Good Food Good Life MBA 5060 Product Strategy

Good Food, Good Life MBA 5060 Product Strategy Summer 2007 Presented By: Yee Ling Liew 13094432 Ziad Rahman 12126586 Elina Bemhena 20602049 Siriporn Dudsadeetavephan 20405359 Glen Styles 18725384 Jacqueline Wong Fat 19751370 MBA 5060 Product Strategy

Agenda • • • • Industry Overview Snapshot Confectionery in Australia Macro Analysis Mega Trends Business Objective Porter’s 5 Forces Buyer Behavior SWOT Analysis Innovation Ideas Concept Testing Business Analysis Product Testing Launch Strategy Proposed Pipeline Strategies MBA 5060 Product Strategy

Industry Overview Exports Imports Medium Decrease Increase Level of export Trends Mature Industry with Slow Growth MBA 5060 Product Strategy

Snapshot Confectionery in Australia Confectionery Classification Gum MBA 5060 Product Strategy Non Gum

Major Market Players • Nestle is the second largest chocolate and confectionary manufacturer in Australia, holding a market share of 21% after Cadbury Schweppes with a market share of 48%. – IBIS World 2007 MBA 5060 Product Strategy

Macro Analysis Political: • • • Regulations (i. e. ACCC) Government bans on low nutrition foods in schools Min Govt. Assistance Increased levy on sugar Recent increased import competition Free Trade Agreements Economic: • • • Changes in Real Disposable Income Confectionery price fluctuations Presence of substitutes Inflation rate High domestic production costs High dependence on exports Social: Technological: • • • Population Growth Growing interest in Sports Health Awareness Seasonality & Special Events Changes in Consumption Trends Product Innovation & Advertising MBA 5060 Product Strategy Limited technology development Distribution Activities in related industries

Mega Trends • Convenience • Eating on the go • Smaller purchases on the go • Snacks and grazing food • Healthy food • Nutritional value • Free from (Sugar/Salt) • High energy food • Relaxing food • Personalised health food • Flavour and taste • Premium foods • Organic • Sustainability • Fair trade MBA 5060 Product Strategy

Business Objective • “ Manufacture and market products in such a way as to create value that can be sustained over a long term for shareholders, employees, customers, and business partners. ” – Nestle Annual report 2006 MBA 5060 Product Strategy

Key brands MBA 5060 Product Strategy

Key Brands Deliver Market Growth MBA 5060 Product Strategy

Top Sales & Distributions MBA 5060 Product Strategy

MBA 5060 Product Strategy

Porter’s 5 Forces Threat of Substitutes – High Supplier Bargaining Power – Medium Competitive Rivalry – High Threat of New Entrants – Low, Stable MBA 5060 Product Strategy Customer’s Bargaining Power – High

Brand Share Breakdown Year Brand % Sales 2006 % Value 2005 % Volume (Ton) % Value 2004 % Volume (Ton) % Value % Volume (Ton) Cadbury 36. 9 38. 1 56. 7 60. 9 $64. 67. 4 Old Gold 6. 9 7. 2 5. 5 5. 9 5. 5 5. 7 Club 5. 3 5. 6 3. 9 4. 1 4. 6 4. 4 Dove (Mars) 4. 0 4. 4 5. 1 5. 4 6. 3 6. 8 Nestle 2. 4 2. 9 5. 0 5. 5 4. 3 Others 44. 5 41. 8 23. 8 18. 2 14. 4 11. 4 MBA 5060 Product Strategy

Focusing on High & Low Ends MBA 5060 Product Strategy

Buyer Behavior 30% Planned Purchase 37% Semi – impulse. Decided to purchase. Undecided on the product. Affects Distribution & Positioning 70% 33% Pure impulse, had no intention to purchase MBA 5060 Product Strategy

Buyer Behavior • Due to various high-profile government policies and warnings about Obesity problems in Australia, attitudes towards healthy eating in the country have changed significantly over the last five years Consumers are more health conscious and views chocolate as “Unhealthy snacks” and look for more healthy snacks • However, in term of consumer trend, consumers have traded up to Premium chocolate products and willing to pay higher price for better quality chocolate especially dark rich chocolate which becomes more popular by providing healthy benefits and meet consumer demand) Euromonitor, 2007( MBA 5060 Product Strategy

