Category: Hershey

Introduction

Nowadays, Product Positioning Maps are actively used by marketers in many organizations. Product Positioning Map is a framework that is used to identify the position of a certain product in the market (Wang, 2015). Depending on the features that are shown in the map, it is possible to reveal the strengths and drawbacks of the product, and identify what should be done to improve its position in the market.

Information on Quality, Price, Calories, and Nutrition of Candy Bars

In order to design a perceptual map based on the quality, price, calories, and nutrition of the products, Table 1 was created.

Table 1. Nutrition Facts for Chocolate Products.

The table contains all the information about prices and nutrition facts of 13 types of candies. The data is borrowed from the websites of the companies that produce these chocolate sweets, such as Mars, Inc., the Hershey Company, Ferrara Candy Company, and Nestle Global, and from the stores that sell these products. The column “Quality” shows the percentage of sugar in the candies. It is worth to mention that the quality of candies depends on the amount of sugar in them. Sugar may bring negative affect to our body, especially when it comes from refined forms such as glucose or corn syrup (Perlmutter & Loberg, 2018). Therefore, the more sugar in a product, the lower the quality of it. The column “Nutrition” is ranked according to the number of calories in each product.

Each company that produces candies can find some useful information in Table 1. For example, Hershey’s company that produces Mr. Goodbar, Krackel, Hershey’s Kiss and Almond Joy candies, can compare the amount of sugar in the products of their company and products of their competitors. Nowadays, there are a lot of people who are devotees of healthy nutrition, who take care of their health and pay strong attention to what they eat.

Therefore, people tend to read the nutrition facts about the products and try to choose the ones that contain less sugar. As a result, it is extremely important for companies to make their products healthier. In addition, with the help of Table 1, Hershey’s company can analyze the prices, revealing which products are cheaper and which are more expensive. It is also significant since for the majority of people price remains the most determining factor when they are choosing products. In general, all presented information, including the column of quality, price, calories, and nutrition is useful. It helps to understand the whole picture of candies’ production and position of Hershey’s company in the market, its strengths, and weaknesses.

As for me, I prefer the products of Mars Inc. because I think it has the best taste. Moreover, the company follows the principles of sustainable marketing, which means that the production of chocolate at the company is held in accordance with the principles of environment protection. I personally more trust the company that cares about the environment and our future generations. However, the products of Marc Inc. contain more sugar compared to the candies of the other companies. Therefore, it is also necessary to control the consumption of chocolate products by people themselves.

Hershey’s Product Positioning Map

Based on the information provided below, the Hershey’s Product Positioning Map was created. In order to improve the quality of Hershey’s products, I would recommend reducing the amount of sugar in candies and increasing the nutritional value of the products. It would be productive to analyze how it is possible to achieve without a significant price increase. In general, the prices for Hershey’s candies are not high.

However, as one of the consumers of chocolate products, I think that the taste of Hershey’s chocolate is not as good as the taste of products of other chocolate companies. Therefore, this is another thing that the company should work on. In addition, even though Hershey’s announced its sustainability policy, there is still a room to improve it. I think that constant care of the environment and continuous efforts made in order to protect our planet should be the most significant aspects for any company.

References

Perlmutter, D., & Kristin, L. (2018). Grain brain: The surprising truth about wheat, carbs, and sugar – Your brain’s silent killers (1st revised ed.). New York, NY: Little, Brown Spark Hachette Book Group.

Wang, C. (2015). A market-oriented approach to accomplish product positioning and product recommendation for smart phones and wearable devices. International Journal of Production Research, 53(8), 2542-2553.

Introduction

This case study focuses on The Hershey Company. It involves analysis of internal and external environments, financial statement, identification of the strategy currently used by the company and recommend future strategies. A number of theoretical concepts and models shall be applied in analyses, which would include SWOT, generic strategy VIRO/resources and competences, PESTEL, Porter’s five forces, portfolio analysis using the Boston Matrix (BCG), Ansoff matrix, the type of strategy, and feasibility of the recommendations.

The Hershey Company is the “largest manufacturer of quality chocolate in North America and a global leader in chocolate and sugar confectionery”. The company’s major products include “chocolate and sugar confectionery products; pantry items, such as baking ingredients, toppings and beverages; and gum and mint refreshment products”.

Financial Analysis

Table 1: Net Margins – source

Over the last fiscal five years, the company’s net sales have increased from $ 5,298,668 to $ 7,146,079 between the year 2009 and 2013. Its five-year compound growth rate is 6.8 percent. In the fiscal year 2013, the company’s net sales increased by 7.6 percent relative to the previous financial year and 9.3 percent between the fiscal year 2012 and 2011. The increment was attributed to “increased sales volume of core brands and new products in the US and the international market”.

