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Master of Business Administration-MBA Semester 4

MB0052 – Strategic Management and Business Policy - 4 Credits


Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

Q.1 What similarities and differences do you find in BCG business portfolio
matrix, Ansoff growth matrix and GE growth pyramid. (10 marks)

Ans. The BCG matrix is a portfolio management tool used in product life
cycle. BCG matrix is often used to highlight the products which get more funding
and attention within the company. During a product’s life cycle, it is categorised
into one of four types for the purpose of funding decisions. Figure 3.5 below
depicts the BCG matrix.

Figure 3.5 BCG Growth Share Matrix

Question Marks (high growth, low market share) are new products with potential success,
but they need a lot of cash for development. If such a product gains enough market shares
to become a market leader, which is categorised under Stars, the organisation takes
money from more mature products and spends it on Question Marks.

Stars (high growth, high market share) are products at the peak of their product life cycle
and they are in a growing market. When their market rate grows, they become Cash
Cows.
Cash Cows (low growth, high market share) are typically products that bring in far more
money than is needed to maintain their market share. In this declining stage of their life
cycle, these products are milked for cash that can be invested in new Question Marks.

Dogs (low growth, low market share) are products that have low market share and do not
have the potential to bring in much cash. According to BCG matrix, Dogs have to be sold
off or be managed carefully for the small amount of cash they guarantee.

The key to success is assumed to be the market share. Firms with the highest market
share tend to have a cost leadership position based on economies of scale among other
things. If a company is able to apply the experience curve to its advantage, it should able
to produce and sell new products at low price, enough to garner early market share
leadership.

Limitations of BCG matrix:

— The use of highs and lows to form four categories is too simple

— The correlation between market share and profitability is questionable. Low share
business can also be profitable.

— Product lines or business are considered only in relation to one competitor: the market
leader. Small competitors with fast growing shares are ignored.

— Growth rate is the only aspect of industry attractiveness

— Market share is the only aspect of overall competitive position

3.4.2 Igor Ansoff growth matrix

The Ansoff Growth matrix is a tool that helps organisations to decide about their product
and market growth strategy. Growth matrix suggests that an organisation’s attempts to
grow depend on whether it markets new or existing products in new or existing markets.
Ansoff’s matrix suggests strategic choices to achieve the objectives. Figure 3.6 depicts
Ansoff growth matrix.
Figure 3.6 Ansoff Growth Matrix

Market penetration – Market penetration is a strategy where the business focuses on


selling existing products into existing markets. This increases the revenue of the
organisation.

Market development – Market development is a growth strategy where the business seeks
to sell its existing products into new markets. This means that the product is the same, but
it is marketed to a new audience.

Product development – Product development is a growth strategy where a business aims


to introduce new products into existing markets. This strategy may need the development
of new competencies and requires the business to revise products to appeal to existing
markets.

Diversification – Diversification is the growth strategy where a business markets new


products in new markets. This is an intrinsically riskier strategy because the business is
moving into markets in which it has little or no experience.

For a business to adopt a diversification strategy, it should have a clear idea about what it
expects to gain from the strategy and an honest assessment of the risks.

3.4.3 McKinsey/GE growth pyramid

The McKinsey/GE matrix is a tool that performs a business portfolio analysis on the
Strategic Business units in an organisation. It is more sophisticated than BCG matrix in
the following three aspects:
— Industry (market) attractiveness – Industry attractiveness replaces market growth. It
includes market growth, industry profitability, size and pricing practices, among other
possible opportunities and threats.

— Competitive strength – Competitive strength replaces market share. It includes market


share as well as technological positions, profitability, size, among other possible strengths
and weaknesses.

— McKinsey/GE growth pyramid matrix works with 3*3 grids while BCG matrix is 2*2
matrixes.

External factors that determine market attractiveness are the following:

— Market size

— Market growth

— Market profitability

— Pricing trends

— Competitive intensity/rivalry

— Overall risk of returns in the industry

— Opportunity to differentiate products and services

— Segmentation

— Distribution structure (e.g., retail, direct, wholesale)

Internal factors that affect competitive strength are the following:

— Strength of assets and competencies

— Relative brand strength

— Market share

— Customer loyalty

— Relative cost position (cost structure compared to competitors)

— Distribution strength

— Record of technological or other innovation


— Access to financial and other investment resources

Figure 3.7 McKinsey/GE Growth Pyramid


Q.2 Discuss the investment strategies applicable for businesses and methods to
rectify faulty investment strategies. (10 marks)

Ans. An investment strategy is a key component of every conceivable business type, and
it's critical to ensuring the success of the business. Entire college programs have been
designed specifically to teach business investment strategies, but a few key tips can help
lay groundwork for effective investing.

Use Income to Eliminate Debt


o While the pay-down of outstanding debt may not seem like business
investment on the surface, debt elimination can equate to a financial return
that outpaces even the best investments. If a business has outstanding debt
financed at a given interest rate, paying off that debt guarantees an instant
return of that percentage. Because business debt often reaches into double
digit interest rates, paying off this debt can provide an instant, guaranteed
return that is significantly higher than usual returns on other investments.