Segmentation Analysis There are 4 key market segments: MBA 5060 Product Strategy

Segmentation Analysis Teenagers (Age 15 -17) - 2 nd segment & highest contributor - consumes for emotional benefits: fun, relaxing, happy - look for new innovative Young & Middle Adult (Age 18 - 49) - 1 st largest segment - high disposable income & purchasing power - consumes for both functional and emotional benefits - look for better quality products with product benefits MBA 5060 Product Strategy Baby Boomer ( Age 50 -59) -3 rd largest segment - consumes for mostly functional benefits - look for high nutritional benefits

SWOT Analysis Strengths Emphasising on brand image offers long-term growth Effective umbrella distribution strategy Strong financial condition Optimised Supply chain Economies of Scale Established R&D department to develop and create new products Weaknesses Distribution lags behind competitors in confectionery No. 2 Brand in Australia (Market Challenger) Global practices may have negative impact on local brand name Opportunities Increase awareness in nutrition and health Export market for Australian confectionery Creating cocoa supply through local production Threats Health Awareness Strong competition Increase in cost of raw materials Niche private labels developing in specialised segment and increasing market share. Increase competition from substitute and imports Cadbury has commenced growing cocoa crops locally (Yield will be available in ten years) MBA 5060 Product Strategy

Innovation Ideas • • Nutritional chocolate: Reduce stress, Anti- oxidant, Enhance memory (Ginko) Herbal chocolate Chocolate with Healthy (Fat Free) Chocolate with Coffee flavor (Caffeine) Chocolate with wine flavor Organic Chocolate Dried fruit chocolate MBA 5060 Product Strategy

Idea Screening vs. Roger’s 5 Forces Ideas Generated Roger’s 5 factors Nutritional chocolate Fat-Free Chocolate Coffee Flavored Chocolate Low Low Organic Chocolate coated berries Low Relative advantage Complexity Compatibility Communicability Trial-ability MBA 5060 Product Strategy

Concept Testing • Purpose: To find out – – – • Purchase intentions Ways of improving/enhancing the basic concept Characteristics of potential buyers – the market profile Points of similarity/difference with competitive offerings Possible positioning vis-à-vis competitive offerings Method: – • Focus group and in-depth interviews of target market Two concepts presented – – Concept A (Organic Chocolate) Concept B (Fat-Free Chocolate) MBA 5060 Product Strategy

Product Concept A • Organic Chocolate: – Targeted at premium market (gap exists) – Health conscious females and males – Age 35+ with middle to high income • Results: – Difficult to explain the difference between organic and dark chocolate – Likely to cannibalise “Noir” premium dark chocolate MBA 5060 Product Strategy

Product Concept B • Chocolate with Reduced Fat Content: – – – Product Line extension for chocolate “Heaven” “Heavenly Light” “Great taste of milk chocolate without the guilt” Healthier indulgence option Females aged 18+ that are health conscious but still want to indulge occasionally – Secondary target market would be males 25+ and children MBA 5060 Product Strategy

Product Concept B • POSITIONING – – This concept proved to be successful Claim: New & improved chocolate with 40% less fat without sacrificing the taste of milk chocolate Strategically displayed to attract attention Proposed shelf price = AUD$2. 00 (70 g. ) MBA 5060 Product Strategy

Business Analysis - Assumptions 1. 2. 3. 4. 5. Gross Margin of 60% is based upon Nestle's consolidated results Capital investment is necessary due to upgrade of production line for new size and packaging Marketing - 50% of sales in first year, 10% thereafter Most likely scenario - market share for Heavenly Light of 0. 58% after 5 years Projected Sales volume trend is based on product growth life cycle MBA 5060 Product Strategy

Sensitive Analysis Growth $ ('000) Pessimistic Normal Optimistic 2% 5% 10% 250 -41 27 148 Commencing Volume 500 918 1, 053 1, 296 Units ('000) 1, 000 2, 837 3, 106 3, 592 1, 500 4, 755 5, 160 5, 888 2, 000 6, 673 7, 213 8, 184 MBA 5060 Product Strategy