At the same time, the cost of sales rose to 2.1 percent in 2013 relative to 2012.

Net Profit Margin

= Net Income/Net Sales = _____

• 2009
  • 435,994 /5,298,668 = 0.08 = 8.23 %
• 2010
  • 435,994 / 5,298,668 = 0.0823 = 8.23 %
• 2011
  • 628,962 / 6,080,788 = 0.1034= 10.34 %
• 2012
  • 660,931 / 6,644,252 = 0.0995 = 10 %
• 2013
  • 820,470 / 7,146,079 = 0.115 = 11.5 %

The profit margins show that the Hershey Company makes profits from its activities after deduction of all expenses.

SWOT Analysis

Strength

• A strong global brand.
• Diversified portfolio that includes gum and chocolate.
• The company targets several segments, including resorts and restaurants.
• A business model developed to ensure repeat success in the global market.
• A matrix that ensures continued focus on North America and the global market.
• Acquisition of other companies such as Shanghai Golden Monkey Food Joint Stock and Brookside Foods Ltd.
• A wide variety of products.
• Loyal customers.
• Strong financial resources, management team and solid operating cash flow.

Weaknesses

• Long-term debts.
• Increase in operational costs.
• Inability to identify potential international markets and strategic partners fast.

Opportunities

• Changing consumer tastes and preferences.
• New products for health conscious customers.
• Emerging markets globally.
• A large supply chain.
• Working with the International Cocoa Initiative Foundation to eliminate child labour.
• Improving the supply chain.
• Financial leverage.
• Use of various advertisement strategies and media.

Threats

• Rising levels of competition from Kraft Foods, Mars Inc and Wrigley.
• Changes in prices of raw materials.
• Product sourcing from third parties.
• Changes in prices of products.
• Volatility in foreign exchange rates.
• Increasing costs of doing business due to different laws and regulations across different countries.

Generic strategy

The company has adopted a consumer-driven approach for its core brand investment in both U.S. and key international markets to drive its low-cost provider strategy.

The company leadership and the Board of Directors have worked on a broad “five-year strategic plan for both domestic and international growth”. The Hershey company currently has a global outlook with the required resources and tools to support winning strategies and promote the five core brands, namely Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher and Ice Breakers. The company believes that its current strategies support the new long-term strategic objectives.

In 2010, many critics questioned the ability of the company to deliver long-term value to shareholders when it failed to bid for the UK Cadbury. The Hershey Company generates most of its revenues in the North America markets. Failure to bid for Cadbury was viewed as a poor strategic decision based on international expansion strategies, but the company defended itself by noting that Cadbury’s assets did not support its framework.

Resources and competences/VIRO

The company has continued to invest in tools and capabilities that support its major brand growth. These resources have focused on supporting “individual segments of chocolate, non-chocolate candy and refreshment in the U.S. and key international markets”.

The company has solid cash flow and a strong balance sheet. Hershey uses its financial resources for value enhancing strategic acquisitions. In addition, it has focused on creating a knowledge-driven company with insights from consumers and intellectual capital. Consequently, it has been able to create competitive advantage and differentiate itself from peers.

The Hershey Company believes in the potential and capabilities of its human resources, brands and processes. It has predicted that its net sales could reach $ 10 billion by the end of the fiscal year 2017 based on the solid organic growth witnessed in the past. The company has a strong strategic plan that would enable it succeed in any markets.

PESTEL

Political

Generally, the company’s major markets in North America are politically stable and therefore there are limited political risks. However, its international operations in the Middle East, Africa and China among other countries could be adversely affected because of political risks and regime changes.

Economic

Fluctuating exchange rates affect the company’s earnings. Past economic recession and instability in the Euro zone have affected the company’s revenues. The growing US economy depicts favourable conditions in its major markets while emerging economies also offer better prospects.

Social

The changing tastes and preferences of consumers towards healthier diets will affect the company’s generic products. Conversely, such trends offer opportunities for the company to provide new products for different consumers.

Technological

The Hershey Company has a global supply chain. The company would benefit greatly by automating several elements of the supply chain. It is also imperative to use technology to create competitive advantage in the industry.

Environmental

Adverse weather conditions and crop diseases have affected cocoa production and cocoa quality. The company receives nearly 72% of its cocoa from West African states, which have poor records in environmental management.