Reinvest Funds to Nurture the Business


o Perhaps one of the most common ways businesses invest their funds
involves purchasing additional equipment, remodeling customer-facing
environments or opening additional locations. By reinvesting profits back
into the business for expansion or improvement, the business stands to
gain additional profits as a result of the expansion. As an added bonus, a
guaranteed return on the investment will come in the form of tax not
assessed on the reinvested funds.

Invest in Other Businesses


o Some businesses find success in investing their profits in other
noncompeting businesses. These investments may be made as traditional
cash investments, as loans or by purchasing securities issued to business
start-ups. Investing in other businesses can be an especially wise move for
companies in shaky industries, as spreading investments into other types
of operations can help diversify a business's holdings and reduce the risk
of a complete business loss.

Or

— Use of income to eliminate debt

— Reinvestment of funds to nurture the business

— Investment in other businesses


Investment is defined as the commitment of money or capital (e.g. purchasing assets,
keeping funds in a bank account etc) to generate future returns. A proper understanding
of the investment strategies and a thorough analysis of the options helps an investor to
create a portfolio that maximises returns and minimises exposure to risks.

Following are the ways to invest successfully:

— Leave a margin of safety – Always leave a margin of safety in your investments to


protect your portfolio. The following are the two ways to incorporate the above principle
in your investment selection process.

° Be conservative in your valuation assumptions

° Only buy assets dealing at substantial discounts to your conservative estimate.

— Invest in business which you understand – Invest in a business in which you have a
thorough understanding of the customers, products/services etc.

— Make assumptions – Make assumptions about your future performance by recognising


your own limitations. Never purchase the stock until you understand the industrial
economy and able to forecast the future of the company with certainty.

— Measure your success – Evaluate your performance by the underlying measures in


business.

— Have a clear disposition towards price – The more you pay for an asset in relation to
its earnings, the lesser is your return value. So have a clear outlook towards the price.

— Allocate capital by opportunity cost – Allocate investments/assets to the choice which


has been opted as the best among several mutually exclusive choices.

Internal methods to rectify faulty investment strategies

In this section we will explain the methods to rectify faulty investment strategies. Some
of the methods are as follows:

— Internal transformation

— Corporate restructuring and reorganisation

— Financial restructuring

— Divestment strategy
— Expansion strategy

— Diversification strategy

— Vertical and horizontal integration strategy

— Building core competencies and critical success factors

Frequent assessment report assists in detecting the problems associated with faulty
investment strategies in an organisation.

Internal transformation

Internal transformation takes place in an organisation to sustain constant growth, survival


and maintain profitability. It includes corporate restructuring, downsizing of employees
etc. The following are the reasons for internal transformation of a company:

— Pressure on owner to decrease costs

— Overstaffing

— Large and complicated company structure

— Low flexibility of staff

— Financial instability

The main objective of a company which adopts internal transformation is to increase


efficiency by reaching the standards in the global market. This is achieved by holding
high quality level of productivity.

The essential components of a successful business transformation are as follows:

— Achievement

° A new level of sustainably high performance emerges

° Extraordinary and unexpected results appear throughout

— Improved synergy

° Collaboration naturally occurs across all levels

° Creativity and innovation flourishes

— Aliveness
° Employees flourish as they openly express their passion, commitment and creativity
towards work.

° Growth and development occurs both personally and professionally

— Shared future

° The entire organisation unites to accomplish the future and live consistently with core
values

We will now discuss the two internal transformation processes in the following section.

— Corporate restructuring and re-organisation

— Layoffs and employee termination


Q.3. a. Distinguish policy, procedure and programmes with examples. (5 marks)
b. Give a short note on synergy. (5 marks)

Differences between policy, procedure, process and programmes

In the previous topic we discussed the definition and meaning of policy, procedure,
process and programmes. Now we will analyze how each concept is different from the
other.

1. Policy is Procedure identifies Process is a set of Programme is a


general in the specific actions activities conducted concrete scheme
nature and and explains when by people to achieve of activities
identifies the an action needs to be organizational goals. designed to
company taken. accomplish a
rules. Process defines the specific
2. Policy It describes method in which the objective.
explains the emergency work is done.
reason for procedures which It provides step
existence of an include warnings It is a long term rule by step
organisation. and cautions. that drives an approach to the
3. Policy shows organization. activities taken
how rules are It is systematic way to achieve the
enforced and of handling routine goals.
describes its actions.
consequences. Programming
4. It defines an Procedure defines helps in
outcome or a the means to achieve developing an
goal. the goals. economical way
5. They are of doing things
described by Procedures are in a systematic
using simple written in an outline manner.
sentences. format.
6. Policies are
guidelines for It is generally
managerial detailed and rigid. It
actions. is a part of tactical
7. It is a planned tools.
way to handle
certain issues
in the
organization.
8. It is framed by
the top level
management.

9. Policies are a
part of the
strategies of
the
organization.

Ans. b. Synergy is the energy or force created by the working together of various parts
or processes.
Synergy in business is the benefit derived from combining two or more elements (or
businesses) so that the performance of the combination is higher than that of the sum of
the individual elements (or businesses).

