies, cumulative experience and access to distribution channels. The
understanding of this element could be utilized by Nestle for Crunch’s repositioning and growth
plan to retain or increase its market share. In the US chocolate confectionery market, Nestlé
Crunch brand has about seven close competing brands and they together hold about 44% of the
market share while other brands hold 56%. The current number of players suggests that there is
ease of entry for a new player into the industry, but it is very unlikely for a new brand to complete
at the upper share where Butterfinger and Crunch currently play. As such, barrier to entry is low
but the threat is moderate for Nestle as a new player would need huge capital to compete. They
should therefore concentrate on competing better with Hershey and Mars than worry about a
new entrant.

Threat of substitute products or service: This essentially considers how another product from
another industry is able to meet or satisfy the needs in a firm’s industry so much that this
substitute product can be purchased by customers in place of the firm’s product. For Nestle, these
are alternative products capable of posing a threat to their sales volume and ultimate returns and
the concerns would be the number of such substitute products that are available, a buyer’s cost to
make a switch, perceived level of product differentiation, price of substitute product and buyers
propensity to substitute. From the case, when customers are not buying chocolates, they might be
buying Gum, Sugar Confectionery or Cereal bar. It is therefore important for Nestle to understand
to what existence these substitutes can be of a threat. An example of what Nestle can do in this
instance is to make sure its Crunch is always available on shelf space such that customer is not
thinking of a substitute whenever Crunch is not readily within reach. This threat seems to be
moderate.

Bargaining power of the buyers: This simply speaks to how much power is possessed by the
customers in the industry. The buyers can put pressure on businesses in the industry to make
them deliver better quality and even capable of causing price war among competing brands.
Nestle needs to understand that this can be influenced by the number of customers, switching
cost, availability of information to buyers, buyers’ ability to substitute, the sensitivity of price and
sometime the order size. This information could be utilized by Nestle in considering certain cost
they must expend and those they could cut down on, such as advertising cost. This threat seems
to be high especially with the position of the trade customers.

Bargaining power of the suppliers: This really put into consideration the power possessed by
suppliers and how they can use the power to influence source of supply or production cost. The
cheaper a firm is able to source its main materials, the better it is able to price its goods and
compete with price. Aside the cost at source, stable availability of supplier is another key aspect
that firms watch out for. Nestle’s understanding of this element could be utilized in decisions of
how many suppliers to have and size of purchase, the uniqueness of each supplier’s product would
also determine how high or low the suppliers bargaining power is, and where Nestle does not have
substitute for a raw material, the supplier power becomes higher. The understanding of this
element would help Nestle in its cost and pricing decisions. There is no sufficient information in
the case to determine how high this is but the threat seems to be moderate.

Rivalry among existing competitors: This looks basically at how much of competition exist in the
market or how competitive the current market is. Factors that would help Nestle understand this
force include the number of competitors, barriers to exist, customers’ cost of switching from one
brand to another, the diversity of competitors and quality of differences, brand loyalty, industry
concentration and industry growth. The understanding of how competitive the market is would
have shaped Nestle’s decision on how Crunch is positioned. However, a better understanding
would help its re-positioning. Given that there are so many players in the industry and there are 7
brands ahead of Crunch (including Nestle’s butterfinger), the threat of rivalry, or competition is
high.

1B. Looking at the "threat of substitutes", give three examples of potential substitutes to Crunch and
why (2 marks)

Threat of substitutes speaks basically to a product outside the industry that is able to satisfy the
need Crunch currently addresses. The Crunch brand’s target market was men and it is positioned
as an in-between meal snack. Potential substitutes could be:

a. Cereal Bar: This is because this could easily appeal to men as in-between snack and
therefore rival as a substitute for Crunch.
b. Sugar Confectionery: This could also easily fit as an in-between meal and where lovers of
Crunch do not find their favourite brand readily available, there is the possibility of
switching to sugar confectionery. This would satisfy the same need and the switch cost is
low.
c. The Gum: This obviously might not serve as an in-between meal snack, but it is obviously a
potential substitute for Crunch. Also, for a customer who is health conscious, t he Mars 3
Musketeers brand which is position as “45% Less Fat” could be a potential substitute when Crunch
is not available. This is because it would not only satisfy the need to meet an in-between meal
snack but would serve an additional need to eat healthier.
2A. What is your assessment of the situation, and what are your indicated action(s)?

