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ECONOMIC ANALYSIS OF

CADBURY AND NESTLE

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SUBMITTED TO:

PROF, SHAFIQ-UL-REHMAN SB

SUBMITTED BY:

Muhammad Tayyab 111405

Umair ahmad 111402

Waqar Ahmad 111401

Institute of Management Sciences, (Pak-Aims) Lahore

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Table of Content

INTRODUCTION: 7

THE QUAKER INFLUENCE: 7

CADBURY BROTHERS OF BIRMINGHAM 8

TECHNOLOGICAL ADVANCEMENTS 8

HISTORIC PACKAGING 8

CADBURY'S CHOCOLATE BOX 9

CADBURY BROTHERS LTD 10

MANUFACTURING PROCESS 10

PRODUCTS OF CADBURY: 11

DAIRY MILK 13

NUT FREE PRODUCTS 13

KOSHER PRODUCTS: 13

GLOBLE MARKET SHARE CONFECTIONALY OF CADBURY AND NESTLE: 14

FLOW CHART OF NEW PRODUCT LAUNCH CADBURY : 14

CADBURY MARKET SHARE OF PRODUCTION: 14

COST STRUCTURE: 15

PRICING STRATEGY: 17

PRICING TECHNIQUE FOR CADBURY 17

COST PLUS PRICING 18

DEMAND BASED PRICING: 18

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COST CUTS SHOULD SIGNIFICANTLY BENEFIT CADBURY: 18

RISK 18

STRATEGY 18

MANAGEMENT & STEWARDSHIP 18

PROFILE 19

GROWTH 19

PROFITABILITY 19

FINANCIAL HEALTH 19

BULLS SAY 19

BEARS SAY 20

INDEPENDENT VARIABLES AFFECTING DEMAND OF CADBURY DAIRY MILK 20

PRICE: 20

INCOME: 20

POPULATION & AGE GROUP: 21

BRAND IMAGE: 21

CONSUMER’S TASTE AND PREFERENCES: 21

COMPETITION 21

PRICE OF COMPLEMENTARY GOODS: 21

ADVERTISEMENT CAMPAIGN: 21

CELEBRATIONS & OCCASIONS: 21

PRICE ELASTICITY 22

ARC PRICE ELASTICITY: 22

INCOME ELASTICITY 22

CROSS ELASTICITY OF DEMAND 23

CROSS ELASTICITY FOR COMPLEMENTARY GOODS: 23

SHORT RUN AND LONG RUN IMPACT IN THE ELASTICITY OF THE DEMAND 23

REVENUE STRUCTURE: 24

MARKET STRUCTURE: 26

SUPPLY CURVE: 27

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DEMAND CURVE: 28

COMPARISON BETWEEN MARGINAL REVENUE AND MARGINAL COST: 28

CADBURY'S ADVERTISING STRATEGY: 29

MESSAGE EXECUTION 30

NESTLE: 30

INTRODUCTION: 30

MISSION STATEMENT: 31

CORPORATE SOCIAL RESPONSIBILITY 31

GOOD FOOD, GOOD LIFE 31

GOOD INGREDIENTS 32

GOOD PRACTICES 32

BRANDS 33

CONCLUSION 34

RECOMMANDATION 34

REFERENCES: 35

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Acknowledgment:

Firstly we would thank Allah for giving us this opportunity and the

resources to be able to do something productive with our life. Without his blessing

we would not be able to come as far as we have.

We dedicate our assignment to our Managerial Economics teacher, Prof:

Shafiq ul Rehman Sb who imparted the essential and crucial knowledge of

Managerial Economics and assigned us this project to express the knowledge and

skills which we have learned in the class. His guidelines and teaching method and

technique have been very useful for us not only in preparing of this report but also

for our future life. He helped us to find new ways of being innovative and creative;

this report was not possible without his help and continuous direction.

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Introduction: Cadbury is one of the fastest growing companies among all multinationals

and national companies engaged in milky and dairy products. Cadbury was

one of ten children of Richard Tapper Cadbury, a prominent Quaker who had

moved to Birmingham, England from the West Country in 1794.

In 1824, 22-year-old John Cadbury opened his first shop at 93 Bull Street,

next to his father's drapery and silk business in the then fashionable part of

Birmingham.

Apart from selling tea and coffee, John Cadbury sold hops, mustard and a

new sideline - cocoa and drinking chocolate, which he prepared using a

mortar and pestle.

Cocoa and drinking chocolate had been introduced into England in the 1650s

but remained a luxury enjoyed by the elite of English society. Customers at John Cadbury's shop

were amongst the most prosperous Birmingham families, the only ones who could afford the

delicacy. Cocoa beans were imported from South and Central America and the West Indies.

Experimenting with his mortar and pestle, John Cadbury produced a range of cocoa and

chocolate drinks, the latter with added sugar. The products were sold in blocks: customers

scraped a little off into a cup or saucepan and added hot milk or water.

John Cadbury had a considerable flair for advertising and promotion. "John Cadbury is desirous

of introducing to particular notice 'Cocoa Nibs', prepared by him, an article affording a most

nutritious beverage for breakfast," announced his first advertisement in the Birmingham Gazette

in March 1824.

He soon established himself as one of the leading cocoa and drinking chocolate traders in

Birmingham. The popularity and growing sales of John Cadbury's cocoa and drinking chocolate

of 'superior quality' determined the future direction of the business.

In 1831, John Cadbury rented a small factory in Crooked Lane not far from his shop. He became

a manufacturer of drinking chocolate and cocoa, laying the foundation for the Cadbury chocolate

business.