Organizations strive to achieve positive synergy or strategic fit by combining multiple


products, business lines, or markets. One way to achieve positive synergy is by acquiring
related products, so that sales representatives can sell numerous products during one sales
call. Rather than having two representatives make two sales calls to a potential customer,
one sales representative can offer the broader mix of products.

Mergers and acquisitions are corporate-level strategies designed to achieve positive


synergy. The 2004 acquisition of AT&T Wireless by Cingular was an effort to create
customer benefits and growth prospects that neither company could have achieved on its
own—offering better coverage, improved quality and reliability, and a wide array of
innovative services for consumers.

Negative synergy is also possible at the corporate level. Downsizing and the divestiture
of businesses is in part the result of negative synergy. For instance, Kimberly-Clark
Corporation set out to sharpen its emphasis on consumer and health care products by
divesting its tiny interests in business paper and pulp production. According to the
company, the removal of the pulp mill will enhance operational flexibility and eliminate
distraction on periphery units, thus allowing the corporation to concentrate on a single,
core business activity.

The intended result of many business decisions is positive synergy. Managers expect that
combining employees into teams or broadening the firm's product or market mix will
result in a higher level of performance. However, the mere combination of people or
business elements does not necessarily lead to better outcomes, and the resulting lack of
harmony or coordination can lead to negative synergy.
Q.4. Select any established Indian company and analyse the different types of
strategies taken up by the company over the last few years. (10 marks)

Cadbury plc, formerly known as Cadbury-Schweppes plc, before it demerged from its
Americas Beverages manufacturing business in 2008 (Peston, 2008), is the world’s
leading confectionery manufacturer and distributor. Cadbury plc “operates in over 60
countries, works with over 35,000 direct and indirect suppliers and employs around
50,000 people” (Cadbury India Ltd., 2008).

Cadbury stresses the importance that it places on quality. Apart from its mission
statement, it also references the slogan, “Cadbury means quality” as an integral part of its
business’s activities (Superbrands, 2008).

Lastly, Cadbury also aims to put “A Cadbury in every pocket” (Karvy Research, n.d.) by
targeting current consumers and encouraging them to make impulse purchases and by
maintaining a superior marketing mix (Karvy Research, n.d.).

Cadbury India Ltd, as the Indian subsidiary of this confectionery giant, also utilizes the
same mission and vision statements of its parent firm when operating in the Indian
market, albeit with different business strategies and approaches. Since Cadbury’s
activities vary from country to country, this report will simply examine the activities of
Cadbury India Ltd in the Indian market, one of the fastest growing confectioneries
markets in the world (Financial Express, 2008).
Products offered by Cadbury India Ltd.

Cadbury plc manufactures and sells three different kinds of confectionery: chocolate,
candy and chewing gum (Cadbury India Ltd., 2008), but in the Indian market, its product
line is split up into the chocolate confectionery, milk food drinks, candy and gums
categories (Cadbury India Ltd., 2008).

This report will examine two different products offered to the Indian market by Cadbury
India: Cadbury Dairy Milk (chocolate category) and Cadbury Bournvita (milk drinks
category).

(a) Cadbury Dairy Milk


(i) Pricing

Cadbury India enjoys controlling 70% of the confectionery market in India, of which
30% is directly due to the success of its Dairy Milk product, which averages sales of
around 1 million bars per day (Cadbury Dairy Milk, 2008; Marketing Communications,
2008). Cadbury Dairy Milk bars are Cadbury India’s cash cow in the country’s 4000
tonne, Rs. 6.50 billion (around 1.6 billion CAD) chocolate market (Gupta, 2003), as such,
has been designated its flagship brand (Cadbury India Ltd., 2008; Chatterjee, 2000).

Part of Cadbury Dairy Milk’s success lies in its shared history with India’s identity (it
was first sold in 1948, one year after the country was made independent from the British
Empire) (Cadbury Dairy Milk, 2008) but also in the fact that it is priced relatively
cheaply (Chatterjee, 2006) and is relatively affordable by the Indian masses. Even its
smallest Dairy Milk bar, the 13 gram version, is priced at Rs. 5 (about 0.13 CAD),
affordable by many middle-class Indians as an occasional treat, but not affordable for
those who buy from the less-then-3-rupee (Rs. 3) segment of the market (Chatterjee,
2006). Its history of operating in the country and its average level pricing of chocolate
bars, has made the Cadbury dairy Milk bar synonymous with high quality, affordable
pure milk chocolate for many Indian customers (Cadbury Dairy Milk, 2008).

(ii) Consumer segments served and advertising/promotional strategies used

Cadbury India Ltd continuously markets Dairy Milk as a relatively inexpensive treat,
towards market segments divided by age, income, technological knowledge and health-
consciousness.

In the 1990’s, the company stated promoting the chocolate for “the kid in everyone”, in
an attempt to appeal to adults as well as children (Cadbury Dairy Milk, 2008).

In order to appeal to potential lower-income customers in the villages of India, further


marketing in the form of the “Real taste of life” campaign (Cadbury Dairy Milk, 2008)
attempted to absorb these customers into its market share. By using opinion leaders from
Bollywood and using extensive advertising in newspapers, television, magazines and
massive billboards across the country, Cadbury managed to capture the attention of the
nation and cement its market share superiority in India (Cadbury Dairy Milk, 2008;
Marketing Communications, 2008).