Legal

The Hershey Company must observe food quality and safety regulations to avoid legal challenges. In addition, it must also abide by various laws and regulations globally.

Porter’s 5 forces

Buyer power

Buyer power is generally low in the industry. Many customers are end users, wholesalers, convenience stores and grocers. End users have low bargaining power while many customers are loyal to the brand. Price sensitivity is not a major concern among customers.

Intensity of Rivalry

The industry is highly competitive in both domestic and international markets, but barriers to entry, exit and consumer loyalty have protected well-established brands. The industry requires specialized equipment.

Threat of substitutes

Threats of substitutes are high for the company. Consumers may opt for other products such as snack food, other gift items like flowers or jewellery. There is no notable switching cost while recent price increase could favour substitutes.

Supplier power

This is low because the company manufacturers certain products or works with specific third parties to provide products. It has contracts with third parties with the aim of enhancing its strategic advantage and cost-effective production in product sourcing.

Threats of new entrants

Companies can only achieve economies of scale through mass production. High barriers to entry, particularly costs have created low threats from new entrants.

A portfolio analysis such as the Boston Matrix (BCG)/Industry Life cycle

Stars

These are the primary products of the company sold in the US and other markets. They include Hershey’s, Reese’s, Hershey’s Kisses, Jolly Rancher and Ice Breakers.

Cash Cows

These products include a wide range of candy bars, chocolate, toffee bar, Soft Crèmes, snack nuts and peppermint pattie among others.

Dogs

Some chocolate, sweets and refreshment products sold in the international markets. The Hershey Company does concentrate much on these products.

Question marks

Now, the company does not seem to have any questionable products in its portfolio. Nevertheless, the Hershey Company must focus on research and development (R&D) to “develop new products, improve the quality of its current products, develop new products for health conscious consumers, improve production processes and find new ways of enhancing quality and value of its major products and proposed product lines”.

Ansoff matrix

The Hershey Company could protect its market shares and acquire new customers through special offers and price-cutting strategies on many of its candy and chocolate products.

The company has a potential to attract new customers for its existing product range. It can identify a new segment of customers who prefer healthier chocolate, candy and other products. The company may also focus on emerging markets in Asia, Africa, South America and the Middle East.

The Hershey Company will continue to rely on its R&D department to develop products that appeal to many consumers, particularly health conscious customers. The Hershey Company has focused on diversification through new markets in Asia, Africa and the Middle East (international markets). The horizontal integration has allowed the company to grow globally.

The company has not withdrawn any product from the market because of decline in life cycle. However, it may be forced to withdraw products due to low quality or decline in market shares. Hershey has aggressive marketing and promotional techniques to ensure brand success.

Types of strategy – growth

The company has focused on a growth strategy through various ways. First, it seeks to increase revenue and profits from its existing products. In the recent past, Hershey has noted an increase in the market share and revenues in the North America markets and international markets.

Second, the company has embarked on business takeovers to grow its international operations. For instance, in 2012 and 2013, Hershey acquired Brookside Foods Ltd and Shanghai Golden Monkey Food Joint Stock respectively.

Third, it has strategic alliances on long-term basis with several companies to manufacture, sell or distribute some specific products. Some of these companies include Cadbury Ireland and UK, Société des Produits Nestlé SA and Huhtamäki Oy affiliate. Strategic alliances also aim to control price risks associated with cocoa products, sugar, corn sweeteners, natural gas, fuel, oil and certain dairy products.

Finally, the horizontal integration has ensured that the company has increased product range in existing markets.

Suitability, Acceptability and Feasibility for any recommendations

The company has recorded excellent growth in its domestic markets. Hershey, therefore, should increase its international presence to create a global brand. Hershey requires state-of-the-art technologies to enhance its international operations. It would also be beneficial if the company establishes some cocoa processing factories near its major cocoa sources. This would reduce transportation costs significantly.

As consumer tastes and preference change, the company should focus on new products and collaborate with other outlets such as Starbucks for distribution. This strategy would introduce new products, new consumers and tap new markets. The R&D must continue to be innovative in product development.

Hershey must focus on improving customer experience throughout its outlets. The company must continue to maintain good relations with all its employees in different regions.

References

Hershey CEO defends company strategy. (2010). Australian Food News. Web.

Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring corporate strategy: Text & Cases (8th ed.). Harlow Essex: Financial Times Prentice Hall.

The Hershey Company. (2014). FORM 10-K: 2013 Annual Report. Web.

The Hershey Company. (2012). Hershey Details Strategy for Continued Growth and Announces New Long-Term Net Sales and Earnings Targets. Web.

