The Confectioners’ intensity of rivalry among existing companies is high even though the industry has partially differentiated products. This is due to many equally balanced competitors, slow growth in the mature market, high storage and fixed costs, and high exit barriers. All of these factors cause price wars, advertising battles, the emergence of new product lines and higher quality of products in the Confectioners industry.
The Bargaining Power of Buyer: LOW to MEDIUM
Although there are several large-volume buyers, such as Wal-Mart, who could bargain to lower the prices, thus reducing the industry’s profits, there are other factors that can limit the bargaining power of buyers. The industry’s differentiated products, the presence of switching costs, the reliance on the industry’s product, and the lack of threat by buyers to enter the industry themselves reduce the buyer’s bargaining power. Therefore, these factors make the bargaining power of buyers low to medium.
The Bargaining Power of Supplier: MEDIUM
The supplier’s bargaining power is decreased because the Confectioners industry is significantly an important buyer to the suppliers and the suppliers cannot threaten to enter the buyer’s industry due to numerous barriers of entry. However, the bargaining power of suppliers is medium because of the limited number of suppliers; there are no substitute products that suppliers deal with in the market and the supplier’s product is important to the industry.
Threat of Substitutes: HIGH
The threat of substitutes is high in the Confectioners industry due to many substitute products that the industry must compete with which can threaten the industry’s profitability. Many non-confectionery snacks are available as alternatives such as fruits, potato chips, yogurt, etc. In addition, many customers are willing to substitute confectionery because consumers are shifting towards a more health conscious trend.
Hershey Company primarily focuses on offering low price products that can be affordable to everyone. Hershey’s, however, differentiated in term of quality of its products. The company has provided the best quality products since it has been founded and it is certainly committed in providing that same quality ever since. Hershey’s core brands such as Reese’s, Hershey’s, and Hershey’s Kisses, have been in the market for many years and they still gain popularity due to their same great taste. That is how consumers perceive Hershey’s as different and undoubtedly loyal to Hershey’s brands.
Business’ strategy toward market segmentation
Hershey Company does not segment its market and its products are based on people of all ages or in other words mass market aimed at everybody. The company has been diversifying its product choices to satisfy a large portion of chocolate lovers. As mentioned above, Hershey’s core brands are the most well-known products for Hershey in the market. Recently, Hershey has introduced high-end dark and premium chocolate segment for the market that want more premium chocolate. In addition, to address the health and well-being of consumer today, Hershey’s has also offered a variety of products in portion-controlled serving that provide the benefits of flavonoid antioxidants and heart disease prevention (4). Through diversification, Hershey can offer a wide range of products that allows the company to reach a large customer segment.
In this relatively stable industry, a company may not need a distinctive competence to survive in a highly competitive environment. Hershey has set a great example for this situation. Given its long existing competency in putting sweet chocolate coatings on caramels in 1894, the company had earned admiration of innovation since Mr. Hershey had that novel idea (1). From there, Hershey made milk chocolate a mainstream product and products like Hershey’s Kisses were true novelties (1). Unfortunately, these products have been on shelves for over 100 years and Hershey does not have an effective innovation for many years. However, consumers are continually buying Hershey’s milk chocolate brands, and Hershey is proud to be the largest confectioner in North America. Hershey has survived due to its strong brand name that Mr.Hershey has earned many years ago, diversifying products, strong customer relationship with distribution channels, and the licensing agreements to sell products like Kit Kat in the U.S and joint ventures with various international firms.
Presently, Hershey has no plan on building distinctive competence. According to Hershey CEO, David West, says the company will be focusing on core brands like Reese’s, Hershey’s Kisses, and Kit Kat (1). Many analysts fear Hershey’s ability to perform when the economy is recovered and consumers are eager for something new (1). Without innovation, Hershey would survive, but the company is frittering away a great brand name (1).
Boyle, Matthew. “Hershey’s Arrested Developments.” Business Week. Oct, 2009
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