Submitted to the Faculty of the School of Business and Governance Business and

Management
In Partial Fulfillment of the Requirements
In MGT 426

Submitted by:
Balasabas, Jovel D.
Calanao, Samantha Dianne
Caete, Lorraine Fatima
Olaguer, Edgardo Jr.

Submitted to:
Dr. Emmanuel C. Aznar

February 4, 2016

TABLE OF CONTENTS
Objectives

Introduction

Statement of the Problem

Strengths, Weaknesses, Opportunities, and Threats

Alternative Courses of Action

3-5

Recommendation

6-7

Conclusion

References

Objectives
-

To remain as the largest producer of Chocolates in North America despite growing

competitors
To endorse health advantages of consuming these products.
To spread awareness and increase sale of products.

Introduction
Hersheys Company is the largest producer of Chocolate in North America. It reported a
second quarter 2009 sales up 5.9 percent to $1.17 billion and profit of $71.3 million on July 23,
the fourth strong quarter in a row for the company. It originated with candy-manufacturer Milton
Hersheys decision in 1894 to produce sweet chocolate as a coating for his caramels. In 1900,
the company began producing milk chocolate in bars, wafers, and other shapes. With mass
production, Hershey was able to lower the per-unit cost and make milk chocolate, once a luxury
item for the wealthy, affordable to all.
The success of Hersheys low-cost, high-quality milk chocolate soon caused the
companys owner to consider increasing production facilities. Milton decided to build a new
chocolate factory. Summer of 1905, the new factory was able to produced delicious milk
chocolates.
It was one of the first companies to engage in experimental marketing with the launch of
the Hershey Chocolate World in 1973 in Hershey, Pennsylvania. Hersheys opened their first
flagship store at New York Citys Time Square and recently opened Hershey Chocolate World in
Shanghai prior to 2008 Olympics.
When it comes to their Ethics/ Sustainability, Hersheys commitment to Social
Responsibility extends beyond their school to both their products and supplier relationships. The
company is actively involved in the International Cocoa Initiative Foundation, designed to
eliminate child labor or forced labor in cocoa producing regions.
Hersheys iconic brands such as Hersheys Bar, Hersheys Kisses, and Reeses are
instantly recognized within the domestic market. Their products are sold to more than 2 million
retail outlets, including wholesale distributors, chain grocery stores, and wholesale clubs as well
as natural food stores. The McLean Company is the largest wholesale distributor of Hershey
products and account for 26 percent of the total net sales for the company.
Statement of the Problem
How will Hersheys Company continue to increase their sales and remain in the industry
despite the scarcity of raw materials, high competition, and huge expenditures?

Alternative Courses of Action

1.) Low cost method of production strategy such as Flow or Mass Production, and without
sacrificing quality through expansion.
Pros:
a.) Larger companies tend to be more profitable.
b.) A large businesss increased level of production means that the cost of each item is
reduced in many ways.
c.) Raw materials can be purchased in large quantities, so they are cheaper and are often
discounted by wholesalers.
d.) Higher production levels means that the cost of advertising, research, development,
depreciation and administration are more spread out.
e.) Increases production capacity, drives higher sales volume, and reduces the average
cost per item produced.
f.) Machinery are used so labor cost are lower.
g.) The quality of the product is standardized.
h.) The final product is inexpensive.
i.) Unskilled wages further reduced cost.
j.) Production is fast and assembly lines can run continuously.
Cons:
a.)
b.)
c.)
d.)
e.)

Workers are not very motivated, since their work is very repetitive.
There is a loss of traditional skills.
Machinery breakdown can halt production.
There is an increased risk of accidents.
Large capital investment is usually needed.

2.) Product differentiation strategy that intends to create a product that is valued and
perceived by customers as unique as and better than the other competitors.
Pros:
a.) The company may charge a premium for its product.
b.) The company can readily pass along higher supplier costs to its customers because of
the lack of substitute or alternative products on the market since the product is
unique.
c.) Creates brand loyalty among customers.
d.) Enables the company to gain a competitive advantage in the market without
decreasing the price of the product because it allows the business to compete in areas
other than the price such as the taste and quality.
e.) Provides variety.
f.) Enhances creativity

Cons:
a.)
b.)
c.)
d.)

