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Porters Five Forces Model STUDY ON CADBURY

Submitted By :

Yogita Ghag Simson Dsilva Harish Shetty

Porters Five Forces Model

Developed by Michael Porter in 1979/1980 Considered a classic industry analysis tool Provides a framework for perspective on multiple competitive factors affecting your company and industry
Five basic competitive forces whose collective strength determines the longrun profit potential of Company

The Five Forces

Threat of New Entrants/ Barriers to Entry
Rivalry Among Existing Competitors

Bargaining Power of Suppliers

Bargaining Power of Customers

Threat of Substitutes

CADBURY
Global brand operating in more than 50 countries. Headquarters in Uxbridge, London, England. 12% growth rate over last 5 years consecutively. Chocolate industry's second-largest company after Mars-Wrigley Global market share - 11% Indian market share- 70%

Cadbury in India
Cadbury India Ltd. is a part of Mondelz International. Cadbury India operates in five categories Chocolate confectionery, Beverages, Biscuits, Gum and Candy In India, Cadbury began its operations in 1948 by importing chocolates Today it has six company-owned manufacturing facilities Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. Some of the key brands are Cadbury Dairy Milk, Bournvita, 5 Star, Perk, Bournville, Celebrations, Gems, Halls, clairs, Bubbaloo, Tang and Oreo

Bargaining Power of Suppliers

Strength of suppliers determined by: Number of suppliers and their degree of differentiation Portion of a firms inputs obtained from a particular supplier Portion of a suppliers sales sold to a particular firm Switching costs Potential for vertical integration Cadbury : The company gets the cocoa beans and cocoa butter from West Africa, Ecuador and Venezuela. The company has deals with around 40000 suppliers around the world. No single supplier accounts for more than 10% of the raw material purchases. Hence the suppliers have very little influence on the company. To further minimize the price fluctuations and to ensure security of the supply, the company enters into forward agreements and long-term contracts. Most of the sugar is purchased at prices set by the European Union or by other companies through quotas. A very small potion is bought at fluctuating prices. On the whole the suppliers have very low or no power on the company.

Power of Customers
Power of customers determined by: Number of buyers Firms degree of differentiation Portion of a firms inputs sold to a particular buyer Portion of a buyers purchases bought from a particular firm Switching costs Potential for vertical integration Cadbury The products are mostly impulse goods and they are sold to consumers through many different outlets, ranging from grocery stores to food and entertainment venues. In many markets, sales to the large multiple grocery trade accounts for less than 50% of the sales and the buyers are so huge in number that no single customer has any influence on the industry. But it is when controversies like worm controversy crop up that the customer power increases. Due to the rising health awareness among the customers, the preferences of the customers are changing to lower sugar content brands and it is important for the companies to understand the customer needs and to develop the products with these preferences in mind.

Rivalry Among Existing Competitors

Rivalry determined by number of firms, relative size, degree of differentiation between firms, demand conditions and barriers to exit Competition among rivals is greatest when: There are many competitors, nearly equal in size or power Slow industry growth High barriers to exit Cadbury : The industry is very competitive and the company competes with many other multi-national, national and regional companies. The group competes actively in terms of quality, taste and price of products and seeks to develop and enhance brand recognition by introduction of new products, new packaging, extensive advertising and promotional programmes.

Threat of New Entrants/Barriers to Entry

Threat of potential entrants determined by: Attractiveness of industry Height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.) Customer switching costs (high fixed costs involved in switching to another supplier) Capital requirements (e.g., very high in gas exploration) Incumbency advantages independent of size (e.g., proprietary technology, patents) Unequal access to distribution channels (how much have existing competitors tied up distribution channels) Restrictive government policy Cadbury : The confectionery market is growing and the main drivers are population growth and increased consumer wealth. The total confectionery market is valued at Rs 41 billion with a volume turnover of about 223500 tones per annum. The category is largely consumed in urban areas with a 73% skew to urban markets and a 27% to rural markets.

Cadbury The industry is expected to grow at 23% in chocolates segment and sugar confectionery segment has declined by 19%. The chocolate confectionery experienced the entry of new players in 2007. The low per capita consumption of chocolate products in India, coupled with a booming Indian economy and rising consumer affluence, has seen consumers upgrade from sugar confectionery to chocolate confectionery. To capture the new growth, there are new entrants which are foreign brands that are invading the market. Many customers are shifting from the domestic brands to the foreign brands. The Hershey Co. Hershey formed a joint venture with Godrej in April 2007. Other multinationals such as Mars Inc and ITC Ltd. are also said to be forming plans to enter the confectionery market. The opportunities for new entrants are high but it is difficult for a complete new brand to come and take over the market. The name Cadbury is so synonymously used for chocolates that it is difficult for any new entrant to compete with it.

Threat of Substitutes
A substitute performs the same function as an industrys product or service, but by a different means Determined by the number of potential substitutes, their closeness in function and relative price Not just another product: sometimes the substitute is to do without the product or to do it themselves

As Cadbury has repositioned the image of chocolates as a sweet dish for any happy occasion, it faces lot of competition from the home made and purchased Indian sweets, Mithai. Though they are not the same, the sweet preparations also serve the same purpose of Kuch Meetha Ho jaye. Hence the substitutes are many and may act as a strong force.

Conclusion
Today IT /digitalization, unstable economy condition or needs, government laws, globalization, customer expectation and organization reinvention have become powerful forces and will continue to do so in the coming years clarifies or touches much on those. We also find that Michael porter simplified economic theory in which the law of economy existed long ago, for example bargaining power of supplier is actually the supply and demand theory. Porters model is NOT INVALID but can be the basic for strategy development, management technique and theories. An industry must do a careful market observation and internal and external factors, understand the limitations from this model and study where their company intends to go in future.

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