Pricing

The difference between value-based pricing and cost-based pricing

Pricing is one of the main components of doing business. There are different approaches to how a product or service should be priced. Two main and principally different methods are cost-based pricing and value-based pricing. Cost-based pricing primarily considers the cost of manufacturing a product or providing a service as a reference point in setting the price. Value-based pricing considers what value is offered to customers and certain products and services and examines how much customers are willing to pay for this value. Cost-based pricing focuses on the company and the costs it incurs; value-based pricing focuses on customers.

The strength of the cost-based pricing is that it establishes competitive prices that are usually lower than those set by value-based pricing. However, a weakness is that companies that employ cost-based pricing are highly affected by competition, continuously have to spend resources to strengthen their competitive advantage, and generally depend more on market forces and conditions that they cannot control. The strength of value-based pricing is that it relieves companies of aggressive competition and generates higher profits. A weakness, however, is that value-based pricing can only be employed when a company deals with a relatively narrow customer group, usually, high-income people who can afford more expensive products and services, i.e., the number of potential customers for products and services priced based on value may be limited.

Hershey’s current prices for its main products or services

Hershey’s is a company with an established reputation, and it is recognized as one of the largest, oldest, and most reputable chocolate manufacturers in North America. Its international reach is also extensive. Despite several controversies (for example, the company was accused of the lack of ethics as it purchased cocoa beans from suppliers who might have exploited child labor), Hershey’s remains a famous brand and has a broad audience. This is why it can employ value-based pricing, especially for its iconic products, such as Hershey’s Kisses. Value-based pricing is justified by the fact that, when buying chocolates from the company, customers do not merely buy sweet snacks—they buy Hershey’s. However, the company is also most affected by competition, as many manufacturers produce similar products, which is why Hershey’s is forced to use cost-based pricing. Hershey’s is not a luxury brand; one of its competitors, Ferrero Rocher, is much more of a luxury brand. It positions its products as more exclusive, so it uses value-based pricing and high prices to a more considerable extent. In using the combination of value-based and cost-based pricing, Hershey’s demonstrates a wise strategy, as it allows the company to effectively address competition and strengthen the recognition of their brand at the same time.

The traditional approaches of skimming and penetrating

Market-skimming pricing is the practice of initially setting high prices for a new product to skim the “cream” of high-value customers. Market-penetration pricing, on the contrary, is setting low prices to reach more customer groups. When introducing shareables, which is the product of interest, Hershey’s did not have to resort to penetration pricing because it is already established and recognized. Skimming allowed obtaining larger profits; further, the price can be lowered over time.

Distribution

The difference between a vertical marketing system and a horizontal marketing system

The concepts of a vertical approach and a horizontal approach can apply to different contexts in business. As to distribution, vertical and horizontal systems differ in terms oh how companies treat their products or services, their customers, and how goals are defined. A horizontal marketing system is applied when needed to deliver as many products and services as possible to larger and wider customer groups. A vertical marketing system focuses on a particular product or service and a specific customer group or several groups. It can be said that the horizontal approach is about spreading goods, while the vertical approach is about targeting and conveying goods.

The Hershey company’s distribution approach

Vertical and horizontal systems are theoretical concepts used to differentiate between two major approaches to distribution. Like all theoretical concepts, they rarely can be observed in a pure form in the real world. In large corporations, distribution is a complex process, and it often features combinations of approaches. For Hershey’s, a horizontal marketing system can be beneficial because it reaches broad audiences, as eating chocolates is something that people with highly diverse backgrounds can do. On the other hand, Hershey’s uses targeting and positioning. One of the customer groups the company tries to address consists of young, mostly urban people, which is why a vertical marketing system can be applied to convey certain products to particular groups in a targeted manner.

Primary marketing channel’s strengths and weaknesses

Hershey’s primary marketing channel’s strengths and weaknesses

Hershey’s uses several different marketing channels, including agents, wholesalers, retailers, and online sales. It should also be noted for online sales that distribution occurs in two ways: direct (via Hershey’s web store) and indirect (via retailers’ websites). Retailers remain the company’s primary distribution and marketing channel. One of this channel’s main strengths is customer convenience: the products are made available and easy to access in various places. Also, customers may receive financial support from retailers when buying various products, including Hershey’s, which makes this distribution channel more attractive. The channel’s weakness is that a part of revenues is lost through including intermediaries in the distribution process. Also, the manufacturer’s control, i.e., Hershey’s, over its products and communication, is reduced.