These early cocoa and drinking chocolates were balanced with potato starch and sago flour to

counter the high cocoa butter content, while other ingredients were added to give healthy

properties.

By 1842, John Cadbury was selling sixteen lines of drinking chocolate and cocoa in cake and

powder forms.

The Quaker Influence: The Cadbury family were prominent members of the Society of Friends or Quakers, one of the

many nonconformist religious groups formed in the 17th century. Their strong beliefs carried

into campaigns aimed at ending poverty and deprivation and many prominent Quaker-run

businesses were part of reforms of social and industrial society in Victorian Britain.

John Cadbury's lifelong involvement with the Temperance Society influenced the direction of his

business enterprise. By providing tea, coffee, cocoa and chocolate as an alternative to alcohol he

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felt he was helping to alleviate some of the alcolohol-related causes of poverty and deprivation

amongst working people. He also incorporated some of these principles in his industrial relations

philosophy.

Cadbury Brothers of Birmingham As the enterprise prospered, in 1847 John Cadbury rented a larger factory in Bridge Street, off

Broad Street, in the centre of Birmingham and went into partnership with his brother Benjamin -

trading as Cadbury Brothers of Birmingham.

The retail side of the business in Bull Street was passed to a nephew, Richard Cadbury Barrow in

1849. Barrow Stores, as it became, traded in Central Birmingham until the 1960s.

A major turning point for the cocoa and chocolate industry came in the mid-1850s, when taxes

on imported cocoa beans were reduced by Prime Minister William Gladstone. The previously

prohibitive chocolate products were now within the reach of the wider population.

Cadbury Brothers received their first Royal Warrant on February 4, 1854 as 'manufacturers of

cocoa and chocolate to Queen Victoria.' The company continues to hold royal warrants of

appointment.

During the 1850s business began to decline. The partnership between the first Cadbury brothers

was dissolved in 1860, a difficult time in the company's history.

John Cadbury's sons Richard and George, who had joined the company in the 1850s, became the

second Cadbury brothers to run the business when their father retired due to failing health in

1861. John Cadbury

devoted the rest of his life to civic and social work in Birmingham until his death in 1889.

Although they had worked in their father's business for some years, the prospects for Richard.

25, and George, 21, were daunting. Their first five years were a period of unremitting toil with

few customers, long hours and very frugal living. Both seriously considered taking up other

vocations - Richard as a surveyor in England and George as a tea planter in India.

George was focused on manufacturing, and Richard with sales, but in the early days both

brothers went out and promoted their goods. Due to their dedication, sheer hard work and

improvements in the quality of Cadbury cocoa products, the business survived and prospered.

Technological Advancements

Historic packaging

Dissatisfied with the quality of cocoa products, including their own, the

Cadbury brothers took a momentous step in 1866 that not only had a bearing

on their business but revolutionised the whole of the British cocoa business.

Until that time English cocoa had been heavily adulterated with starch

substances like potato flour or sago to mask the excess cocoa butter. The

cocoa drink, as described by George Cadbury himself, was a "comforting

gruel".

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Following a visit to the Van Houten factory in Holland to see their new cocoa press, the brothers

introduced this new process to their Bridge Street factory. The press removed some of the cocoa

butter from the beans, producing a less rich and more palatable cocoa essence - the forerunner of

the cocoa we know today.

There was no need to add flour and Cadbury's new cocoa essence was advertised as 'Absolutely

pure...therefore Best'

At that time there was much concern in Parliament about the adulteration of food, including

cocoa. The new unadulterated Cadbury's cocoa essence was heralded as a major breakthrough

and resulted in the passing of the Adulteration of Food Acts in 1872 and 1875. Cadbury received

a remarkable amount of free publicity during this period and sales increased dramatically.

The marketing of this cocoa essence helped turn a small business into a vast worldwide

company.

The introduction of cocoa essence was not the only innovation that improved the Cadbury

Brothers' trade. The plentiful supply of cocoa butter remaining after the cocoa was pressed made

it possible to produce a wide variety of new kinds of 'eating chocolate,' leading to the

development of the smooth creamy

chocolate produced today.

The quality of the chocolates made by

the company following the introduction

of the cocoa press was such that in the

1870s, Cadbury broke the monopoly

which French producers had previously enjoyed in the British Market.

Cadbury's Chocolate Box

A chocolate for eating had been produced at the Cadbury factory since 1849 but it was not, by

today's standards, a very palatable product. With the availability of cocoa butter a new chocolate

recipe produced chocolate similar to that which we enjoy today.

Refined plain chocolate was made for moulding into blocks or making bars and chocolate creams

that with chocolate-covered fruit-flavoured centres.

Cadbury's "fancy chocolates"- or assortments as they are now called - were sold in decorated

boxes, with small pictures that children could cut out to stick into scrapbooks.

Richard Cadbury applied his considerable artistic talents to introduce more ambitious and

attractive box designs from his own paintings, using his own children as models or depicting

flowers and scenes from his travels. They were the first British-made fancy chocolate boxes and

were very popular. Some of his original boxes still exist.

Elaborate chocolate boxes were much prized as special gifts by the late Victorians as they could

later be used as trinket or button boxes. Chocolate box designs ranged from superb velvet

covered caskets with bevelled mirrors and silk lined jewel boxes to pretty boxes with pictures on

the lid.

The popularity of these splendid Cadbury boxes continued until their disappearance during the

Second World War. Victorian and Edwardian chocolate boxes are now collector's items.