A marketing plan for Nestle would help in harnessing the observations on the product, price,
promotion and place into ideas to better position Crunch and these ideas can be developed into
strategies with the aid of a marketing plan. The marketing plan would help detail the necessary
actions that are needed to be taken in order to achieve our objective. The plan basically would
help Nestle answer the question of where Crunch is now, where we want Crunch to be, how to get
Crunch to where it should be and when.

The main objective is to re-position Crunch and improve its dollar profitability by 20 percent in
2010. We can use the 5C’s of marketing to assess the current situation and the indicated actions
by looking at the company, customer, competition, collaboration and climate.

Company: An understanding of the company’s product, it’s strength and weaknesses, current
positioning, and its competitive advantage would help us gain insight on the company as well as an
assessment of Crunch brand and necessary actions to take in achieving our sales and profitability
growth. Nestle needs to therefore analyze its strength and weakness across different business
functions relative to competition, with the aim of achieving a differentiated position in the market.
Nestle should be willing to develop new competencies and leverage on technology to achieve
competitive edge. We need both customer and competition insight to come up with an integrated
strategy that gives an edge.

Customer: The primary reason why customers buy chocolate confectionery is either to satisfy their
hunger need or for treat/reward themselves or others. This explains the customers’ needs which
would help us understand customer’s expectations and how to meet these expectations.
Segmentation is important in gaining insight into who the customers are and what they need.

The customers in this industry are dynamic but vary in demography (age, gender and location) and
psychography. Children and young adult who are less than 25years old are about 60% of the
population but they represent about 34% consumption rate of chocolate confectionery market.
Adults who are 25years old and above are about 40% of the population but represent 66%
consumption rate. This indicates that adults and older people tend to consume more chocolate
than the younger people. Women also consume chocolate confectionery 6% per capita more than
the national average while men consume 6% less. On location, the Midwest is the strongest selling
region for both Crunch and the chocolate confectionery market in U.S. while Crunch had
undeveloped sales in the West. This indicates that there may be an opportunity to do some
geographical targeting to improve spending efficiency. All these information would help us in
analyzing our target market and how to communicate our advertisements.

Following the segmentation done by Hershey, we can say the US chocolate confectionery can be
grouped into buyers who are exploring, those who seek value for what they buy, those who are
loyal indulgers, the moderate confectionery lovers, those who are able to control they indulgence
guilt, and occasional eaters. Psychographic segmentation is a good tool in gaining insight on
purchase motivations in such a way that Crunch can be re-positioned for a sales and profitability
growth.
Other information about the customers to consider would be how sensitive they are to changes in
prices, especially the trade buyers. The trade buyers seem to be very sensitive to price as inclined
by Rolando Rosato-Rossi who is of the opinion that the trade buyers would not accept an increase
in price. Also, their bargaining power should also be of interest as this would influence the
expected quality and price of Crunch.

Competition: The industry in which Crunch plays in is obviously a competitive one. In the US
chocolate confectionery market, Nestlé Crunch brand has about seven close competitors and they
together hold about 44% of the market share while other brands hold 56%. Hershey and Mars are
the only two companies with larger market share than Nestle with several other players. The
market is segmented by demography and psychography as explained earlier and each brand is
competing to meet the buyers varying meets. Nestle has a competitive strategy of offering the
lowest price products in the category so much that a price increase in Crunch would jeopardize
this point of differentiation. Competition as well as Nestle also made their products available in
various sizes including regular, king, miniatures and promotional sizes. This is to meet buyers’
varying needs with respect to size and this is also a competitive feature. The fact that the two
market leaders Hershey and Mars have brands that price higher than most other brands (based on
case facts) but these brands hold a larger market share than the other brand suggests that these
market leaders have been able to acquire brand differentiation beyond price. It is therefore
important for Nestle to develop differentiation beyond price so as to acquire more market share.

Collaboration: Collaboration is essential in achieving sales growth and ultimately improving

profitability. One effective way Nestle has been able to push its products including the Crunch
brand is by the use of trade buyers. This in itself is a form of collaboration and therefore important
for Nestle to be mindful of the expectation of trade buyers for a better collaboration. Closely
related to the is the need for a good relationship with the suppliers, as this has a direct impact on
cost of goods. Where Nestle is not able to increase price or quantity of total sales, a reduction in
cost may also contribute in achieving the objective of increasing profitability; which is one of the
impacts of collaboration. Collaboration can also be achieved with advertisement partners in
effectively conveying marketing messages to the buyers.

