Cowgirl Chocolate’s Essay
As a general rule, business at any size depends on the external situations and condition that influence them at different degree. Antitrust Act, export and import policy, customers’ demand, changes of customers’ preferences, technological advancement that makes products design and manufactured precisely are some external factors that influence the development of a business. In order to assist business in recognizing external factors that influences them; scholars, researchers, and business practitioners develop appropriate tools that also provide solutions to deal with those factors.
Concerning the situation analysis, this paper contains the external and internal analysis on Cowgirl Chocolates. I will also provide an analysis of problems and possible solutions to overcome the problems.
2. Situational Analysis
2. 1. Environment
2. 1. 1. Economic conditions and trends Russia is the third largest chocolate market in the world, right after United States and the United Kingdom. Analysts have actually stated that the Russian confectionary market is almost saturated, but it is still expected to grow by 30% up to 2010.
The Russian confectionary market has an organization called the Russian Confectioners Industry Association (ASKOND), and the organization stated that the chocolate market in Russia is currently developing the quickest of all, accounting for about 25% of the confectionery
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2. 1. 2. Cultural and social values and trends There is a healthy perspective regarding the confectionery business in Russia.
Russians take pride in becoming one of the world’s largest chocolate markets and various types of chocolate products are popular in Russia. Nevertheless, recent surveys indicated that most producers are worrisome regarding the increasing competition level as foreign companies entered Russia.
2. 1. 3. Political and legal issues Recent surveys indicated that a significant portion of the players in Russia’s confectionary industry are worried about the principle of Soviet assortment in their companies.
Significant portion of chocolate players are also worried about Russia’s entrance in the World Trade Organization.
2. 1. 4. Summary of environmental opportunities and threats Opportunities in Russian confectionery market are in the forms of rapidly growing market of Chocolate consumers and a healthy appetite of various types of chocolate products. This means that Cowgirl Chocolate still has a lot of room and opportunities to grow within the Russian market.
Nevertheless, players in the Russian confectionery industry would have to face the challenges of rising prices of materials, and the low chocolate market prices in the Russian Federation. In addition, the Russian Confectionery market is currently facing a rather unstable political condition in relation to the Russia’s entrance to the WTO and the entrance of Nestle into the Russian market.
2. 1. 5. Implications for strategy development Cowgirl Chocolate should take advantage of the existing market opportunities and design its marketing strategies to reap as much share of the market as possible in the chocolate markets.
Nevertheless, considering the increased price of raw materials and the presence of new and powerful players into the markets, Cowgirl Chocolate should discover a unique niche and avoid direct competition with these large players, whether in terms of market prices and product features. Developing a unique product offering with slightly cheaper price will be a good strategy to survive the increasing level of competition.
2. 2. Industry
2. 2. 1. Classification and definition of industry The chocolate industry or the confectionery industry is a market consisting of chocolate producers, in various categories and designs.
Chocolate products ranged from milk chocolate, dark chocolate, chocolate with additional ingredients, such as nuts and raisins, chocolate truffles and nougats, to chocolate sweets.
2. 2. 2. Analysis of existing competitors The biggest international player within the global confectionery industry is Nestle, who have just bought a Russian chocolate company and now established a presence in Russia under the name of Nestle Rossiya. In 2004, Nestle Rossiya owned 22 % of the Russian chocolate market, followed by Krasnyi Okteabri, which owned 6. 6% of the market, babeyevski, which owned 5.
2. 2. 3. Analysis of competitors’ strategies Most chocolate producers in Russia targeted different market segment. Nestle is the leader in the market in almost all types of chocolate products, including chocolate tablets (35. 4%) and packed Chocolate (25. 7%). In terms of chocolate bars however, Mars has been the leading chocolate producer with 66. 3% of the market sales. In the chocolate sweets segment, the United Confectioners is leading with 42. 3 % of the market share.
2. 2. 4. Analysis of competitors’ strengths and weaknesses
Competitors of Cowgirl Chocolate have powerful brand names and wider market network in Russia. Nevertheless, as mentioned previously, the chocolate market in Russia is nearly saturated and hungry for a new innovation. Cowgirl Chocolate should take advantage of its unique product (spicy chocolate and fill the niche.
