International Market Entry Strategy for Hershey Foods Corp

I. Introduction

The Hershey Company is famously known for being the biggest manufacturer of chocolates and confectionery products in USA, having hired over 15,000 employees worldwide and exporting their products to ninety different countries over the world.

The Hershey Company has several popular brands, some of most notable ones being Hershey’s Chocolate Bar, Kit Kat, Hershey’s Kisses, Reese’s, York Peppermint Pattie, Rolo and Krackle Bar.

With the help of these brands, Hershey gained success and popularity, making the company’s net worth over billion dollars.

Hershey’s products include chocolates, confectioneries, food and beverage related products such as baking ingredients, toppings etc.

The company lives by its mission statement, “Undisputed Marketplace Leadership” (www.hersheys.com). Hershey continues to preserve a higher position by successfully converting consumer desires into reality.

II. Objective

It was Mr. Roger Clarke, Vice president Sales of Hershey International, a division of Hershey Foods Corporation, was reviewing the Australian experience. He had a board meeting to attend in a week’s time and had to present his assessment of what the cause of failure had been in Australia.

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Was it strategic mistake or had implementation been the problem, and what strategy would be appropriate for re-entry. in this case we will try to help how to make the re-entry going smoothly by using the key SCM strategies, tools, best practises

III. Literature

The International Marketing Entry Evaluation Process is a five stage process, and its purpose is to gauge which international market or markets offer the best opportunities for our products or services to succeed.

The five steps are Country Identification, Preliminary Screening, In-Depth Screening, Final Selection and Direct Experience. Let's take a look at each step in turn

1. Step One - Country Identification

The World is your oyster. You can choose any country to go into. So you conduct country identification - which means that you undertake a general overview of potential new markets. There might be a simple match - for example two countries might share a similar heritage e.g. the United Kingdom and Australia, a similar language e.g. the United States and Australia, or even a similar culture, political ideology or religion e.g. China and Cuba. Often selection at this stage is more straightforward. For example a country is nearby e.g. Canada and the United States. Alternatively your export market is in the same trading zone e.g. the European Union. Again at this point it is very early days and potential export markets could be included or discarded for any number of reasons. [pic]

2. Step Two - Preliminary Screening

At this second stage one takes a more serious look at those countries remaining after undergoing preliminary screening. Now you begin to score, weight and rank nations based upon macro-economic factors such as currency stability, exchange rates, level of domestic consumption and so on. Now you have the basis to start calculating the nature of market entry costs. Some countries such as China require that some fraction of the company entering the market is owned domestically - this would need to be taken into account. There are some nations that are experiencing political instability and any company entering such a market would need to be rewarded for the risk that they would take. At this point the marketing manager could decide upon a shorter list of countries that he or she would wish to enter. Now in-depth screening can begin.

3. Step Three - In-Depth Screening

The countries that make it to stage three would all be considered feasible for market entry. So it is vital that detailed information on the target market is obtained so that marketing decision-making can be accurate. Now one can deal with not only micro-economic factors but also local conditions such as marketing research in relation to the marketing mix i.e. what prices can be charged in the nation? - How does one distribute a product or service such as ours in the nation? How should we communicate with are target segments in the nation? How does our product or service need to be adapted for the nation? All of this will information will for the basis of segmentation, targeting and positioning. One could also take into account the value of the nation's market, any tariffs or quotas in operation, and similar opportunities or threats to new entrants.

4. Step Four - Final Selection

Now a final shortlist of potential nations is decided upon. Managers would reflect upon strategic goals and look for a match in the nations at hand. The company could look at close competitors or similar domestic companies that have already entered the market to get firmer costs in relation to market entry. Managers could also look at other nations that it has entered to see if there are any similarities, or learning that can be used to assist with decision-making in this instance. A final scoring, ranking and weighting can be undertaken based upon more focused criteria. After this exercise the marketing manager should probably try to visit the final handful of nations remaining on the short, shortlist.

5. Step Five - Direct Experience

Personal experience is important. Marketing manager or their representatives should travel to a particular nation to experience firsthand the nation's culture and business practices. On a first impressions basis at least one can ascertain in what ways the nation is similar or dissimilar to your own domestic market or the others in which your company already trades. Now you will need to be careful in respect of self-referencing. Remember that your experience to date is based upon your life mainly in your own nation and your expectations will be based upon what your already know. Try to be flexible and experimental in new nations, and don't be judgmental - it's about what's best for your company - happy hunting

P.E.S.T. Analysis for Hershey

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management

1. Political/Legal Analysis

- Chocolate producers unable to distribute products to certain countries.

- Major issue is child labour in cocoa farms

- Mostly affected areas in Africa where child labour runs rampant.