Nowadays, Cadbury’s is trying to tap into the potential market of younger generation
Internet users by offering contests and hosting competitions online, the most notable
being its “Pappu Pass Ho Gaya” (Pappu Passed!) joint venture operation with Reliance
India Mobile, a branch of India’s largest network service provider, which allowed
students across the country to check their examination grades online and celebrate with
Cadbury’s Dairy Milk if they did well (Cadbury Dairy Milk, 2008).

Furthermore, Cadbury India continuously develops new versions of its Dairy Milk brand
in order to keep its adult and children consumers satisfied and interested. Variations
include the Fruit & Nut and Crackle & Roast Almond variations (Cadbury Dairy Milk,
2008) which are meant for snacking, as well as the Cadbury Dairy Milk Desserts, “to
cater to the urge for ‘something sweet’ after meals” (Cadbury Dairy Milk, 2008). The
Cadbury Bournville Dark Chocolate bar, similar to the Dairy Milk bar, targets the health-
conscious market segment of the chocolate market, who wish to enjoy the taste of dark
chocolate but also its health benefits (Financial Express, 2008). Lastly, Cadbury Dairy
Milk Wowie, with Disney characters embossed on each chocolate square (Cadbury Dairy
Milk, 2008) clearly targets the child segment of its market. Cadbury’s market
segmentation is quite effective because it allows them to target all three major market
segments: children, adults and technologically-savvy consumers, but it does not serve
those segments of the market that have been divided by income levels. Although Dairy
Milk is affordable to the upper and middle-income consumers who view it as a mid-
priced item (Kochhar, 2007), lower income consumers who buy from the less-than-3-
rupee range of chocolate cannot afford to buy Cadbury Dairy Milk regularly. Cadbury
will need to address the needs of this market segment in order to boost its sales of Dairy
Milk.

Indian consumers seem to be satisfied with Cadbury Dairy Milk as its marketing
promotes it as an occasional indulgence, despite popular opinion that it is a relatively
expensive luxury product (Cadbury India Ltd. Analysts Meet, 1999). This restrained
marketing has allowed the chocolate to slowly become a measure of quality for many
Indians, as Cadbury Dairy Milk is their “Gold Standard” for chocolate, where the “pure
taste of Cadbury Dairy Milk defines the chocolate taste for the Indian consumer”
(Cadbury India Ltd., 2008). In fact, Cadbury Dairy Milk was voted one of the India’s
most trusted brands in a poll conducted in 2005 (Cadbury Dairy Milk, 2008).

(iii) Product Positioning

Cadbury India Ltd’s main sources of competition come from Amul, India’s own dairy
company and Nestle India, Nestle’s subsidiary in India. As seen in Appendix B, Cadbury
India controls around 70% (Cadbury India Ltd., 2008) of the chocolate market, whereas
Amul controls around 2% (Dobhal, n.d.) and Nestle India around 27% (Nestle to expand,
2008).

As mentioned earlier, Cadbury’s main strength comes from it ability to market Dairy
Milk products “through altering the theme and functionality of the product as the time
demands” (Cadbury India Ltd Analysts Meet, 1999). Although this has allowed it to
control more of the market than its closest competitors, the reasons for its success may
also lie in the fact that many Indians still view its chocolates as luxury products (Cadbury
India Ltd Analysts Meet, 1999) and not as household goods. This contradicts Cadbury’s
assertion that its leadership is maintained by a “superior marketing mix” (Karvy
Research, n.d.). Cadbury India may have misinterpreted the popularity of Dairy Milk as a
sign that the Indian public has accepted it as a household product. In fact, the booming
economy and the increasing affluence of the burgeoning middle class (Basu, 2004) has
promoted the use of status symbols, where the regular consumption of so-called luxury
chocolates such as Cadbury Dairy Milk is viewed as fashionable (Kochhar, 2007).
Despite Amul’s longer history in India, its chocolates are viewed as being local and not
luxurious, justifying a lower price tag (Chansarkar et al., 2006). Cadbury India must
maintain its current marketing strategy but slowly start to promote Dairy Milk as a
household good so that consumers spend their rising disposable incomes on it and boost
its sales (Rai, 2006).
Amul’s origins as a community welfare program in Gujarat, one of India’s most
industrialized states, to becoming a national enterprise (Amul, 2008) spanned the decades
during which newly-independent India forged its identity, thus becoming an integral part
of India’s identity and giving its marketing strategy a new source of authority. Cadbury
simply cannot match this kind of national endorsement, so by at least promoting the fact
that it has been operating in India for almost as long as Amul, it can try to be “Indian”
too. This, in combination with the longest running advertising campaign that Amul is
famous for gives it a brand awareness boost.

Moreover, Amul’s reputation for credibility, safety and consumer satisfaction was only
reinforced when Cadbury India’s Chinese-made products were found to be contaminated
with worms and melamine (Sinn and Karimi, 2008). The “Gold Standard” (Cadbury
Dairy Milk, 2008) was no longer gold, nor was it a standard anymore, as people’s
confidence in its safety was shattered. In order to position its products as safe and
affordable treats once again, Cadbury India should make attempts to be even more
sensitive to consumer demands. Customer satisfaction must be given the utmost
importance, even if the company has to run at a loss for a few months, as this will
eventually allow it to negate some of the extensive damage that this negative publicity
has to the firm’s reputation. The new extra-layer packaging of chocolate that is now
being used in the manufacture of Dairy Milk is a good first step to take in reclaiming
some of the public’s trust (Vivek, 2004).