2. 2. 5. Analysis of potential new entrants There are small barriers of entry in the Russian chocolate markets, which means that any new competitors could easily enter the industry. Nevertheless, developing a brand name in the midst of the already crowded market with a lot of huge names will not be an easy task.
Therefore, it is appropriate that there is a moderate level of threat, in relation to potential new entrants.
2. 2. 6. Analysis of substitute products The industry is sensitive toward prices because substitute products are many and they can emerge from unexpected occasions. Therefore a unique brand image is necessary for surviving the Russian Confectionary business.
2. 2. 7. Analysis of supplier bargaining power Considering the nature of Russia as the third largest chocolate market in the world, there are many suppliers of chocolate raw materials in Russia. However, they are spread under different levels of quality.
Imported chocolate will cost much higher due to increasing cost of transportation, which will make supplier bargaining power a little higher than it was previously.
2. 2. 8. Analysis of buyer bargaining power Buyers of the Russian markets are coming from various income levels and various segments of the society. Therefore, buyers in the Russian confectionary market have a low level of bargaining power.
2. 2. 9. Implications for strategy development The attractive market of chocolate industry has attracted many producers, which in turn raise the competition level.
There are several key competitors in chocolate industry including Nestle, Mars, and he United Confectioners. In order to obtain significant portion in the chocolate market, Cowgirl Chocolates need to differentiate their product. The differentiation strategy is a strategy that strives to attain a competitive advantage by creating a product (good or service) that is perceived by customers to be unique in some important way. Differentiation strategies are attractive when buyer preferences and/or requirements are diverse. Successful differentiation allows companies to undergo following tasks (“Differentiation Strategies”):
Put a premium price on their products and/or
Increase unit sales and/or
Gain buyer loyalty to their brands.
2. 3. Organization
2. 3. 1. Objectives and constraints Cowgirl Chocolates was named after the particular taste that the company develop in their chocolates. Unlike common chocolates that taste sweet, the company has one single objective that is to develop and produce hot and spicy chocolates.
2. 3. 2. Financial conditions Cowgirl Chocolate has a very limited budget and cannot afford to invest in the wrong venture again.
Thus, financial decisions must be made with extra cautions.
2. 3. 3. Management philosophy The organization is a family-based organization and run based on the personal business philosophies of Marilyn Lysohir.
2. 3. 4. Organizational structure The organization has a flat and simple organizational structure which facilitates weak management of responsibilities.
2. 3. 5. Organizational culture The organization is run based on a family-culture that centralizes the decision making on the owners of Cowgirl Chocolates: Marilyn Lysohir.
2. 3. 6. Summary of the firm’s strengths and weaknesses
The main strength of Cowgirl Chocolates is their specialty product that none of competitors already match the offerings. This becomes the competitive advantage for the company since the spicy chocolates have a large number of fans. This is true since 50% of Cowgirl Chocolates revenue comes from this spicy chocolates products.
2. 3. 7. Implications for strategy development Since the company develops particular tastes of chocolates, they should maintain their image as specialist instead of generalists in all aspects. For example, the company may use cowboy alike outfits.
2. 4. Marketing Strategy
2. 4. 1. Objectives and constraints With a tagline “Sissies Stay Away”, the company intends to position their products as specialty products inn the market in which this positioning also becomes a constraint to target all markets segment.
2. 4. 2. Analysis of target markets The development of hot and spicy chocolates has segmented the portion of markets that are interested in the chocolates tastes. Fortunately, the company found that 50% of the company revenue from sold chocolates comes from this hot and spicy chocolates product.
2. 4. 3. Summary of marketing strategy’s strengths and weaknesses
The main strength of hot and spicy chocolates that Cowgirl Chocolates develop and produce is that the receipt is specially designed and developed by the owners that guarantee that the hot and spicy products are the one and only in the chocolate markets. However, the development of hot and spicy chocolate products takes time to capture the new markets if the company decides to expand into new regions since uncommon products needs proven endorsement prior to acceptance.
2. 4. 4. Implications for strategy development The implication of producing specialty products lies on the needs to encourage innovation.
Every aspect of the corporation influence innovation, from the smallest member of the company until the largest and most abstract factors. Each factor requires proper comprehension in order to produce a working environment where each condition harmonically leads toward the creation of new and productive ideas. The three factors of innovation are unlocking personal creativity, managing innovative managers, and environment for innovation.