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Cadbury Brothers Ltd

The business became a private limited company - Cadbury Brothers Limited - in 1899 following

Richard Cadbury's sudden death at the age of 63.

George Cadbury became chairman of the new board and his fellow directors were Barrow and

William A. Cadbury, sons of Richard and two of his own sons, Edward and George Cadbury

Junior.

By 1899, the Bournville factory had trebled in size with more than 2,600 employees. With the

formation of the limited company, Bournville entered a new era as the younger members of the

Board introduced new ideas - analytical laboratories, advertising and cost offices, a sales

department, works committee, medical department, pension funds, education and training for

employees.

The Bournville factory site became a series of factories within a factory, as everything needed

for the business was produced on site, including tin box pressing plants, carton making units, a

design studio and printing plant.

This policy continued until well after the Second World War when the rationalisation of the

business to mainstream activity - production and marketing of chocolate confectionery- led to the

use of outside specialised suppliers for ancillary items.

Manufacturing process

Cocoa, common name for a powder derived from the fruit seeds of the cacao tree and for the

beverage prepared by mixing the powder with milk. When cocoa is prepared, most of the cocoa

butter is removed in the manufacturing process. After the fat is separated and the residue is

ground, small percentages of various substances may be added, such as starch to prevent caking,

or potassium bicarbonate to neutralize the natural acids and astringents and make the cocoa easy

to dissolve in liquids. Cocoa has a high food value, containing as much as 20 percent protein, 40

percent carbohydrate, and 40 percent fat. It is also mildly stimulating because of the presence of

Theo bromine, an alkaloid that is closely related to caffeine.

The processing of the cacao seeds, better known as cocoa beans, is complex. The fruit harvest

is cured or fermented in a pulpy state for three to nine days, during which the heat kills the

seeds and turns them brown. The enzymes activated by fermentation impart the substances that

will give the beans their characteristic chocolate flavor later during roasting. The beans are

then dried in the sun and cleaned in special machines before they are roasted to bring out the

chocolate flavor. They are then shelled in a crushing machine and ground into chocolate.

During the grinding, the fat melts, producing a sticky liquid called chocolate liquor, which is

used to make chocolate candy or is filtered to remove the fat and then cooled and ground to

produce cocoa powder.

The beans are sold in international markets. African countries harvest about two-thirds of the

total world output; Ghana, Côte d'Ivoire, Nigeria, and Cameroon are the leading African cocoa

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producers. Most of the remainder comes from South American countries, chiefly Brazil and

Ecuador. The crop is traded on international commodity futures markets. Attempts by producing

countries to stabilize prices through international agreements have had little success.

Cadbury makes a variety of chocolates for different purposes but the two main types are

Cadbury Dairy Milk, milk chocolate and Cadbury Bourneville plain chocolate.

The taste and texture of Cadbury chocolate are based on long traditions of expertise in recipe

and processing unique to Cadbury. Techniques are improving all the time and new technology

enables the whole process to be finely tuned to match evolving tastes and preferences.

Production starts at the Chirk cocoa factory, where the highest quality cocoa beans are

processed to produce cocoa mass containing 55% cocoa butter plus extracted cocoa butter, the

basis for all chocolate products.

When plain chocolate is made the 'mass' goes straight to the Bourneville factory in

Birmingham while the 'mass' for milk chocolate production is taken to the Cadbury milk factory

at Marl brook, Herefordshire, in the heart of English dairy country.

At the milk processing factory fresh liquid full cream milk is cooked with sugar and condensed

to a thick liquid. Cocoa mass is added, making a rich creamy chocolate liquid, which is then

evaporated to make milk chocolate crumb. As these ingredients are cooked together the very

special rich creamy taste of Cadbury chocolate is produced. 95,000 tonnes of crumb a year are

produced at Marl brook to be made into chocolate at the Cadbury chocolate factories at

Bourneville, Birmingham and Somerdale, Bristol.

On arrival at the chocolate factory the crumb is pulverized by heavy rollers and mixed with

additional cocoa butter and special chocolate flavorings. The amount of cocoa butter added

depends on the consistency of the chocolate required: thick chocolate is needed for molded bars,

while a thinner consistency is used for assortments and covered bars.

In the UK up to 5% vegetable fat is added to compensate for variations in cocoa butter,

allowing the melting properties of the chocolate to be controlled to a precise standard, and

preserving the full taste and texture of the chocolate. Cadbury use carefully selected vegetable

oils similar in nature to cocoa butter: African Shea, Indian Sal and Malaysian Palm oils are all

part of the recipe.

Both milk and plain chocolate, which has had sugar and cocoa butter added to the mass before

pulverizing, undergo the same final special production stages, producing the famous smoothness,

gloss and snap of Cadbury chocolate.

Products of Cadbury: Blocks of Chocolate

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Boxed Chocolates

Old Gold

Coco by Cadbury

Be treatwise

Chocolate Bars

Bitesize

Pre-teens Confectionery

Pascall Confectionery

Nut Free Products

Kosher Products

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Dairy Milk Cadbury® Dairy Milk® milk chocolate block is Australia's favourite chocolate. It

has 'the equivalent of a glass and a half of pure full-cream dairy milk in every 200g

of Cadbury Dairy Milk, Milk Chocolate'.

Cadbury Dairy Milk, milk chocolate is the defining taste of chocolate in Australia

and is perfect for treating yourself and sharing among family and friends.

Cadbury Dairy Milk block is available in a variety of formats for all occasions:

100g, 200g and a 350g sharepack.

