Competitive Strategy for a Fast-Paced

Competitive Strategy for a Fast-Paced Chocolate Industry

Case Study Report on the Real Chocolate Company

The chocolate industry is a billion dollar industry per annum, with demand for this type of products being on a constant rise. The aim of this paper is to look at a leading player in the American chocolate gourmet industry and assess its status in terms of internal and external characteristics, problems faced and solutions available. In order to achieve this desiderate however, it is first necessary to briefly introduce the company at hand.

The Real Chocolate Company was established in 1981 in Kingston, Colorado as a small family business, which soon expanded to run more than 320 stores across the United States, as well as in Canada. All but five of the stores are operated through franchises and the number of organizational employees totals up to 235 individuals. The company has established a favorable reputation due to its commitment to quality, but also due to the store ambiance, the large variety of products or the vast expertise of the team, which all constitute components of its competitive advantage. "The philosophy at Real Chocolate Company is to use the finest, highest quality ingredients and no artificial preservatives. […] The Real Chocolate Company brand is well-known in the U.S.A. And company managers believe this, alongside with its reputation for quality, variety and taste of products, special ambiance of the stores, store site selection criteria, expertise in the manufacture and merchandizing of chocolate candy products, and good customer service, provide the company with a competitive advantage" (case study).

2. Analysis of the External Environment

Opportunities: A first opportunity presented by the external environment is that of an increasing demand for gourmet chocolates. Given this situation, the industry has the ability to register sustainable growth. For Real Chocolate, this means that they are able to expand their operations and further increase and consolidate their revenues. The reasons which sit at the basis of this industrial growth in gourmet chocolate include the benefits of chocolate on the one hand, and the successful marketing strategies (mostly branding and positioning) relative to the products.

Threats: intensifying competition, the possibility of changing laws which will bring about additional financial costs; generally unstable economy which means that demand could decrease as consumers spend less on gourmet products; increasing prices for commodities; demand is driven strictly by consumer tastes and preferences; large players have created economies of scale (Hoovers, 2009).

PESTEL Analysis

Political: political stability is generally achieved within the United States, with the mention however that the new Obama Administration could implement new laws

Economic: the growing prices for commodities used translated into a necessity to increase retail prices (Kowalsky, 2007); economic instability leading to reduced demand

Socio-cultural: the contemporaneous population is facing severe problems in weight control, meaning that the focus on sweets could be decreasing in order to reduce obesity rates; yet, a trend has been observed in a growing demand for dark and premium chocolate, which are healthier and often consumed in lower portions (Rupani, 2007)

Technological: in this era of rapid technological developments, the chocolate makers have gained increased access to appliances that increase their levels of operational efficiency concomitantly with increases in product quality

Environment: The gourmet chocolate industry has responded to the emergent environmental demands by creating products which integrate organic components (Rupani).

Legal: similar to politics, stability is achieved in legislation, with the possibility however of changes brought about by the new President

3. Analysis of the Microenvironment

Internal Strengths: Large variety of product offering, from which customers can pick the products to their liking: the Real Chocolate Company provides its customers with at least 100 chocolate varieties, 15 types of fudge and more than 30 varieties of caramel-covered apples -- and this offer is available at any given moment, with new specialties being introduced with special occasions, such as Christmas or Valentine's Day. The wide selection ensures that everybody can shop at the company's stores as they will all find the one think they like here. This basically means that the sources of revenue are increased. Alongside with the increased levels of product diversification, other organizational strengths include commitment to quality, the usage of the most adequate ingredients and secret recipes, the creation of a strong and reputable brand, increased levels of customers and so on. Finally, the last strength is given by the financial ratios, which reveal a constantly ascendant trend in the profits registered -- revenues have increased by 12.5% in 2007 relative to 2006 (case study).

Internal Weaknesses: In terms of organizational limitations, it can be pointed out that the Real Chocolate Company has selected the most popular locations for its stores (such as malls and airports), meaning as such that the costs with running these facilities are increased. Movements from manual to automated processes are being made, with the risk that the switch could impact product quality and dissatisfy employees. The MRP is a complex, but useful system, but it has not been implemented in all the stores.

4. Current Problem Diagnosis

In a context in which the company has followed an ascendant trend in terms of merchandize produced and sold, to culminate with growing revenues, the question which is being posed at this stage refers to the future sustainability of these profits. "While Real Chocolate Company was growing nicely, the question on the minds of CEO Sarah Smith and her management team had to be whether they could maintain this level of growth in the years to come in the highly competitive, fragmented chocolate and confectionary industry" (case study). In other words, given the current status quo of the industry, with its adjacent challenges and opportunities, the main problem refers to the identification of the most adequate course of action to take in order to ensure that the Real Chocolate Company is able to generate growing and sustainable revenues in the years to come. The following sections will identify seven available courses of action, followed by an evaluation of them and the selection and explanation of the one which is considered the most suitable.