Lastly, Amul’s innovative ideas will be the bane of Cadbury. Their release of diabetic
friendly chocolate and chocolates catering to different ethnic flavours (Janve and Dogra,
2007) as well as chocolates for festive seasons allow them to rapidly sway consumers
over to their products. This accounts for their soaring annual market growth rates of 18%
annually (Indian Express, 1999).

In comparison to Nestle India however, Cadbury India’s longer track history gives it a
competitive edge. Cadbury has more of a brand recognition power than Nestle has, and it
uses this extensively to promote Cadbury Dairy Milk all over the country. Nestle still has
to break into the Indian market; one way to do this would be to follow Amul’s lead and
develop and market products that meet specific ethnic needs, such as chocolates for
Diwali and Rakshabandan (two different Indian festivals) (Kochhar, 2007) , concepts that
Cadbury India has yet to explore.

Cadbury India must counter this threat that Nestle and Amul pose, namely, the
production of chocolates specifically for the festive seasons of India. By doing so,
Cadbury will be able to position its chocolates as chocolate specifically designed for
India, endearing it to the consumers and boosting its sales.

(a) Cadbury Bournvita

(i) Pricing
Cadbury Bournvita was first sold on the Indian markets in 1948, soon after Cadbury India
Ltd (then known as Cadbury-Fry) was incorporated (Cadbury Bournvita, 2008). As a
result of being one of the first products offered on the Indian market by Cadbury,
combined with successful marketing strategies and promotional offers, Cadbury
Bournvita enjoys a 17% market share of the malt-based food drink market (Cadbury
Bournvita, 2008). India alone accounts for 22% of the world’s malt-food milk drink retail
sales (BeverageDaily, 2004), but unlike Cadbury Dairy Milk, Cadbury Bournvita does
not control a large share of India’s malt-based food drinks market.

Bournvita is largely sold in 500 gram bottles for around Rs. 95 (2.35 CAD) a piece
despite other sizes being available, and is perceived to be quite expensive (Hawa, 2002).
However, due to its long history with India, and the fact that it is used a staple source of
nourishment by Indian mothers for their children, Bournvita’s still remains popular
(Hawa, 2002).

(ii) Consumer segments served and advertising/promotional strategies used

Cadbury markets its Bournvita product in diverse market segments. Bournvita has been
marketed mainly towards children, but also finds followers amongst elderly people,
pregnant women and athletes (Hawa, 2002; Cadbury Bournvita, 2008). Continuous brand
re-invention, a “rich brand heritage” and complete overhauls in packaging, product
design, promotion and distribution have allowed Cadbury Bournvita to maintain its 17%
market share over the years in India’s 220,000 tonne malt-food market (Cadbury
Bournvita, 2008; BeverageDaily, 2004).

Over the years, Cadbury has marketed Bournvita in order to appeal to the change in
perceptions and tastes of its consumers. It focused on the “Good Upbringing, Goodness
that grows with you” campaign to promote Bournvita as an essential health drink for
children (Cadbury Bournvita, 2008). This campaign was conducted mainly on the radio,
the primary medium of communication for many Indians at the time (Ranjan, 2007). This
campaign was followed by the massively successful “Brought up right, Bournvita bright”
television, newspaper and magazine campaign (Cadbury Bournvita, 2008) to reach out to
more children and promote the link between intelligence and Bournvita, a concept that
appealed to many children. In order to cement their consumer base and ensure brand
loyalty, in the 1990s, Bournvita challenged the public by promising complete physical
and mental development for its consumers (Cadbury Bournvita, 2008), where the
subsequent television marketing campaign secured Cadbury Bournvita’s place in the
Indian market. The most recent marketing campaign undertaken by Cadbury Bournvita is
the one specially designed to harness consumers’ uncertainty about the challenges of the
new millennium. The “Real Achievers who have grown up on Bournvita” campaign
focused on preparing consumers with the health, vitality and nutrition necessary for
facing the challenges of the new millennium (Cadbury Bournvita, 2008) and allowed
Cadbury Bournvita to keep “pace with the evolving mindsets of the new age consumers”
(Cadbury Bournvita, 2008). This marketing campaign was broadcast on television and
published in newspapers in an effort to recruit contestants (Kapoor, 2007).
The release of new versions of the original Bournvita such as Bournvita 5-Star,
combining the flavour of the original chocolate Bournvita with the flavor of Cadbury 5-
Star (Cadbury Bournvita, 2008), one of its caramel chocolates helps maintain consumer
interest. The new product is being aimed at the segment of children who want nutrition
but also taste (Cadbury Bournvita, 2008).

By also sponsoring the Indian Olympic team to the Moscow Olympics of 1980 (Cadbury
Bournvita, 2008), Cadbury Bournvita has managed to appeal to an athletic market
segment as well. Recently, by supporting sports competitions and sponsoring athletes
across the country, Cadbury Bournvita has managed to promote itself as a sports drink for
athletes (Kapoor, 2007).