Ingredients: Ingredients: Full Cream Milk, Sugar, Cocoa Mass, Cocoa Butter,

Milk Solids, Emulsifiers (Soya Lecithin, 476), Flavours. May contain traces of Nuts. Milk

Chocolate contains Cocoa Solids 26%, Milk Solids 28%

Nut Free Products Cadbury manufactures a wide range of products, some of which contain nuts and nut oils.

All our products are packaged and labelled as required by Australian State and Federal food

laws.

We have stringent world-class manufacturing standards and strive to ensure that all our products

are fresh, in an excellent condition, and contain the intended ingredients.

All Cadbury Chocolate products are made in an environment where there is the possibility that

non nut products may inadvertently contain nut traces. We will always include a statement on the

product label to advise consumers of this. There is a very low probability that the Pascall range

of sugar confectionery will be contaminated with nut material, as they are manufactured in a nut-

free environment.

Kosher Products: We do not have any Kosher-certified products, however some of our products are listed in the

Mizrachi Kosher Food Bulletin from time to time.

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Globle Market Share Confectionaly of Cadbury and Nestle:

Flow Chart of New Product launch Cadbury :

Cadbury Market Share of production: 70% market share

Dairy milk alone accounts for 30% of market

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Other power brands include Perk, 5 Star, Gems

Targeting youth and adults through new products

A amazing 120 billion chocolate bars are sold in every year, 60 million of these are made

by Cadbury!

Cadbury uses 33,000 liters of milk every day for chocolate production at its one plant!

Cadbury sells over 3.5 million boxes of chocolate every year!

Cadbury Dairy Milk is the oldest chocolate brand!

Cost Structure:

The increase in the price of the product over the given three years wiz 2010, 2011 and 2012

reflects the increase in the inputs because of the inflation over the given years. This inflationary

tendency is reflected in the increased cost of material, processing, financial cost, sales team

expenses etc. despite these increases the company enjoys such a demand for its product that the

production and the demand has increased over the given years.

2011

Per Pack Per cotton

Material 260 1300

processing 40 200

financial cost 64 320

sales team exp 103 515

others (Foh,HR) 45 225

Total 512 2560

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429

870.4

1,650

0

200

400

600

800

1000

1200

1400

1600

1800

2010 2011 2012

Years

Total Costs

Rs. In Millions

2012

Per Pack Per cotton

Material 320 1600

processing 65 325

financial cost 83 415

sales team exp 132 660

others (Foh,HR) 60 300

Total 660 3300

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Pricing Strategy:

Despite the unstable economic factors causing increase in the cost of material, labor and others

the company is maintaining a steady gross margin of approx 20% around its years of production.

This is despite the fact that they having 35% share of this market which gives them an almost

monopolistic status, since all other players sin this industry have significantly less share of

market compared to them thus we can say that in future they are likely to see a significant

increased demand and their share of the total market increasing significantly. These is a healthy

attitude for a company to adopt keeping in view their costumers requirement who belong to a

very important sector of the economy there product stands to influence the output of the

agricultural sector which will greatly enhance the overall national economy

Our pricing strategies are as follows

Weight Prices

20gm pack, Rs.10

50 gm Pack, Rs.30

150 gm Pack, Rs.90

350 gm Tin, Rs.175

500 gm Tin, Rs.350

And it is concluded from the survey that customers by looking this price chart have

accepted the prices and called it as an economical.

Pricing Technique for Cadbury

There are 4 different pricing techniques that are available to Cadbury.

1. First pricing technique is skimming pricing. With skimming pricing, these prices are set very

high to take advantage of some peoples desire for a new product or design at any price.

Skimming is most effective if demand is inelastic. For e.g. Cadbury put their prices at the same

as most of their competitors and at the price their customers are able to pay.

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Cost plus pricing

Pricing methods which are based on the cost structure of Cadbury that are favored by

accountants because they are supposedly more accurate and reliable.

Cadbury is trying to maximize it profits. This method works successfully because all costs need

to be accurately accounted. In many firms this is a very difficult process which is why the

simpler

mark-up procedure is used. Cost plus pricing tends to ignore the demand for the product and the

competition.

Positioning pricing:

Cadbury uses this method to position prices that are set which reflect the consumers view of the

chocolate bean.

Demand based pricing:

Cadbury set their prices based on what they think the consumer is prepared to pay. If they don‟t

then they wont sell as good as they thought. If they do sell at the customer‟s price they will have

a good reputation and an output of more customers.

Cost cuts should significantly benefit Cadbury:

Risk

Cadbury's ongoing restructuring efforts may prove to be disruptive to the firm's operations, and it

is still highly unclear whether the company will achieve the significant margin improvement

management anticipates. Further, Cadbury's profitability may be hurt by elevated commodity

costs, particularly cocoa, sugar, and fuel costs. Finally, with nearly 40% of its sales resulting

from developing and emerging markets, the firm is exposed to volatile political and economic

climates that could pressure sales.

Strategy

Cadbury's primary objective is to drive margin gains by improving the efficiency of its business.

To achieve this, the firm is reducing stock-keeping units and scrapping 15% of its manufacturing

and distribution centers by 2011. In addition, Cadbury is placing increased emphasis on its key

brands, markets, and customers. Finally, the firm is concentrating on enhancing operations in

Russia and China, which have been a drag on profits.

Management & Stewardship

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Todd Stitzer is the CEO at Cadbury, while Roger Carr assumed the chairman role in July 2008.