Climate: looking at the whole eco-system, how to attract new potential customers while retaining
loyal ones. It is important for Nestle to retain loyal Crunch customers but also important to grow
the customer base by attractive new buyers. Some other factors to consider under the climate are
social and behavioural trends, economic trends, Laws and regulations, and technology.
2B. Assuming you want to reposition Crunch ‘in 2010’, what would be your primary target audience,
strategy and consumer message?

The current primary target audience for Crunch is men. However, from the information available,
more women tend to consume chocolate confectionery so it might be a good strategy to target
women, knowing that more adults consume chocolate confectionery more than children. If I were
to reposition Crunch, my primary target audience would be women between 25years and above.

The strategy would be to make Crunch a women brand which however, can also appeal to other
gender and age brackets. Unlike how Crunch is currently focused on athletic men mainly, I would
want to re-position the brand to appeal to a range of different women- the working class, stay-at-
home mum, business women, female athletics, and the health-conscious women. The Crunch can
come in two variances of pure chocolate and the healthy bar. The sizes would still come in the
regular, king, miniatures and promotional sizes.

My positioning statement would be:

Positioning Statement

To an everyday woman, our Nestlé Crunch is the chocolate confectionery brand that satisfies your
unique everyday crunchy chocolaty quest because of its distinguishing taste and crunchy mouth
feel.

2C. What marketing mix do you recommend and why?

The marketing mix speaks to how a new product is taken to the market. The marketing mix aids
the definition of the market options in terms of price, product, promotion and place.

The new Crunch brand would be positioned to retain its existing price since buyers are sensitive to
charges in price. The product would be made available in various sizes and packs to still appeal to
buyers who want Crunch as in-between-meal snack and those who want it as a reward to self or
others. For promotion, the new Crunch would be in places where you would likely meet most
women – in supermarkets, stores, spas and so on. The product will be advertised both on the
television and through media prints.

This is so because it would help to widen the horizon of the newly positioned Nestle Crunch for
women.
3A. Briefly describe the steps you would recommend in developing the new product for the Nigerian
market.

To develop a new product for the Nigeria market, I will recommend the use of the ‘new product
development’ funnel. This involves the following steps:

New product strategy: As discussed earlier, it is important to develop a strategy before launching a product.
This is first step that sharpens the ideas for the new product.

Idea Generation: Once we are able to identify the need we want to meet, the next step would be to
generate different ideas on how to meets the needs. Idea generation could be for inside (R &D department)
or from outside.

Idea screening: At this stage, we need to review the ideas, go on with the good ones while we drop the not
so good ideas.

Business analysis: The next step would be to analyze the business idea. How would the product be
developed, what are the requirements, what would it cost, what would be the return. All of these analysis
help in taking the product forward.

Development: At this stage, the business idea is developed and ready for test before launch.

Test marketing: it is very important to test market before launch as this might give an insight into some
necessary changes or how the product can be fine-tuned to maximize acceptance in the market.

Commercialization: This is the stage where the new product is introduced into the market for sales.

New product: this is the last stage where the product is now in the market

3B. Who would you target and why?

In the Nigerian market, I will target children and young adult. This is because from statistics available,
children and young adults of 25years and below are a huge percentage of the country’s population. This
category also has sweet-tooth and would most likely fit as potential buyers of chocolate confectionery. In
Nigeria, it is also believed that this target segment is able to influence the buying habit of the older
population.

4.What strategies would you advise the product manager of Nestle to adopt in order to extend the
maturity stage of his/her product(s) in Nigeria?

Product life-cycle is usually in usually in four stages of introduction, growth, maturity and decline. At the
maturity stage, where a product manager does not do anything to lengthen the life of the product, it enters
into decline stage where the revenue starts to deep as sales drop. For the product to continue to be in the
market, it is therefore important to elongate the maturity stage in such a way that the product doesn’t go
into a decline. Some of the strategies that I would recommend to the product manager of Nestle to extend
the maturity stage of his/her product in Nigeria would include:

Change of promotion: Change in promotion can help a product look renewed in the eyes of buyers as they
would see the product in a new light and mostly buy more.

Price discount: this is also a very good strategy in bringing back price sensitive customers. Nigerians in our
nature appreciate discounts so this strategy would work well in this environment.
Rebranding (shape, size and colour): A product in its maturity stage can be rebranded by changing it shape,
size or package in a way that it appeals to old buyers. The product can be produced in more variances as
well.

Seeking new market: the product manager may seek new buyers or new market for the product. In the new
market, it is like a new product so has the opportunity to go through the cycle again and thereby its
existence is prolonged.