Day_Chocolate_Case_Study

The Day Chocolate Company case Introduction Day Chocolate was established in 1998, as a manufacture that produces chocolate products in the United Kingdom. The business of the company started when cocoa farmers together setup the Kuapa Kokoo. Instead of using government cocoa agents, the company would manage the selling process more efficiently by selling the cocoa on their own. Their mission is to give control to the local farmers and produce the cocoa on an environmentally friendly way. In the year 1998 the Kuapa Kokoo started a partnership with Twin Trading by establishing Day Chocolate Company, with the support of Christian Aid, The Body Shop and Comic Relief. The company consists currently out of two brands: Divine Chocolate and Dubble. Furthermore the products are sold in all major supermarkets in the UK and in the year 2007 Divine went abroad to the USA. The firm also received several awards for their business, such as the Ernst & Young Entrepreneur Of The Year 2010, Good Housekeeping Food Award 2008 Winner and the Ethical Award 2008. In this report we will answer case questions about The Day Chocolate Company, to increase our knowledge and understanding about the company and made a better understanding of our course by applying theory of the book. We will answer the following five case questions and end our report with a conclusion: 1) Describe the consumer segment Day Chocolate is aiming at. 2) Assess what makes the Day Chocolate such a strong brand (e.g., what is their competitive advantage, their strengths and weaknesses, customer equity etc.). In this, also describe the marketing mix for Day Chocolate (per marketing mix instrument). 3) Describe the general market trends in the chocolate market. Come up with opportunities and threats. 4) Considering the strengths, weaknesses, opportunities and threats, what should Day Chocolate do' Should they pursue the same market segments, with the same products' 5) The Day Chocolate Company wants to internationalize to other parts of the world. Where should they go' Table of contents Page Chapter 1 - Describe the consumer segment Day Chocolate is aiming at' 4 Chapter 2.1 - What makes The Day Chocolate Company such a strong brand' 5 Chapter 2.2 – The Marketing Mix 6 Chapter 3.1 - Describe the general market trends in the chocolate market 7 Chapter 3.2 - Opportunities and threats in the chocolate market 8 Chapter 4.1 - Considering the strengths, weaknesses, opportunities and threats, what should Day Chocolate do' 9 Chapter 4.2 - Should they pursue the same market segments, with the same products' 10 Chapter 5 - The day Chocolate Company wants to internationalize to other parts of the world. Where should they go' 11 Conclusion 14 References 15 Chapter 1 Describe the consumer segment Day Chocolate is aiming at' Day Chocolate is mainly aiming for the consumers who are taking in consideration the producers in developing countries and who are willing to pay a higher price for a higher quality standard. Their consumers are willing to pay a higher price for the chocolate, because they take in consideration the offered loan for the cocoa farmers. Although Day Chocolate is known for their fair-trade products, they are trying to compete with other A-brands, instead of the target market where most fair trade brands are active in. Therefore we can state, that they are also aiming for costumers who are willing to pay a higher price for Day Chocolate’s higher quality standard. As said in the case, Day Chocolate sells their products under two brand names (Divine and Dubble). Whereas Divine Chocolate focuses on the mature consumers, Dubble focuses on young people. Therefore we can conclude that the consumer segment of Day Chocolate is separated in two types of consumers. Divine: Dubble: Chapter 2.1 What makes The Day Chocolate Company such a strong brand' Day Chocolate, the strong brand Answering the question we can use the first part of the SWOT Analysis. In the following we will determine Day Chocolate’s competitive advantages as well as its strengths. One of Day Chocolate’s most important competitive advantages is it’s ability to provide Fair trade products of high quality at an average, reasonable price level, compared to similar mainstream products of that market. Referring to Day Chocolate’s high quality, customer-taste oriented products, the most important aspect is the companies concept to fulfil its Corporate Social Responsibility (CSR). Day Chocolates marketing concept and competitive strategy plan is based on the principle to produce Fair trade products. Starting at the supply chain Day Chocolate emphasizes high importance on its good and fair relationship to the local farmers, which is also represented in 45% of the business owned by the local farmers. Therefore Day Chocolate is a brand that aims at and attracts a very specific kind of customers. Day Chocolates customers are more aware of the ingredients that were used in the products they consume and care about social responsibility as well as the environment. In general those customers are willing to pay more for products that satisfy their expectations and demand for high quality. Day Chocolate is able to meet the demand for social responsible Fair trade products at high quality without asking for higher prices. This and the trend towards an increasing awareness for CSR and sustainability makes Day Chocolate to a brand that