In our opinion, the separation of these roles between two individuals is a positive. We also

believe that Stitzer's experience of more than 20 years at the firm, most recently as chief strategy

officer, is beneficial as Cadbury faces several challenges. Overall, we believe compensation is

fair. Two thirds of compensation is variable and performance-based, which is a plus in our eyes.

In addition, we believe the metrics by which management is critiqued--underlying earnings per

share and returns on invested capital--appropriately align management's interests with

shareholders'. We are further encouraged that Cadbury has put share-ownership guidelines in

place for its executive management group. However, we would prefer if directors were elected

on an annual basis, rather than the current three-year staggered structure. It is also worth noting

that Ken Hanna stepped down as CFO in April 2009. We liked Hanna, and he will surely be

missed. However, we believe the appointment of Andrew Bonfield (most recently CFO

ofBristol-Myers Squibb) was a sound decision. Although Bonfield is new to the confectionery

industry, we contend that his financial experience should be a plus as Cadbury seeks to trim the

excess fat from its operating structure and enhance its profitability.

Profile

Cadbury operates as the leading competitor in the global confectionery market, with product

lines spanning the chocolate, candy, and gum segments. The firm distributes its well-known

brands (such as Halls, Trident, Green & Black's, and Dentyne) in more than 80 countries around

the world. After completing the sale of its Australian beverage segment in April 2009, Cadbury

is now exclusively focused on its confectionery operations.

Growth

More than $10 billion of acquisitions have diversified Cadbury's business into faster-growing,

more-profitable segments of the confectionery market. Going forward, we expect that the firm

will seek to drive growth through small bolt-on acquisitions as well as further penetration of its

existing brand portfolio.

Profitability

Management projects a midteens operating margin by 2011, which we now believe is an

attainable goal. In our view, it is likely that Cadbury is now more intently focused on driving

cost savings to ward off Kraft's takeover bid or to justify a higher offer price.

Financial Health

We're not concerned by Cadbury's debt levels, as the firm operates with nearly £1.4 billion of

long-term debt, and adjusted earnings before interest and taxes of more than 4 times through the

first six months of 2009.

Bulls Say

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1. In our view, Kraft's unsolicited bid for Cadbury has likely motivated management to drive

further operating margin improvement in order to prove to shareholders that they would be best

served if the firm remained an independent entity or to garner a higher takeout price.

2. We believe the firm has a substantial opportunity to trim excess fat from its operating structure

and enhance profitability. Even after its cost-reduction programme, Cadbury remains more

inefficient than its global peers.

3. Cadbury is a leading player in the worldwide confectionery industry with 10.5% global share.

The firm competes in all three segments of the market: chocolate, sugar, and gum.

4. Private-label competition is minimal in the confectionery industry, as these firms only control

about 5% of the market.

5. Nearly 40% of Cadbury's confectionery sales result from faster-growing emerging markets.

Bears Say

1. Given the economic weakness in Cadbury's more mature markets, such as the U.S. and U.K.,

as well as the impact that slowing growth in the Western world could have on emerging and

developing markets, we believe Cadbury's growth could come under pressure.

2. Escalating commodity costs are a persistent issue for all packaged-food firms. Cadbury

expects its input costs to rise 6%-8% in 2009, particularly because of higher cocoa prices.

3. Cadbury failed to deliver on 50-75 basis points of annual margin expansion during its cost-

reduction programme.

4. The combined Wrigley-Mars has bypassed Cadbury as the global confectionery leader and

could represent a more formidable foe.

Independent Variables affecting demand of Cadbury Dairy Milk

Price:

This product is a brand loyal product, so if there is a slight increase in the price, the demand of the

product will remain unaffected. But if there is a decrease in the price, the demand of the product may

slightly increase.

Income:

If the income of the people increases, the demand of the product also increases and if the income of

the people decreases, the demand of the product decreases because then people will go for lower

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price chocolate like éclair or melody of Rs.1 or Rs. 2. So, there is a positive relationship between

income and the product demand.

Population & Age group:

This product is meant for the children, adults and also for the old people so the age groups are not

much affected the demand of the product so demand remain same and by the increase in the

population, the demand of the product also increases.

Brand Image:

The brand image of the Cadbury plays an important role in the demand of the Cadbury. This product

has built such a brand image that it has much attracted the mind of the consumers so they will not

like to switch over to the other brand.

Consumer’s taste and preferences:

Cadbury produced milk chocolates by using the high quality of cocoa bean and the taste has still

remained the same which has touched the heart of the consumers. So, they will not like to go for any

other product.

Competition

There are many competitors like Cadbury 5-star, Nestle Kit-Kat, parle chox, foreign chocolates

(Chinese Chocolates), lotee etc. in the market so if the price of the competitors increases, the

demand of the dairy milk also increases. But if the price of the competitor‟s decrease, the demand of

the dairy milks not much affected by it.

Price of Complementary Goods:

Cadbury dairy milk is made from the milk, sugar, cocoa bean and cocoa powder. If the price of these

complementary goods increases then there will be no change in the demand. Because Cadbury dairy

milk is a brand loyal product so there will not be any effect on the demand of the product.

Advertisement campaign:

Advertisement campaign has played a vital role in attracting the major part of the population towards

the Cadbury dairy milk. It was through this campaign like “Real Test of Life” & “Kuch Meetha Ho

Jaye” that Cadbury shifted its focus from kids to the all age people and later through “Khanewalon

Ko Khane Ka Bahana Chahiye” & “Pappu Pass Ho Gaya”, Cadbury has associated dairy milk to

celebrations and every moment of achievement and success. So, it is through advertisement that

Cadbury has gained social acceptance which has played a major role in increasing his demand.