Furthermore, one of the most famous Indian examples of Cadbury Bournvita’s ingenious
marketing is its sponsorship of the Bournvita Quiz Contest. The Bournvita Quiz Contest
is the longest running quiz show in India, having first been aired in 1972. The Contest
spans 7 countries, has involved more than 4000 schools and more than 1 million students,
making it one of the most popular high school contests (Cadbury Bournvita, 2008), as
well as one of Cadbury’s most successful marketing ventures till date.

However, despite Cadbury Bournvita’s history of serving consumers in the Indian


market, and amidst allegations of declining quality and taste of the Bournvita brand
(Hawa, 2002), many customers still feel that Bournvita does not have the appeal that
other brands, such as Horlicks do (refer to Appendix C) and thus the market is slowly
switiching over to white malt-based food drinks such as Horlicks (Karvy Research, n.d.;
Cadbury India Ltd Analysts Meet, 1999).

(iii) Product Positioning

The malt-based food drinks market in India is divided into brown drinks and white drinks
categories (Cadbury India Ltd Analysts Meet, 1999; Karvy Research, n.d.), with white
drinks being popular in the southern and eastern parts of the country, and the brown
drinks being popular in the northern and western parts of the country (Karvy Research,
n.d.).

Cadbury Bournvita’s major source of competition comes from GlaxoSmithKline’s


Horlicks and Heinz Food’s Complan. As seen in Appendix C, Horlicks is the market
leader with a 44% market share (Chatterjee, 2006), followed by Cadbury Bournvita with
its 17% market share (Chatterjee, 2006) and then Complan with its 13% market share
(Samajdar, 2006).

As mentioned earlier, the malt-drinks market is split up into the white and brown drinks
categories. The white drinks category is mainly led by Horlicks whereas the brown drinks
category is led by Bournvita (Karvy Research, n.d.). Lately, more consumers have started
switching over to consuming white drinks than brown drinks, thereby giving Horlicks a
larger market share than Bournvita (Karvy Research, n.d.).
When competing with Horlicks, Cadbury Bournvita’s current marketing strategy is
simply not enough. Given than Horlicks has been operating in the Indian market for
longer than Cadbury (Horlicks, 2008), this larger market share may be explained by more
consumer familiarity with Horlicks than with Bournvita, however, Horlicks’ extensive
marketing campaigns may also have played a part.

Horlicks has always marketed itself as a “Great Family Nourisher” with products such as
Mother’s Horlicks designed for different members of the family (Horlicks, 2008), which
makes it more appealing to a wider section of the market, with products designed for
different members of the family, such as Mother’s Horlicks (Horlicks, 2008), than
Bournvita’s mainly child-oriented approach. Thus, even elderly and convalescent
consumers can consume the product without feeling conscious of consuming a child-only
product. Even the Bournvita Quiz Contest, effectively Bournvita’s longest running
marketing campaign, mainly attracts more child consumers to its product (Radakrishnan,
2002), and thus cannot compete with Horlicks’ wider appeal. Thus, the solution lies in
Cadbury India marketing Bournvita as an adult drink as well. Only then will it be able to
compete effectively with Horlicks.

Meanwhile, Complan’s market share of 13% (Samajdar, 2006), is less than Bournvita’s.
Although both products are targeted at children, Complan has marketed itself as a
“perfect nutritional supplement” (Complan, n.d.) rather than as a healthy drink for
children, which is Bournvita’s approach. Since the words ‘nutritional supplement’
connote a need for extra nourishment, this may possibly work against Complan as many
families may feel that their child receives enough nourishment and does not require more.
Although Cadbury Bournvita currently has a larger market share of the two, it must
continue to market itself as a child-friendly drink, and not as a nutritional supplement, in
order to maintain its superiority.

Delivering Cadbury products to customers

India’s 300 billion USD retail market is growing at a rate of 30% per annum (Rai, 2006).
In a country where half a billion people are under the age of 25, disposable incomes are
on the rise and the economy is growing at a rate of 8% annually (Rai, 2006), selling treats
such as Cadbury Dairy Milk bars and Cadbury Bournvita powder will generate massive
returns. However, in order to be able to sell these products to customers, proper
distribution channels must be identified. The Indian retail sector is composed of 97%
“family-run, street corner stores” (Rai, 2006) and the remaining 3% consisting of malls
and shopping complexes.

Therefore, Cadbury India Ltd. produces its products in factories spread geographically
across India, but also sells its products through a chain of over 300,000 retailers spread
across India (Cadbury India Ltd Analysts Meet, 1999). The efforts of these retailers are
augmented by the support of 1900 distributor locations and 27 depots (Cadbury India Ltd
Analysts Meet, 1999). Furthermore, of a total of 3600 locations that sell Cadbury
products, almost 3100 locations are directly supplied by Cadbury India Ltd distributors at
least thrice a month (Cadbury India Ltd Analysts Meet, 1999).
These distribution networks give Cadbury India its competitive edge in India’s massive
consumer market.

SWOT Analysis of Cadbury India Ltd.