is not only liked by a specific kind of customers, but in fact broadens it’s customer base and therefore stabilizes it’s market position. Weaknesses Having discussed the competitive advantage and strengths of Day Chocolate, it’s time to point out the company’s weaknesses. The supplier network can be considered as a major weakness of the Day Chocolate Company. So far the company receives its entire asset on raw chocolate beans from only one country (State of Ghana). This circumstance makes the company very depending, and makes it vulnerable for negative transitions, such as economic crises, economic exposion (changes in exchange rates, affecting the financial situation and efficiency of the company), governmental regulations and environmental conditions. Major financial fluctuations in exchange rates resulting in rising production costs, a bad harvest caused by certain whether conditions leading to higher supply costs – just to name a few - could be reasons that might easily affect the business in a negative way, eventually leading to the loss of the companies competitive advantage. Chapter 2.2 The Marketing Mix (The 4 P’s of Marketing) The following part will describe Day Chocolate’s Marketing Strategy based on Neil H. Borden’s Marketing Mix. Therefore we take a closer look at the companies following four aspects: Product, Price, Place (distribution) and Promotion. Product: Divine and Dubble offer products of high quality, using appealing and complex wrapping. Divine uses classy wrapping including African art, whereas Dubble attracts a younger customer base with its fancy and colourful wrapping. Price: Day Chocolate offers products in the same price-range as similar products of the same quality. Compared with other Fair trade chocolates on the market, Day Chocolate is able to compete with same quality products in the market, without significant differences in prices and eventually. Place: Day Chocolate operates in two countries, the United Kingdom and the United States. Furthermore Day Chocolate supplies own-label products in the Co-op. Due to contracts with the well-known franchise company Starbucks, Day Chocolate products gain access to another customer base and enforce Day Chocolates image as high quality chocolate. Regular Divine & Dubble chocolate is sold in various supermarkets and small business stores around the country. Promotion: Day Chocolate uses various different approaches to promote its products. Its image as a high quality fair trade chocolate producer demands a big advertising and promotion plan. Therefore Day Chocolate makes use of charity programmes such as the Comic Relief and the Christian Aid. Additionally Divine announces special events, which include public festivals and galas such as the Decade of Divine, Chocolate Week, Fairtrade Fortnight. Day Chocolate also makes use of the media to promote its products and to strengthen its social responsible image, as we found a report in which the television news channel BBC reports about Day Chocolates fair-trade program. Concluding we can describe Day Chocolates promotion strategy as aggressive and effective. Chapter 3.1 Describe the general market trends in the chocolate market Chocolate can be found all over the world and as we know there is a lot of variety within taste among every country. To describe the general market trends it’s important to take a look at the most important trends in a general point of view. Firstly, recent years the demand for dark chocolate has increased rapidly. Dark chocolate is becoming more and more popular nowadays as replacement for ‘unhealthy’ confections (Ad Age 2006). The most important reasons of dark chocolates’ increasing popularity is that studies found out that dark chocolate lowers the blood pressure and also lowers the cholesterol. In addition, customers are moving towards a more healthy and responsible life towards eating. In a world where obesity and overweight is becoming a big problem, people tend to look for more healthy products. According to the World Health Organization approximately 1.5 billion adults (age 20+) were overweight and more then 500 million people were obese . Secondly, fair trade products become increasingly more popular. The Fairtrade Foundation published that consumers buy more fair trade products over the last years. Rob Cameron (CEO of Fairtrade Labeling) says that customers proved their commitment towards giving farmers and producers across the world a fair deal . Especially the cocoa and sugar farmers noticed an increase in sales of their fair trade products. The sales of cocoa grew the last year with 35%. Also for organizations its important to act social responsible to the environment. Customers think more about the production of the products and don’t consume products of companies associated with child labour and underpayments. Finally, customers are looking for a larger variety within the flavours of chocolate. Species, nuts and all kinds of flavours are added to chocolate to meet the tastes of the consumers. Chapter 3.2 Opportunities and threats in the chocolate market In the previously chapter we saw that there is a tendency towards more healthy confectionery and fair trade products. Out of these trends there are some opportunities and threats that can be discussed related to the trends of the chocolate market. There are a lot of opportunities for chocolate manufacturers to keep continuing in chocolate