Celebrations & Occasions:

During the festivals and occasions, the consumption of Cadbury increases because it‟s a product for

enjoying the taste of each and every moment with harmony.

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PRICE ELASTICITY Our product is a brand loyal product so if we increase our price by 20% then demand of our product

will decrease by 5% that means elasticity of price is <1. So, our product is less elastic. (If we

increase the price by Rs. 1 then demand will fall by 5 pc per 100 pc)

EP = ∆Qd . P

∆Px Q

= 5 . 5

1 100

= 0.25

[Our Product‟s price elasticity is <1 because our product is in monopolistic market]

Arc price elasticity:

EP = Q2-Q1 . P2+P1

P2-P1 Q2+Q1

= 95-100 . 6 + 5

6 - 5 95+100

= -0.28

INCOME ELASTICITY

If the income rises by 20% then the demand will rise by 10% the curve is positively sloped means

that elasticity of Income is >0 and <1.

(When the average income was Rs. 10,000 and demand was 100)

Deman

d

0 90 95 100 105 110 115

120

7

6

5

4

3

2

1

P

R

I

C

E

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EI = ∆Qd . I

∆ Ix Q

= 10 . 10000

2000 100

= 0.50

CROSS ELASTICITY OF DEMAND

If there is an increase in the price of Kit-Kat or Munch by 20% to 25% then the demand for the dairy

milk will increase by 8%.

(When there is an increase of Rs.1 in the substitute‟s price then the demand of the dairy milk will

increase by 8%)

EXY = ∆QX . PY

∆ PY QX

= 8 . 5

1 100

= 0.4

Cross Elasticity for Complementary Goods: If the price of the cocoa bean, milk and other complementary goods like plastic packaging

materials will increase constantly than the cost of the production will increase and by this the price

of the relevant product will also increase but the demand of the dairy milk will remain constant

because of it is a normal good.

Short run and long run impact in the elasticity of the demand In the Short run period of time, the demand for the dairy milk is less elastic because if the

price of the dairy milk chocolate suddenly increases Rs.5 to Rs.7, than the demand of the product

will also decrease but in the long run the demand may not be much affected.

0 90 95 100 105 110 115

120

14

13

12

11

10

9

8

I

N

C

O

M

E Deman

d

24

There are some criteria that also affects and they are like:

Our product should be in the monopolistic competitive market product.

No change in the taste and quality.

In the Long run period of time, the demand for the dairy milk is more elastic because if the price

of the dairy milk in the 2005 was Rs.5 and in the 2010 it will be Rs.10 and, the quantity and the

quality will remain the same and the other products also like Kit-Kat and Munch, if they don‟t

change any of the things like price, quality and quantity than it will greatly affect the demand of the

dairy milk and it will started decreasing day by day.

Assumptions:

There are possibilities of change in technology & chances of Product innovation in the long run.

There are possibilities of increasing good quality chocolate manufacturing units.

Band Wagon Effect:

The band wagon effect is totally depended on the mentality of the human beings. The advertisement

campaign with Amitabh Bachchan has made an increase in the demand of the dairy milk. It indicates

that if the one person is going to buy dairy milk chocolate than the other also want to buy the same

chocolate.

Snob Effect:

This is a kind of totally contra effect of the band wagon effect. If a person bought one particular

product then the other person wants superior product than the person had already bought. But in our

product the demand does not affect by the snob effect.

Revenue Structure: During the three under study the company data

shows that because of the increases production in

each year their revenue has shown a very significant

increase during the period this reflects tow thing a.

that the company has been able to control its

production cost reasonably, despite the quite

uncertain economic factors b. the company‟s

product is greatly appreciated and valued and hence

25

the total increase in the demand of the commodity. The company claims that in all these years

they never have any inventory left that they have sold everything they produce which is an

exception. 5-7% Revenue growth per annum this is the long term planning of the company.

Revenue of 2011 Cadbury

Total No. of sold in 2011 340,000.00

Per Bag Revenue

3,200.00

Total Revenue

1,088,000,000.00

Revenue of 2012

Total No. of sold in 2012 500,000.00

Per Bag Revenue

4,125.00

Total Revenue

2,062,500,000.00

572

1088

2062.5

0

500

1000

1500

2000

2500

2010 2011 2012

Years

Total Revenues

$ in Billions

26

Market Structure: There are almost ten large firms operating in the industry of confectionary apart from these large

industries there are several other small firms who are involved in the production of confectionary

and milky products observed market situation suggests that there is a Monopolistic Competition

going in the food products. There are large numbers of buyers but relatively limited number of

sellers. It is easy to enter in the market of food production. Each firm sale its product under their

unique brand name. There are no limitations of entering and exiting the market.

Cadbury is enjoying the market leadership for the last couple of years due to their high quality of

seed, competitive prices and large marketing network.

Cadbury

Market

2010

Percentage

%

2011

Percentage

%

Cadbury

1,100,000 35.48

1,700,000 36.17

Nestle

1,100,000 35.48

1,200,000 25.53

Kraft Foods

200,000

6.45

400,000

8.51

Ferrero

100,000

3.23

200,000

4.26

others

400,000 12.90

550,000 11.70

Total demand

3,100,000 100.00

4,700,000 100.00

27

Supply Curve: Looking at this curve which for three years shows significantly their increase in production for

respective years which has greatly benefited company‟s revenues.