Business Analysis - Most Likely Year 2008 Gross Margin % 0. 6 2009 0. 6 2010 0. 6 2011 0. 6 2012 0. 6 Growth rate 1. 05 Growth rate market 1. 02 Discount rate 0. 06 $2. 00 Sales price/unit Marketing Expenses % 0. 5 0. 1 2008 2009 2010 2011 2012 Sales $2, 000 $2, 100, 000 $2, 205, 000 $2, 315, 250 $2, 431, 013 Gross Margin $1, 200, 000 $1, 260, 000 $1, 323, 000 $1, 389, 150 $1, 458, 608 Marketing $1, 000 $210, 000 $220, 500 $231, 525 $243, 101 Profit $200, 000 $1, 050, 000 $1, 102, 500 $1, 157, 625 $1, 215, 506 Capital investment $1, 000 Cash flow -$800, 000 $1, 050, 000 $1, 102, 500 $1, 157, 625 $1, 215, 506 Volume (units) 1, 000 1, 050, 000 1, 102, 500 1, 157, 625 1, 215, 506 Discount factor 0. 9434 0. 8900 0. 8396 0. 7921 Net Discounted Cash Flow $3, 106, 546 Grocery Value $382, 100, 000 Market Share -$800, 000 0. 5234% MBA 5060 Product Strategy 990, 566 981, 221 971, 964 962, 795 $389, 742, 000 $397, 536, 840 $405, 487, 577 $413, 597, 328 $421, 869, 275 0. 5762%

Product Testing - Blind Test Metropolitan areas in Melbourne and Sydney MBA 5060 Product Strategy

Product Testing - Packaging 1/2 Normal Size 70 g each MBA 5060 Product Strategy

Launch Strategy Existing Products • Ansoff Matrix – Launch Strategy: Market Penetration Strategy • New Products Launch Objectives: – Capture 0. 6% market share in 5 yrs – Educate Consumers – Convey “Good Food, Good Life” MBA 5060 Product Strategy Existing Markets Market Penetration Product Development New Markets Market Development Diversification

Health, Nutrition & Wellness Strategy MBA 5060 Product Strategy

Launch Strategy - Target Market • Targeted to females aged 18+ that are health conscious but still want to indulge occasionally • Secondary target market would be males 25 + and children MBA 5060 Product Strategy

Launch Strategy: Marketing Mix - Product: Strengthen product positioning, Promote the product functionality which moves beyond the products’ core benefits - Advertising: TV, Magazine, In-store P. O. P - Publicity: Press conference will be organized during the first launch - Product & Packaging: Highlight the key distinctive feature of Low Fat - Merchandising: Locate at the eye catching level on Product’s shelf - Sales Promotion: 2 For 1, Cross promotion with healthy drink - Distribution: Intensive distribution to access the target market - Price: Affordable MBA 5060 Product Strategy Publicity Advertising Marketing Mix Sales Promotion Distribution Price Merchandising

Marketing Activities Timeline Year 2008 Marketing Activities Jan Feb Product Launch to Trade Launch Event Press Conference Apr May Jun July Aug Sep Oct Nov Dec Media communication: TV Magazine In-store P. O. P Online Website MBA 5060 Product Strategy Mar

Critical Advantage Factors 1. Consumer profiling 2. Control of distribution arrangements • 3. 4. 5. 6. 7. Having an extensive distribution/collection network Marketing of differentiated products Ability to be cost effective Establishment of export markets Guaranteed supply of key inputs Attractive Product Presentation MBA 5060 Product Strategy

Proposed Pipeline Strategies 1. 2. 3. 4. Heaven Lite Extensions Different Flavours Integrating “fat-free” ingredients to main products GSM and DPM Combined Strong Star Attractive Leader Cash Cow Weak Question mark Double or Quit Dog Unattractive Cash generation MBA 5060 Product Strategy Disinvest

Proposed Pipeline Strategies Thank You Any Questions? MBA 5060 Product Strategy