production. As the demand for chocolate rises in the whole world, chocolate is still an interesting market to compete in. In the figure below we can see the growth of chocolate confectionery in 2009-2010. We can conclude out of this figure that in emerging markets such as Asia (India, China) and South-America (Argentina and Brazil) the demand for chocolate is rising, but also in Western Europe and North America there is a still a rising demand of chocolate. Furthermore there are opportunities in the production of fair trade and organic food as already mentioned before. Consumers become more aware of the production of food and their own health. The demand for fair trade products is increasing all over the world and chocolate companies should be aware of this tendency of the customer. Finally, innovation and development is always an important aspect to keep in mind for satisfying the consumer. The trend of consumers was that they were looking for more variety within the tastes of chocolate. Chocolate companies should continue developing tastes and new chocolate flavors to meet their customers. In contrast there are some threats towards the chocolate market as well. Firstly, cacao disease is an important threat for the production of chocolate. According to an article published by The American Phytopathological Society diverse diseases impacts the production of the crops. The most dangerous diseases are frosty pod and witches’ broom. In addition, the production of cacao trees does the best among 20 degrees of the equator. There is only a numerous set of countries such as: Ghana, Indonesia, Ivory Coast and Brazil that can produce cacao. Due to these production problems it is possible that there will be a problem in the future of satisfying the world’s demand of chocolate. For this reasons it is important to have a good relationship with your suppliers to reach the continuously raising demand of chocolate. Furthermore, as already mentioned, people are tending to look more to there own health and are looking for healthy products. Sweets such as chocolate need to change there image as unhealthy products and need to develop products, which meets the new lifestyle of consumers. Chapter 4.1 Considering the strengths, weaknesses, opportunities and threats, what should Day Chocolate do' Strengths The Day Chocolate Company has several strenghts. First, the company produces fair trade products. Secondly, the company offers high quality products. Thirdly, the company is very innovative and finally the company can sell their products for the same price as competitors even with the high quality standard. Weaknesses The day chocolate company has also some weaknesses. First, the resources of the company are weak, because the company uses only one country as supplier (Ghana). This might be no problem until something happens in that country, for example a civil war in Ghana. Trough this way, the company has no suppliers anymore and will not be able to produce chocolate. Secondly, the company operates only in the United Kingdom. Moreover, the company is very sensitive for price fluctuations. The opportunities The costumer is more aware of the environment and for this reason they prefer sustainable products. This is the main opportunity for the day chocolate company and the company has to try to expand their market. The firm can do this trough two ways: Firstly, the company can do research of the opportunities in the United Kingdom and secondly, the company can go abroad. There are a lot of other countries in the world, which are aware of sustainable products. This measure will make the company not depended on just one country and will give the company more certainty. The second opportunity is to find new suppliers. The company now relies on just one country, but when the company arrange a contract with some other suppliers, the company can become more stable. Threats The main threat of the chocolate market is that it is a very aggressive market with a lot of competitors. Other competitors try to be more sustainable and will also expand to other countries. It is important to be innovative and stay ahead of the competitors. Another threat is that there something happens with their supplier. For example, all the cacao plants can get a disease. In this case the Day Chocolate Company will lose all its suppliers. Chapter 4.2 Should they pursue the same market segments, with the same products' We start to make the Swot analysis. This will help to answer the question. To answer this question we will use porters five forces model . This model exists of five different forces that determine the competitive intensity. The five different forces are potential entrants, buyers, suppliers, industry competitors and substitutes Potential entrants The market for sustainable products increases, because customers are more aware of the environment. Moreover, this will make the chocolate market more attractive for new competitors. It is necessary for the company to be innovative. In this way, the company can stay ahead of the new entrants. Buyers Costumers are more aware of the environment. For this reason, they are willing to pay a more for fair trades products. This will increase the market and there are more costumers who are buying the day chocolate products. In addition, the company has to concentrate on the high quality with a reasonable price and try to create a special relationship