Threat of imitation by competitors and stealing away customers.

Implementation of differentiation strategy is costly.
It may take years before a company achieves a strong brand image that sets it apart.
There is a risk of changing consumer tastes or preferences.

3.) Expand more distribution channels to gain more buyers and increase revenues through
retailers, wholesalers, direct sales, sales reps, and online selling.
Pros:
a.) Allows to expand the sale potential by getting the product in front of more potential
customers.
b.) Can significantly boost sales and revenues.
c.) Making products available in more locations will raise consumer awareness of the
product offerings.
d.) Broad coverage that enables the company to reach majority of target customers.
e.) Internet selling is convenient and allows instant access for customers, and is also a
good source of customer feedback/research.
f.) Increases visibility of products, brand image and awareness.
g.) Direct selling eliminates the costs of sales commissions and discounts necessary to
generate business.
Cons:
a.) More costly in servicing each locations, and shipping products to multiple locations.
b.) Greatly diminished ability to communicate with and collect information directly from
customers.
c.) Potential for channel conflicts resulting from different strategic goals and profitoptimization strategies of each intermediary.
d.) May offer poor customer service or assistance.
4.) Growing the business by penetrating the market, or Market penetration strategy to get in
quickly with the product and capture a larger share of the market by price adjustments
penetration pricing, wherein the company will set the price of its product lower than that of the
competitors, and increasing promotions or aggressive marketing campaigns.
Pros:
a.) May cause quick adoption of the product in the market because it is cheap enough
and of similar quality to competing products.
b.) Lower prices of the product can lead to higher sales volume which would allow the
company to boost their market share.
c.) May discourage competitors from entering the market.

d.) Lower prices can engender goodwill among existing customers and encourage new
ones to try the product.
e.) Makes the company more cost conscious from the beginning, and compels it to
achieve higher cost efficiencies than the competitors.
f.) Can lower production costs because as sales volume increases, the hershey company
can turnover inventory more quickly. As a result, the company may be free to
purchase goods from suppliers in greater volumes at discounted rates.
Cons:
a.) Once the pricing already penetrates the market, it may be difficult for the company to
sustain such low price for the long term. Customers tend to perceive or associate the
product with low price and will be unable to accept if the price goes high.
b.) When the companys projected boost in sales does not materialize after lowering the
price of the product, then there will be negative effects. Lower sales volume at lower
prices means lower profits.
5.) To further increase the sales of Hershey company, they should adopt strategies like they
should go globally, take more experience of outside market, and they also have to come up with
new chocolate flavors or categories such as low calorie and low fat chocolates because
nowadays, people have become much more aware of the various factors that negatively affect
their health.

Pros:
a.) Lets the company reach a lot more customers, expand customer base and increase
sales.
b.) Can increase visibility because it will give the company greater name recognition as
they expand into another country.
c.) There is a potential for the company to amplify the commercial lifespan of existing
products, even if they had become less popular in domestic markets.
Cons:
a.) Consumers in other countries often have different preferences and needs and might
not have much interest in buying the product.
b.) Can be costly because it will take financial resources, and exercising a global strategy
is expensive.
c.) The company would need additional personnels and technology.
d.) Exchange rate risk because they fluctuate. Currency fluctuations could affect either
the value of existing assets or liabilities denominated in foreign currency.

Recommendation:
During the course of the case analysis, recommendation for the continuous profit
maximization and to remain in the industry despite the scarcity of raw materials, high
competition, and huge expenditures can be considered as follows:
Alternative #5. To further increase the sales of Hershey company, they should adopt
strategies like they should go globally, take more experience of outside market, and they also
have to come up with new chocolate flavors or categories such as low calorie and low fat
chocolates because nowadays, people have become much more aware of the various factors that
negatively affect their health.