5. Generation of Strategic Options

The best technique to identify the most adequate course of action is revealed by the composition of the Ansoff matrix, a business toll that supports the decision making process by focusing on growth through new / existent products promoted and sold in new / existent markets. According to this tool there are four alternatives. The first is that of market penetration, when the company promotes existent products onto existent markets; the second strategy is that of market development and occurs when the company is promoting existent products onto new markets; the third possibility is that of developing the products and it occurs when the company sells new products onto existent markets; the fourth and final possibility is that of diversification, which occurs when the company sells new products onto new markets (Tutor2U).

Another useful tool in helping managers make the most adequate decision is given by Porter's Generic Strategies, which, similarly to the Ansoff matrix, generates a total of four potential solutions. It basically considers the scope of operating within a give market and combines it with the advantages of the respective strategy will generate. The four solutions retrieved by Porter's Generic Strategies are those of cost leadership, focus strategy, differentiation strategy and the focus strategy (Quick MBA, 2007). At this stage, it becomes obvious that both techniques reveal the results of diversification and differentiation endeavors. Yet, the final solution must be based on a more thorough analysis of the advantages and disadvantages of each available course of action.

6. Evaluation of Strategic Options

The table below presents the advantages and disadvantages of each alternative course of action. Additionally, it also assigns points to each strategy, based on its ability to support organizational goals. The benefits are assigned points 0 and 5, 0 meaning that the respective advantage is not relevant for the organization, 5 meaning that it is extremely relevant. Disadvantages are graded -5 and 0, -5 meaning that the respective limitation is highly relevant to the company, whilst 0 means that the limitation is not relevant for the chocolate manufacturer. The final column reveals the sums of the points allocated and the selected strategy is the one with the largest summed value.

Strategy

Benefits

Limitations

1.

Market penetration

Secures consolidation and a strengthening of the competitive position

4

Does not introduce elements of novelty that would increase the attractiveness of the organization

-3

1

2.

Market development

Expansion into new markets and the adjacent benefits (more customers, increased sales revenues etc.)

5

Increased risks of failure in a context in which the international economy is facing recession

-4

1

3.

Product development

Develops new products that would attract more customers and would as such increase revenues

5

Requires additional investments that may not generate satisfactory returns

-3

2

4.

Diversification

Expansion in terms of both products and markets, meaning wider access to more customers and significantly increased sources of revenues

5

Requires levels of investments out of all available opportunities and is rather risky given the contemporaneous economic crisis

-4

1

5.

Cost leadership

Attracting more customers and gaining financial advantage over the competition as profits would increase

4

Forces the company to drastically reduce costs, meaning that product quality could suffer demises

-4

0

6.

Focus strategy

Can achieve either of cost advantage or differentiation

4

Addresses a niche market

-4

0

7.

Differentiation strategy

Product uniqueness which allows for the charging of a premium price to cover for the additionally incurred expenditure

5

Additional costs which will reduce overall financial gains (they will however be recuperated from the premium price)

2

3

7. Description of the Selected Strategy

Based on the analysis conducted at the previous stage, it becomes obvious that the most adequate course of action at this stage is that of implementing differentiation strategies. These actions basically translate into the promotion of new products onto existent markets, meaning that Porter's differentiation strategy is the analogue of Ansoff's product development strategy. The table above even reveals that both these strategies have received the highest scores, meaning that they are the ones which combine the advantages best desired by the organization and reveal the limitations which are not that threatening for the chocolate manufacturer.

The differentiation strategy is defined as an "an integrated set of actions designed to produce or deliver goods or services that customers perceive as being different in ways that are important to them" (Kotelnikov). It is one of the most important pillars of marketing success in the modern business community and leadership within any industry cannot be achieved without differentiation. Its importance is given primarily by the ever changing demands of the customers, combined with the growing competition. Furthermore, it is extremely feasible and competitive given the current context. The diversification strategy is as such the most adequate means of ensuring that the growing sales are maintained as the customers are satisfied and also increasing in number.

8. Action Plan for Implementation

The first step in ensuring a triumphant implementation of the differentiation strategy is that of ensuring that the organization possesses those skills and techniques which are compulsory in succeeding. These basically incorporate the ability to manifest competitive advantages, a skilled and creative team in charge of product manufacturing, a leading R&S team, strong sales teams, and a strong organizational brand and reputation (Quick MBA). The Real Chocolate Company possesses all but one of the previously mentioned characteristics -- a leading team of scientific researchers. In this order of ideas, the first step will be that of creating this team of scientific researchers to help it with the development of new recipes. The necessity of this team is given by the growing role of chemistry in the kitchen (Discovery Channel, 2009).