3. Problems Found in Situational Analysis
3. 1. Statement of Primary Problem: Targeting the Wrong Customer
3. 1. 1. Evidence of problem
According to Insight (200), targeting convey the ideas to categorize market based on similar characteristic. There are several market characteristics; they are competitive position, cost of reaching market, and projected growth, to name a few. Therefore, targeting will have following questions like Are our customers young or old ones? Men or women? What are their lifestyles? By answering these questions, a company can project the market growth by employing the update demographics data (Insight, 2000). In the case of producing the hot and spicy chocolates, the company faces the limited portion in the market that likes the kind of products.
The situation suggests that the company requires a massive branding and marketing communication strategy to communicate the target customers regarding the specialty and benefits of hot and spicy products.
3. 1. 2. Effects of problem If management’s predictions were mistaken that hot and spicy chocolates cannot have increasing number of customers in long term, then the company would have to suffer significant losses of their investment and furthermore, the company would have lost significantly from the opportunity costs of the investments.
3. 2. Statement of Secondary Problem: Producing Premium Products for a Commodity Market
3. 2. 1. Evidence of problem The hot and spicy chocolates are not a highly developed business segment within the chocolate industry since so far only Cowgirl Chocolates that develop the kind of products. Therefore, their consumers are also not accustomed to pay a high price for uncommon products. Even with the price reduction, the analysis of the market price revealed are still too high for the average price for hot and spicy chocolates.
3. 2. 2. Effects of problem The most apparent effect of this problem is diminishing sales number due to unsuitable price for the existing market.
4.Strategic Alternatives for Solving Problems
4. 1. Description of strategic alternative 1: Redefine and Resegment Customers
4. 1. 1. Benefits of alternative 1 The limited market for hot and spicy chocolates must drive the Cowgirl Chocolates to carefully conduct the re-segmentation for their products. Theoretically, segmentation divides the market into smaller segments with similar characteristics, allowing us to treat each segment differently by giving them different products, prices and other marketing tools. This activity is important in a heterogeneous consumer market (Perner, n. d. ).
4. 1. 2.
Costs of alternative 1 The costs for developing new products especially occur since the company needs to conduct the market research regarding the potential markets for hot and spicy chocolates.
4. 2. Description of strategic alternative 2: Cultivate a (Niche) Market for Premium Products
4. 2. 1. Benefits of alternative 2 By developing a niche for a premium product, Cowgirl Chocolates would design a more stable future for corporate investment. For premium products, the company should research the consumers’ behaviour which influenced by several values: cultural factors, social factors, and personal factors.
4. 2. 2. Costs of alternative 2 It would take time and money to cultivate such niche and there is no guarantee that the effort will succeed. 5. Summary At one stage of doing a business, a company needs to carefully develop unmatched predicts and services in order to differentiate the products in the market and gain the first comer’s advantages. Once they serve the specialty market with particular and uncommon products, the challenge increase as the number of customers and the diversity of the customers raise as well.
Therefore, in order to succeed in the specialty market, the companies must pay attention to cultural diversity in the market they serve in addition to the use of marketing mix and STP (segmentation, Targeting, and Positioning).
‘Differentiation Strategies’, 2004, [Online] Available at courses.dsu.edu/bus482/Slides/Chap5/differ.doc
Insight. 2000, ‘Developing a Marketing Strategy’, [Online] Available at: http://www.collision-insight.com/news/archives/200003-feature.htm
Lawrence, John J., Morris, Linda J. , and Geiger, Joseph J. (2007).
‘Case 22: Cowgirls Chocolates’, McGraw-Hill ‘Nestle strengthens its leadership in the Russian chocolate market’. 2008. Nestle. [Online] Available at: www.nestle.com/MediaCenter/PressReleases/… /Nestle+strengthens+leadership +in+Russian+chocolate+market.htm
Perner, Lars. ‘Consumer Behavior and Marketing’, Consumer Psychologist Newsletter. San Diego University ‘Top concerns revealed in Russian chocolate sector’, 2008 Decision News Media. Retrieved [Online] Available at: www. foodnavigator. com/Financial-Industry/Top-concerns-revealed-in- Russian-chocolate-sector