Pros:
d.) Lets the company reach a lot more customers, expand customer base and increase
sales.
e.) Can increase visibility because it will give the company greater name recognition as
they expand into another country.
f.) There is a potential for the company to amplify the commercial lifespan of existing
products, even if they had become less popular in domestic markets.
Cons:
e.) Consumers in other countries often have different preferences and needs and might
not have much interest in buying the product.
f.) Can be costly because it will take financial resources, and exercising a global strategy
is expensive.
g.) The company would need additional personnels and technology.
h.) Exchange rate risk because they fluctuate. Currency fluctuations could affect either
the value of existing assets or liabilities denominated in foreign currency.
Hersheys is already an established chocolate company. Choosing the alternative that
deals with the global market will help the company to expand their line of products especially in
health benefits. People in our society today are more health conscious than before, focusing on
the healthier chocolate products is a good strategy.
In line with the global strategy, the company can also purchase the raw materials on the o
country where they will sell and manufacture the product thus it will not be costly comparingto if
they order the materials from the home country. Creating new flavors depending on the country
will also promote the product and increase the brand recognition within the country.

The second alternative that can be considered to solve the problem is the following:

Alternative #4: Growing the business by penetrating the market, or Market penetration strategy
to get in quickly with the product and capture a larger share of the market by price adjustments
penetration pricing, wherein the company will set the price of its product lower than that of the
competitors, and increasing promotions or aggressive marketing campaigns.
Pros:
g.) May cause quick adoption of the product in the market because it is cheap enough
and of similar quality to competing products.
h.) Lower prices of the product can lead to higher sales volume which would allow the
company to boost their market share.
i.) May discourage competitors from entering the market.
j.) Lower prices can engender goodwill among existing customers and encourage new
ones to try the product.
k.) Makes the company more cost conscious from the beginning, and compels it to
achieve higher cost efficiencies than the competitors.
l.) Can lower production costs because as sales volume increases, the Hershey Company
can turnover inventory more quickly. As a result, the company may be free to
purchase goods from suppliers in greater volumes at discounted rates.
Cons:
c.) Once the pricing already penetrates the market, it may be difficult for the company to
sustain such low price for the long term. Customers tend to perceive or associate the
product with low price and will be unable to accept if the price goes high.
d.) When the companys projected boost in sales does not materialize after lowering the
price of the product, then there will be negative effects. Lower sales volume at lower
prices means lower profits.

In this alternative, the company will focus on the market share and market value of their
products. Through the price adjustments, customers will start to buy the products because of the
low prices. These prices should be lower than the competitors so that it will be able to compete
with its product pricing. As the sales volume increases, quick turnover can be done quickly
which leads to purchase more of goods from the supplier. The company can make arrangements
regarding the discounts for the purchased goods because it will be bought at greater volumes.
If the projected boost in sales does not materialize after lowering the price of the product,
the company can counter these negative effects by ensuring the market study for the pricing of
the product to be solved. It may be costly but it will lessen the probability that the lowered price
will not be accepted by the customer once it will roll back to its original price.

Conclusion:

Competition continues to be the challenge of Hersheys, despite having a established

company in chocolate manufacturing industry. Driven by the consumer, the company has able to
grow and offered different kinds of products that focus also on promoting healthier goods. Even
when the company is domestic dependent, Hersheys continues to be one of the innovative
companies in the world, committed in research and development for new products while
considering their products to be environment-friendly and to promote a good social
responsibility.
In order for the company to have a steady growth in the market, they should consider first
to check if their products are currently recognized from the domestic country up to the
neighboring countries. Planning ahead before implanting the said strategies will help evaluate
and have a contingency plan if the strategy will not be materialized in time.
This case highlights the marketing strategies in order for the company to sustain and
create products that will help the company gain competitive advantage and gaining more market
share in order to achieve a steady rise of revenues from the goods that are sold in the market.