- The Chocolate Manufacturers Association (CMA) and the World Cocoa Foundation (WCF) created the Harkin-Engel Protocol, which is an agreement that focuses on child labour practices on cocoa farms in West Africa.

- Result opened new channels to export and distribute cocoa to international countries.

2. Economic Analysis

- In every year, due to hurricane impact, flood, etc, the price of refined sugar decreased from $0.38 to $0.31 per pound (estimate cost).

- This allowed companies to cut retail costs and redistribute the savings.

- A lot of waste material is produced, and companies spend thousands of dollars on disposing it.

- However, there is a new opportunity born due to recent developments in bio fuel or another energy alternative.

- New method of production that can use the by-product of chocolate manufacturing companies.

3. Socio-cultural Analysis

- Consumers want a larger variety of chocolates and healthier alternatives to the traditional chocolates.

- Dark chocolates provided several health benefits by adding a flavonoid in the chocolate that prevents various cardiovascular problems.

4. Technological Analysis

- The chocolate and cocoa industries lack supports of Non-Government Organizations (NGO), which restrict the farmer’s access to business guidance, funding, and continuing education.

- Farmers can’t learn new technologies making them less efficient.

- This prevents the chocolate manufacturers from gaining cocoa efficiently to create more chocolates for the consumer.

Target Audience for Australia Market

The primary consumers of Hershey Chocolates include a vast audience ranging from children, teenagers and adults. But mostly, Hershey targets its consumers ranging from age 13-30 years old.

The chocolate bar is considered a snack or is part of a daily diet in case of some athletes. The chocolates are available in most grocery stores, gas stations, malls etc.

Consumers primarily buy chocolates according to their price. They also prefer if the chocolates fit their health and nutritional requirements, although there is a very low margin of difference between selecting according to price and according to health.

S.W.O.T Analysis for Hershey Food Corporation

SWOT analysis (alternatively SWOT Matrix) is a structured planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. A SWOT analysis can be carried out for a product, place or person. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

a. Strengths

- Hershey has grown from one product one plant to a $4 billion company with various quality chocolates.

- It’s a strong brand name and has a strong image.

- Hershey was largest candy maker in U.S. with 30.7% market share

- And want to expansion to Australia with market share 25%

- It is also the largest pasta manufacturer in U.S. with 28.4% market share

- World’s largest chocolate plant in U.S., with more than 2 million sq. feet.

- Powerful partnerships (Starbucks, Kraft, Coca-Cola etc)

- Major profits go to Milton Hershey School for Orphans. Also donates to Red Cross, UNICEF, and Habitat for Humanity etc.

- Cooperative with students and professors. Toll free number 1800-468-1714, to access additional information on request.

b. Weaknesses

- Hershey’s Global market share is very low, around 10% and it happen in Australia

- Concern for natural environment needs to be expressed.

- Cocoa production rates are rising, and even a small price increase at retail level affects consumer buying.

- Poor decision making as company relies on brand loyalty and has reduced advertising expenditure.

- Higher price from the competitor make Harshey became premium pricing and the target make segmented.

- Insufficient promotion by Hershey

c. Opportunities

- Potential to expand range of Dark/Sugar free products for health benefits.

- Use partnership ventures to create chocolate flavoured coffee products.

- Produce cocoa in new areas other than Africa, maybe from South east Asia (Indonesia, Thailand, etc)

- Produce bio-fuel and another alternative Energy from the chocolate by-products

- Develop environment friendly packaging, recycling industrial waste

- China, India and majority of South East Asia are untapped markets and it can be delivered from Australian.

d. Threats

- Consumer demanding healthier substitutes.

- Steady rise in prices of cocoa, milk and sugar.

- Main competitors are Mars and Nestle.

- 25% of Nestle revenues profits come from coffee. Nestle plays its strengths in international markets. Hershey is more focused on just local markets.

- Mars uses extensive marketing and advertising expenditures to gain market share. Hershey just uses product innovations

Five forces to growth in Australia

1. Threat for new entrants

There is very little threat for new entrants in the chocolate industry because of the current economy, the various differences in products, and the constant need for large capital requirements. Also, since there is a lack of distribution channels and with the strict FDA regulations kept in place for food manufacturers, the threat for new entrants is almost non-existent

2. Bargaining powers of buyers

The bargaining powers of buyers increase by two factors: a number of large volume buyers and the buyers’ relatively low profits from the product.

But since the industry as so many different products, the presence of different costs, the bargaining power of the buyers is low to moderate at best.

3. Bargaining power of suppliers

The bargaining power of suppliers has decreased since the chocolate industry is an important customer for the suppliers. But the power is moderate to high since the suppliers are concentrated; there are no substitute products available.