0

5

10

15

20

25

30

35

40

Cadbury Nestle Karft foods farrero Other

Market Share 2011

Percentage %

520

640

825

400

600

800

1000

1.1 Million kg (2010)

1.7 Million kg (2011)

2.5 Million kg (2012)

Price Rs.

Quantity

Supply Curve

Sales prices per year

28

Demand Curve:

Comparison between Marginal Revenue and Marginal Cost:

It is evident from the presented data that the company is continuously increasing its production

annually and at the same time all the profit earned by the company is reinvested to facilitate next

years increase of production we have compared the increase in marginal cost due to the increase

in production and increase in marginal revenue due to the increase in sales and from that it has

been concluded that the overall Marginal revenue of the firm is Greater than the Marginal cost

i.e. MR>MC.

2011 2010 Net Change

Increase in quantity

(Units)

1,700,000

1,100,000

600,000

Increase in Revenue ($.)

1,088,000 572,000 516,000

MR =

516,000,000

1.1 Million kg (2010), 520

1.7 Million kg (2011), 640

2.5 Million kg (2012), 825

0

100

200

300

400

500

600

700

800

900

0 0.5 1 1.5 2 2.5 3 3.5

Axi

s Ti

tle

Axis Title

Chart Title

Series1

29

600,000

MR =

Rs.860

2011 2010 Net Change

Increase in Quantity

(Units)

1,700,000

1,100,000

600,000

Increase in Cost ($)

870,400,000 429,000,000 441,400,000

MC =

441,400,000

600,000

MC = Rs. 736

MR>MC

CADBURY'S ADVERTISING STRATEGY: Chocolates have usually been viewed as something meant only for children. Perhaps realizing

that children would be attracted to any chocolate, irrespective of the brand, CIL targeted adults

with their advertising since the early 1990s. Most, if not all, of Cadbury‟s advertisements in India

feature people over 18 years of age.

The message that CIL seems to be attempting to put across is this: “In every adult, there is a

child - let that child express itself, give in to temptation, and satisfy his or her desire to sink teeth

into a smooth, creamy, delicious chocolate”. This approach appears to be unique to Cadbury‟s.

CIL‟s biggest competitor, Nestle, often stresses the energy giving aspects of chocolate (for

example, in advertising for Nestle Charge), or on other attributes of the chocolate - taste in the

case of Nestle Crunch, as a light snack in the case of Nestle Bar One. Nestle specifically targets

children in the advertising for Milkybar, its white chocolate, again emphasizing its energy giving

properties.

To counter Milkybar, CIL has the Dairy Treat - where it targets the mothers of children by trying

to convey the message that its product is full of the goodness of milk, and so equivalent to

consuming milk itself.

30

Message Execution Cadbury‟s multi-award winning campaign - „The Real Taste of Life‟ - launched in the 90‟s

attempts to capture the child like spontaneity in every adult. From the old man offering his wife a

Dairy Milk chocolate to the dancing girl in a crowded stadium, all reflect the impulsiveness and

the spontaneity of the child in the adult. Cadbury‟s Perk, the light snack, addresses the hungry

child in every adult, as exemplified by the bride who nibbles at a Perk under her „pallu‟.

Cadbury‟s Dairy Treat conveys its message through the mother who refuses chocolates and other

treats to her son, till Dairy Treat comes along and quickly changes her opinion about chocolates.

Catchy lines such as „The Real Taste of Life‟, „Khane Walo Ko Khane Ka Bahana Chahiye‟, or

„Reach for the Stars‟, are also used extensively, and to good effect in Cadbury‟s advertisements.

Advertising Media

Television, the print media and posters have been the main media of communication for

Cadbury‟s advertisements. However, with their understanding of the peculiarities of the Indian

market, CIL has also explored many new ways of getting their message across to the consumers.

Sheet Metal Dispensers: This purple salesperson for Cadbury‟s is found in almost every shop

stocking their chocolates. Since it is placed on the cash counter, it‟s design offers visibility, ease

of vending, and protection from the elements. It is also placed in the most appropriate position to

cater to the impulse buyers. This „first‟ from CIL has become so popular that is now the standard

design for all chocolate manufacturers. Visicoolers: Visibility for chocolates drops in the

summer, as they disappear into the refrigerator. In high throughput outlets, the visicooler serves

the need for cooling while still maintaining the visibility of the product. Jars: These are provided

to small outlets, where they are prominently displayed.

Nestle:

Introduction:

31

Nestlé is a global leader in health, nutrition and wellness. Consumers around the world, from

village squares in Nigeria to the skyscrapers of New York and Chicago, are united by the Nestlé

promise of quality, taste, nutrition and convenience. Though headquartered in Vevey,

Switzerland, we now have factories or operations in almost every country, employing around

280,000 people. In 2008, our global sales reached CHF

108 billion.

Our operations are spread across three global zones

covering Europe, the Americas, Asia, Oceania and

Africa. Recognizing that every region has its special

needs, the three zones operate locally, but are united by

a common vision and priorities. The voices of even the

smallest local markets are heard at our headquarters in

Vevey, Switzerland.

Our immense popularity comes from our efforts to develop products that give quality and

nutritional benefits at low prices, even in the most remote regions. We distribute using local

means; in Madagascar, for instance, backpacker salesmen sold over 12 million MAGGI tablets

within six months, an approach that was duplicated in Pakistan and Mozambique.

Our consumers know that they can rely on us to be there when we are needed.

Mission Statement:

"Nestlé is the largest food company in the world. But, more

important to them is to be the world's leading food company”.