Cadbury India Ltd’s objective of putting a “Cadbury in every pocket” (Karvy Research,
n.d.) can only be done if the company markets its Cadbury Dairy Milk as a household
good and its Bournvita as a family-friendly drink. Until then, its Cadbury Dairy Milk
success will only be short-term in nature and Bournvita will not be able to reverse the
trend towards the consumption of white malted drinks (Cadbury India Ltd Analysts Meet,
1999) and compete with Horlicks. As seen in Appendix D, if Cadbury Dairy Milk can be
marketed extensively enough to break the ‘luxury’ perception that consumers have of it
currently (Cadbury India Ltd Analysts Meet, 1999), it can benefit from inelastic demand
as a household product, thus generating a constant stream of revenue and cementing the
Dairy Milk brand as a cash cow product. This objective can be accomplished by simply
building on the good reputation and trust that it has earned, and by listening to the needs
of its consumers. Bournvita meanwhile needs to be extensively marketed in order to
reduce the damaging effect that Horlicks’ family-friendly marketing mix is having on its
market share. Furthermore, the key threat that can affect Cadbury India Ltd’s success in
India is Amul’s innovative marketing strategy. As a result of its witty marketing
strategies, length of time serving India and its ability to develop and market products
specifically tailored for Indian consumers, Amul’s yearly growth rate of 18% may slowly
start to eat away at Cadbury’s success (Indian Express, 1999).

Conclusion

Cadbury India Ltd’s position in India is relatively strong. In order to maintain its lead in
such a large market, it must learn to address the specific needs of its consumers and
continue to maintain their goodwill, while also analyzing its competitors’ marketing
strategies. By doing so, it will be able to isolate the benefits and drawbacks of its
competitors’ marketing mix and use those to its own advantage.

Cadbury must also appreciate the advantages of a positive reputation and always stress
consumer satisfaction. One key aspect of this lies in maintaining the safety of its products
so that the name of Cadbury is always synonymous with high quality safe products.
Repeats of the recent melamine and worms issues cannot be allowed to happen as once
consumer confidence in its brand name is shattered, Cadbury India’s brand recognition
aspect will immediately work against it by highlighting the link between its name and
contaminated food products. This will cripple sales and reverse the fruits of 70 years of
hard work in the country, leaving the path open for more efficient local companies like
Amul to learn from Cadbury India’s mistakes and take over its market share.

Future Strategy
In the branded impulse market, the share of chocolate in 6.6% and Cadbury’s
share in the impulse segment is 4.8% factor like changing attitude, higher
disposable income, a large youth population, and low penetration of chocolate
(22% of urban population) point towards a big opportunity of increasing the share
of chocolate in the branded impulse among the costly alternative in the branded
impulse market.
It appears that company is likely to play the value game to expand the market
encouraged by the recent success of its low priced ‘value for many packs’.
Various measures are undertaken in all areas of operation to create value for the
future.
New channel of marketing such as gifting and child connectivity and low end
value for money product for expanding the consumer base have been identified.
In terms of manufacturing management focus is on optimizing manufacturing
efficiencies and creating a world class manufacturing location for CDM and
Éclairs. The company is today the second best manufacturing location of
Cadbury’s Schweppes in the world.
Efficient sourcing of key raw material i.e. coca through forward purchase of
imports, higher local consumption by entering long term contract with farmer and
undertaking efforts in expanding local coca area development. The initiatives in
the terms of development a long term domestic coca a sourcing base would field
maximum gains when commodity prices start moving up.
• Use of it to improve logistic and distribution competitiveness
• Utilizing mass media to create and maintain brands.
• Expand the consumer base. The company has added 8 million new consumer
in the current year and how has consumer base of 60 million although the growth
in absolute numbers is lower than targeted, the company has been able to
increase the width of its consumer base through launch of low priced products.
• Improving distribution quality by addressing issues of product stability by
installation of visi coolers at several outlets. This would be really effective in
maintaining consumption in summer, when sales usually dip due to the fact that
the heat effects product quality and thereby consumption.
• The above are some steps being taken internally to improve future operation
and profitability. At the same time the management is also aware of external
changes taking place in the competitive environment and is taking steps to
remain competitive in the future environment of free imports, lower barrier to
trade and the advent of all global players in to the country. The management is
not unduly concerned about the huge deluge of imported chocolate brands in the
market place.
It is of the view that size of this imported premium market is small to threaten its
own volumes or sales in fact, the company looks at the tree important as an
opportunity, where it could optimally use the global Cadbury Schweppes
portfolio. The company would be able to not only provide greater variety, but it
would also be more cost effective to test market new product as well as improve
speed of response to change in consumer preference through imports. The only
concerns that the company has in this regard is the current high level of duties,
which limit the opportunity to launch value for money products.
Q. 5 Why do you think it is necessary for organisations to have vision and mission
statements and also core competencies? Support your answer with relevant
examples. (10 marks)

Ans. Vision and Mission statements

A well-articulated strategic intent guides the development of goals and helps in inspiring
the employees to achieve targets. It also facilitates in utilising the intent to allocate
resources and in encouraging team participation. It comprises of the vision and mission
statements.