4. Pressures from substitute products

The chocolate companies compete with various substitutes that threaten the industry. There are various flavours that are used as a substitute for chocolate. These include vanilla, butter, mint, rose, lemon, etc. Many consumers readily switch to these as they also consider chocolate to be unhealthy.

5. Rivalries amongst competitors

Among the chocolate industry, there are intense rivalries amongst the highest competitors. There are numerous strong chocolate manufacturers giving out various varieties of chocolates at different prices, resorting to creative advertising schemes, constantly giving out new products and high quality chocolates to satisfy the consumer needs.

Marketing mix Strategy

a. Product

- The new ‘Hershey Slim’ dark chocolates will have a flavonoid substance added which helps protect the cardiovascular system and is efficient until three hours upon consumption

- Produced for health conscious consumers to ensure that Hershey favours healthier alternatives. Hershey will also assure people with health issues such as diabetics, that their chocolates are a safe and healthy alternative.

- The core strategy is to reinvent the image of chocolates from being a source of a lot of sugar and calories therefore making people fat and/or diabetic, to an image where chocolates are considered an aid for protecting the consumers from heart disease and enhancing the rate of metabolism, by using flavonoids in their products.

b. Price

- To keep the chocolates reasonably affordable, keeping current financial trends in mind.

- To have a promotion campaign in part with the contest

- Currently chocolate bars are priced at $2.50 each. As part of the contest promotion, the chocolate will be sold at $2.00 each.

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c. People

- Target Audience would primarily be consumers from age range of 13-30 years, particularly health conscious individuals.

- The most bought products are chocolate bars, which some consider as a snack, while others as part of their daily diet.

d. Place

- The chocolates will be available in grocery stores, malls, supermarkets, gas stations, coffee shops, airports, and at the main outlets.

|Major Channel Distributors |Secondary Channels | |Supermarkets |Commercial stores (7-11, Cheers) | |Department Stores |Amusement areas (cinemas, parks) | |Pharmacy |School | |Duty Free Outlets |Mini market | |Grocery store |Channel Distributor | |Gas Stations | | |Main outlet | |

e. Promotion

- The chocolates will be marketed through an interactive contest. Also, some promotional programs could be held under joint sponsorships through gyms/spas.

- customised chocolate products for the promotional, corporate, hospitality and special occasions industries

Objectives and Strategies

a. Product

- To reinvent Hershey Chocolates as a health conscious low calorie dark chocolate.

- To reassure health conscious consumers to purchase this new product by providing all the necessary nutritional information

- Hershey's goal is to keep each product's nutrition information up-to-date and accurate

b. Objectives

- To promote the health benefits of the new Hershey Dark Chocolate

- Help the consumers change their mind-set that chocolates are unhealthy.

- To spread awareness and increase sales of the product.

c. Strategy

- To increase sales using promotional materials such as an interactive contest.

- Make a new plant for chocolate nearby Australia, to increase the cost and make the price competitive.

Example: we can use one of the three proposed strategies.

1. Hershey Dark Chocolate Mascot Strategy

- Each chocolate has a code which in the package

- Unlocks part of a character. A total of 25 unique parts allowing consumers to create 120 variations of characters.

- Customers can go online and create the character of choice online and submit to the contest

- Winning character will be the new mascot for the Hershey Slim. Winner will also receive gift vouchers and a 1 month membership to California Fitness Gym

2. Healthy mind, healthy body with Hershey Strategy

- In the chocolate packaging are instructions to visit website

- Consumers have to play a classic memory game which has five levels of difficulty.

- Cards show healthy foods, and Hershey products

- Winners who complete the final score under a specific time limit win a one day all access pass to California Fitness Gym

3. Wrapper Cash Strategy

- Each Hershey Slim wrapper contains points

- These points can be collected under an online account

- Purchases can be made from the Hershey shop using these points.

- There would be a limit to the number of points one can input per day, per account.

- The more you save, the bigger better things you can buy.

- Products would mostly include exercise equipment. Possible to buy products at half their retail price using the point system.

Reference

“Hershey Co. Form 10-K”, The Hersheys Company, December 31st, 2009.

Retrieved January 14th, 2011.

http://www.thehersheycompany.com/assets/pdfs/hersheycompany/2009AnnualReport.pdf

Lovell, Jeremy. “Eat More Chocolates and Help the Environment” PlanetArk.com November 7th, 2007. Retrieved January 14th, 2011.

Michael et al. “The Hershey Company – Introduction the World of Chocolate”, 2007. Retrieved January 10th, 2011.

“U.S. Labour Department Funds Project to Evaluate Effectiveness of Anti-Child-Labour Efforts in the Cocoa Industry.” World’s Technology News. October 4th,2006. Retrieved January 14th, 2011.

Website

- http://www.marketingteacher.com

- www.hersheys.com

- www.thehersheycompany.com

- www.gogle.com