Cutting costs while providing more value

In distribution management, it is crucial to understand that distribution channels are more than just channels. Instead of regarding them as simple connections between businesses and customers, it has been suggested to consider them as separate businesses having their operation and goals. Their primary purpose is not different from the conventional goal of all businesses: to maximize value for customers and maximize profit for themselves at the same time. This perspective is more comprehensive and insightful in determining where costs can be cut and the increasing value. For Hershey’s, disintermediation, i.e., eliminating some intermediaries and some distribution components, can bring these benefits. For example, by reinforcing and promoting online sales, the company will be able to reduce costs. The value for customers will be increased because customers will be able to buy any of Hershey’s products, which is not always possible in a store.

Promotion

The promotion mix of Hershey’s

The five elements of the promotion mix, also called the marketing communication mix, are sales promotion, personal sales, advertising, public relations, and direct marketing. Efforts in these five areas need to be combined to successfully promote products and services in the modern world. Hershey’s is engaged in all five processes. The company encourages higher sales by continually offering new products along with classic ones. It employs direct distribution channels along with indirect ones and heavily advertises what it produces. It maintains a dialog with audiences by showing such initiatives as reducing environmental impact and adopting more sustainable practices. This can build a more favorable image among existing and potential customers. Hershey’s can also benefit from the leveraged sales approach because this approach is designed to focus on activities by integrating distribution channels. This is relevant for the company because it currently employs different channels. The approach can increase productivity and profitability by focusing on profitable accounts.

Hershey’s brand vision, brand personality and brand positioning

The brand vision is what a company wants to represent to customers. Brand personality is the appeal to the customers’ preferences and emotional characteristics. Brand positioning is distinguishing the company from its competitors. To ensure its business’s growth and success, Hershey’s has established a vision of a company that produces classical treats and new and diverse goods for people who may come from different backgrounds and have different lifestyles but are connected by the liking for chocolate goods. Brand personality is, therefore, not regulated by social factors but factors of personal preferences. Finally, Hershey’s brand positioning, especially in terms of its shareables, is based on providing target audiences with high-quality chocolate goods in various forms and flavors for anyone who would like to indulge in a sweet snack.

Building brand with PR and advertising

In his book Contagious: Why things catch on, Berger explores how things become popular and go viral and argue that there are no inherent characteristics of goods and services that can make them automatically catch on; instead, virality is made, i.e., the efforts of marketers, public relations practitioners, and similar professionals are what can make things catch on. This emphasizes the importance of building brands through public relations when launching them. Advertising is thus seen as product support: it maintains brands, while public relations is what creates them.

Global Marketplace

Levitt’s assertions on the nature of the global firm

In his 1983 article, Levitt discusses the differences between multinational and global corporations and explores the global market features. His ideas can be applied to Hershey’s case to test their validity and reliability in today’s world.

The world’s needs and desires have been irrevocably homogenized. This makes the multinational corporation obsolete and the global corporation absolute.

Hershey’s international operation does confirm that there is, in a way, universal demand for the company’s products everywhere, i.e., Hershey’s can treat the world as a single market rather than a combination of national markets with specific characteristics. From this perspective, it can be considered that Levitt was right, and some needs and desires across countries have been homogenized indeed.

Technology drives consumers relentlessly toward the same common goals – alleviation of life’s burdens and expansion of discretionary time and spending power.

Concerning the technological aspect of life today, Levitt correctly identified the vector toward alleviating life’s burdens and expanding discretionary time and spending power. In Hershey’s, enhanced availability of wide varieties of its goods is the result of technological advancement that allowed such wide production. Indulging in sweet snacks qualifies for alleviating life’s burdens, which means that the example of Hershey’s confirms Levitt’s statement.

Cultural preferences follow one of two paths: they eventually lose relevance to economic decision making, or they diffuse to other groups and become the substance of global trends.

What essentially distinguishes multinational corporations from global ones is that the latter do not overestimate the importance of cultural preferences and sell the same products or provide the same services the same way everywhere. Levitt argues that cultural preferences either no longer matter at some point or spread and grow into global trends. The Hershey’s case seems to support this idea, as the company deals with universal demand without primarily relying on cultural preferences in its international sales.

The main globalization opportunity of Hershey’s

In their article, Holt, Quelch, and Taylor argue that maximizing the value of global reach requires companies to manage both excellence and obligations. The authors claim that consumers associate international brands with three characteristics: quality signal, global myth, and social responsibility. The latter is the area where Hershey’s has growth opportunities. Unethical operation accusations are what mainly undermined the company’s position, which is why addressing this issue through public relations and social responsibility can provide Hershey with a competitive advantage in the global market.