with their customers. So they will stay loyal to the company and will promote it. Suppliers There are not many areas in the world were cacao will be produced. So it is important to create a good relationship with your suppliers. In addition, suppliers would like to cooperate with fair trade companies. This is the main competitive advantage. Furthermore, the company has to contract one or two suppliers more. This will provides a higher certainty in the company. Industry competitors There is a big chocolate market, but not all the companies in the chocolate market are fair trade companies. Here is an opportunity for the day chocolate company. The company has to try to become the number one in the fair trade market. Furthermore, this will give the company a competitive advantage and makes it easier to protect themselves against competitors. The company has already the experience and knowledge about the fair trade market. Substitutes The Day Chocolate company has to become aware that it easy to switch to other products. Chocolate is a luxurious product. So when the price is to high costumers will buy other products instead of the fair trade chocolate. For example, muesli bars with some chocolate. So it is important to have fair price and that costumers will stay loyal to the company. Conclusion The Day Chocolate Company should pursue the same market segments, with the same products. There are a lot of opportunities in the fair trade chocolate segment. The company is a precursor in this segment. For this reason the company can strenghten their postion in this segment and stay ahead of the competitors. As we mentioned before there are a lot of oppertunities for the company. So the company has to concentrate on this oppertunties instead of changing their products or market. Chapter 5 The day Chocolate Company wants to internationalize to other parts of the world. Where should they go' In choosing the place to go to, we distinguish the following parts of the world: North America, South-America, Asia, Oceania, Middle East and Africa. Most parts of the world are not attractive to expand to, due to the large cultural, economic and administrative distance. The case already mentioned that Day Chocolate has the USA (part of North-America) and other countries in their sights. Nowadays, Day Chocolate already expanded to the USA, which is a good decision according to us for two reasons. Firstly, because of the fact, that the USA consumed the most chocolate in the world in the year 2008 according the International Confectionery Association. This means, that the firm has a large consuming market and can reach a large number of people with their fair-trade message, when entering the USA. Sources: International Confectionery Association Secondly, we advice to expand the firm to the USA due to the low cultural distance compared to the United Kingdom. We have used the research Cultural Dimensions of Geert Hofstede to clarify this. As shown in the graphs below, the two countries have low cultural distance concerning Power Distance (PDI), Individualism (IDV), Masculinity (MAS), Uncertainty Avoidance Index (UAI) and Long-Term Orientation (lTO). By using The Kogut-Singh Index we came up with exact numbers regard the cultural difference. According to this index the difference between the United Kingdom and the United States is only 0,223, compared to 4,710 between the United States and Panama. The low cultural distance makes it easier to interact with people from that country and to set up a successful and effective subsidiary in the USA. Sources: http://www.geert-hofstede.com/ Besides the USA (North America), we also found in necessary to mention Asia as a second choice to expand to. Especially India and China are interesting countries to expand to, due to the large population in these countries. Together, the two countries represent approximately 37% of the world population . As shown on the figure below, the chocolate confectionery of China and India grew at least 5% between the years 2009 and 2010. We expect that the growth will continue or even grow, because of the growing economic growth in these two countries. Therefore, Day Chocolate has many opportunities when expanding to Asia Sources: Euromonitor International: Conclusion In the past years the chocolate market passed through significant transitions. People became more aware of environmental and social issues and consumers are willing to pay more for good sustainable products. The Day Chocolate Company and its products enjoy a high reputation in the high quality fair trade chocolate industry. Furthermore the company access a well-established distributor channel, e.g. Starbucks. The capability to provide high quality fair trade chocolate at the same price level as similar regular products on the market, without rising prices compared to other fair trade products, can be considered as Day Chocolates main competitive advantage. However, there still are many further opportunities for the Day Chocolate company in order to strengthen its position in the international market, such as the ability to enter more markets (e.g. China, India) due to abroad activities or the potential to access further supplier and therefore broaden the supply network. The concept of the Swot Analysis provides an opportunity for the company to detect and eliminate weaknesses, reduce threats and eventually strengthen the market position.