Vision statement

A vision statement defines the purpose and principles of an organisation in terms of the
values of the organisation. It is a concise and motivating statement that guides the
employees to select the procedures to attain the goals. Vision statement is the framework
of strategic planning. A vision statement describes the future ambition of an organisation.
A vision is the ability to view what the organisation wants to be in future. It is prepared
for the organisation and its employees. It should be implanted in the organisation being
collectively shared by everyone in the organisation. It conveys an effective business plan.
It integrates an understanding about the nature and aspirations of the organisation and
develops this conception to lead the organisation towards a better objective. It must
synchronise with the organisation’s principles. The ambition should be rational and
achievable.

Example - Wal-Mart’s vision is to become worldwide leader in retailing.

Vision statement of L&T

L&T employees shall be innovative and the empowered team will constantly create
values and attain global benchmarks.

L&T shall promote a culture of trust and continuous learning. It shall meet the
expectations of employees, stakeholders and society.
(i) Cadbury’s Vision Statement
Our objective is to deliver superior shareholder returns by realizing our vision to the be
the world’s biggest and best confectionery company. We are currently the biggest, and
we have an enduring commitment to become the undisputed best. At the heart of our plan

is our performance scorecard, delivered through our priorities, sustainability


commitments and culture

Cadbury plans to “deliver superior shareholder returns” (Cadbury plc, 2008) by


measuring its financial progress in the areas of growth, efficiency, capabilities and
sustainability from 2008 to 2011 (Cadbury plc, 2008).

Mission statement

A mission statement is the extensive definition of the mission of an organisation. It is a


concise description of the existence and fundamental purpose of an organisation. It
describes the present potentials and activities of the organisation. It conveys the purpose
of the organisation to its employees and the public. It is vital for the development and
growth of the organisation.

Mission statement is the responsibility by which an organisation aims to serve its


stakeholders. It gives a framework on the operations of the organisation within which the
strategies are devised. It describes the present capabilities, the stakeholders and the
reason for existence of an organisation. The statement distinguishes an organisation from
its other competitors by explaining its scope of activities, technologies, its products and
services used to achieve the goals and objectives. It should be practical and achievable. It
should be clear and precise so that the actions can be taken based on it. It should be
unique and different to leave an impact on everyone. It should be credible so that the
stakeholders accept it.

Example -Wal-Mart’s mission is to provide ordinary customers the chance to buy the
same thing as rich people.

Mission statement of IBM

“At IBM, we strive to be the forerunner in inventing, developing and manufacturing most
advanced information technologies, including computer systems, software, storage
systems and microelectronics.”
The distinction between mission statement and vision statement is that the mission
statement focuses on the present position of the organisation and the vision statement
focuses on the future of the organisation.

(ii) Cadbury’s Mission Statement

Cadbury’s mission statement outlines its overall business objective and its commitment
to its customers.

Our core purpose “Working together to create brands people love” captures the spirit of
what we are trying to achieve as a business. We collaborate and work as teams to convert
products into brands.

Core competencies are those skills that are critical for a business to achieve competitive
advantage. These skills enable a business to deliver essential customer benefit like the
selection of a product or service by a customer. Core competency is the key strength of
business because it comprises the essential skills. These are the central areas of expertise
of the company where maximum value is added to its services or products. Example –
Infosys has a core competency in information technology.

It is a unique skill or technology that establishes a distinct customer value. As the


organisation progresses and adapts to the new environment, the core competencies also
adjust to the change. They are not rigid but flexible to advancing time. The organisation
makes the maximum utilisation of the competencies and correlates them to new
opportunities in the market. Resources and capabilities are the building blocks on which
an organisation builds and executes a value-added strategy. The strategy is devised in a
manner that an organisation can receive reasonable profit and attain strategic
competitiveness.

Core Competencies are not fixed. They change in response to the transformation in the
environment of the company. They are adaptable and advance over time. As an
organisation progresses and adapts to new circumstances, the core competencies also
adapt to the transformation.
Q. 6. What is SBU? Explain its features, functions and roles. Mention some of the
successful SBU of MNC’s. (10 marks)

Incompelete

Ans. Strategic Business Unit or SBU is understood as a business unit within


the overall corporate identity which is distinguishable from other business
because it serves a defined external market where management can conduct
strategic planning in relation to products and markets. The unique small business
unit benefits that a firm aggressively promotes in a consistent manner. When
companies become really large, they are best thought of as being composed of a
number of businesses (or SBUs).Strategic Business Unit (SBU) is necessary
when corporation starts to provide different products and hence, need to follow
different strategies.SBUs are also known as strategy centers, Independent
Business Unit or even Strategic Planning Centers.

Strategic Business Unit (SBUs) is necessary when corporation starts to provide


different products and hence, need to follow different strategies. To ease its
operation, corporate set different groups of product/product line regarding the
strategy to follow (in terms of competition, prices, substitutability, style/ quality,
and impact of product withdrawal). These strategic groups are called Strategic
Business Units (SBUs).

Each Business Unit must meet the following criteria:

1. Have a unique business mission, independent from other SBUs.


2. Have clearly definable set of competitors.
3. Is able to carry out integrative planning relatively independently of other
SBUs.

Should have a Manager authorized and responsible for its operation.