Corporate Social Responsibility

Our presence in the community is not restricted to making Nestlé products available to

consumers; it brings with it a responsibility to those around us. In China and Pakistan, we

provide animal husbandry assistance to thousands of farmers. In

Brazil, our food education programme has trained hundreds of

volunteers to teach families about nutrition, health and hygiene.

And in India, we finance and oversee the provision of clean water

at village schools near our factories, benefiting some 20,000

children.

Good Food, Good Life

Henri Nestlé chose his own coat of arms to represent the

company's philosophy: a bird's nest, with a mother feeding her

32

young. The image represents our core values: care, family values, nutrition, healthy growth,

safety and comfort. It is a guarantee of quality and a commitment to our responsibilities as a food

company and experts in nutrition.

Over the years we have reaffirmed our commitment to wellness, helping our consumers to live

longer, healthier, and more productive lives, no matter their age, gender or socioeconomic status.

Good Ingredients

Three vital ingredients lie at the heart of Nestlé and come together in our brands: our people, our

research and development, and our commitment to quality. The dedicated people who make up

the Nestlé family are our source of strength and energy. Realising this, we offer them constant

professional development, and feel our cultural diversity is one of our greatest assets. Today, we

are one of the largest investors in food technology. R&D is the cornerstone of the Nestlé

guarantee of quality. We consider quality in three key

dimensions: health, sensory pleasure, and social

applicability. Thus we try to provide nutritious, tasty meals

that offer value and are culturally relevant.

Good Practices

As the world changes, we at Nestlé evolve and adapt to

new circumstances and environments. Nevertheless our business practices are founded on certain

tenets that reflect the basic ideas of fairness, honesty, and concern for people. We are committed

to the following business principles in all countries, taking into account local legislation, cultural

and religious practices:

Nestlé's business objective is to manufacture and market the Company's products in such a way

as to create value that can be sustained over the long term for shareholders, employees,

consumers, and business partners.

Nestlé does not favour short-term profit at the expense of successful long-term business

development.

Nestlé recognises that its consumers have a sincere and legitimate interest in the behaviour,

beliefs and actions of the Company behind brands in which they place their trust, and that,

without its consumers, the Company would not exist.

Nestlé believes that, as a general rule, legislation is the most effective safeguard of responsible

conduct, although in certain areas, additional guidance to staff in the form of voluntary business

principles is beneficial in order to ensure that the highest standards are met throughout the

organisation.

33

Nestlé is conscious of the fact that the success of a corporation is a reflection of the

professionalism, conduct and the responsible attitude of its management and employees.

Therefore, recruitment of the right people and ongoing training and development are crucial.

Nestlé‟s global vision is to be the recognized leading Nutrition, Health and Wellness Company.

Nestlé Pakistan subscribes fully to this vision of being

the number one Nutrition, Health, and

Wellness Company in Pakistan.

In particular, we envision to; Lead a dynamic, motivated

and professional workforce proud of our heritage and

positive about the future. Meet the nutrition needs of

consumers of all ages – from infancy to old age, from

nutrition to pleasure, through an innovative portfolio of

branded food and beverage products of the highest

quality. Deliver shareholder value through profitable

longterm growth, while continuing to play a significant

and responsible role in the social, economic, and environmental sectors of Pakistan.

Total sales for the year grew by 25% exceeding PKR 51 billion. This growth was split between

Real Internal Growth (RIG) and pricing movements which contributed 15% & 10% respectively.

Export sales went up by +24.5% to PKR 4.0 billion (2011: 3.3 billion) as we continue to

leverage our brand strength in Afghanistan.

“Nestlé” is a Swiss-German word which means “Little Nest” which is its trademark

Nestlé is the worlds‟ number one food company

5th

largest company of the world according to its turn over

2 million 31 thousand people employed from all over the world

Present in 81 countries of the globe having 522 factories

Over 700 products renovated or innovated in the past five years, with wellness in

mind

Brands

34

Nestle Market:

24% market share

Chocolates 13-15% of total revenue

Product range includes Classic, kit Kat, Munch, Choco stik, Bar one

CONCLUSION Price plays an important role in the purchase of a product like dairy milk they have

introduced dairy milk the most popular chocolate in Rs.5 also which is within the reach

of every customer.

Consumer prefers quality goods at lower price like Cadbury people just introduced bytes,

which is a snack, which is sweet.

Consumer is loyal to brand so it‟s necessary to pay attention to the brand image. In

today‟s world most of the people see the image of the product and then purchase it. So

it‟s necessary to make an image in market.

Consumer prefers those goods whose advertisements are shown on television.

Price should be according to the competitor‟s price .i.e the price of Cadbury should be

less or same as the competitors price. .

RECOMMANDATION There should be difference in pricing strategy of Cadbury i.e. in term of rural and urban

areas.

35

It should show more and more ad of the chocolates that it is offering. For Example,

Cadbury only emphasis on Dairy milk chocolate the most and not the other products.

It should introduce different schemes like giving mask to the children with their product

to attract children the most.

The packaging of the Cadbury product should be made more attractive so that more and

more people attractive towards it. Every customer likes changes if not they get used to it

but they should take risk.

References:

http://news.bbc.co.uk/local/birmingham/hi/people_and_places/newsid_8467000/84

67606.stm

www.Cadbury.com

www.nestle.com

Group study discussion, research and book study of Managerial Economic by

www.down.com/articals

www.cadbury.co.uk

Wikipedia www.businessteacher.org.uk