paper 3 theory

Mass markets + pros and cons

Markets aimed at the general population

Pros: economies of scale and lower average unit costs, mass marketing, high revenues, research and development

Cons: competition, not flexible to demand changes from high volume

niche market + pros and cons

A subset of the main market and adresses specialist needs, smaller market size and share

Pros: premium pricing, easier to target, small scale production can follow trends, less competition

Cons: very risky as demand may not be constant, small range, higher unit costs and longer to produce

niche marketing strategies

• one that caters to a small subset of a segment and targets in very specific ways

• Designed for specific purpose

• Small turnover keeps larger firms away from the market

• Inelastic demand means higher prices

• Specialist magazines, trade fairs, websites, leaflets

factors that shift the demand curve

Population

income

related goods

advertising

trends

environment

substitute goods

factors that influence price elasticity of demand

Substitutes

population

luxury of necessities

addictiveness

time

factors affecting income elasticity of demand

nature of good

income levels of consumer

time

cultural factors

Design mix

Product design is meeting the design mix identifies market needs e.g. function/ aesthetics/ cost

Benefits of adapting product design in line with environment consideration

Fewer recourses- lower cost- higher profit

More likely to be popular- raise sales

Use design feature gives a usp- more price elasticity of demand

More likely to be viewed as good corporate citizens- use if corporate social responsibility

branding

A business that is public distinguished from other businesses so that it can be easily communicated and usually marketed

• established recognition and identity

• Builds trust and credibility

• Differentiates a business from its competitors

• Creates emotional connection with customers which helps generate repeat purchases

• Supports marketing and advertising efforts

own brand branding + pros and cons

pros- ties consumer to retailer, value for money, High profit from low costs, Can lead to bargaining power with brands as consumers prefer cheaper brands so brands supply at discounted prices

cons- May be seen as Lower quality from packaging and brand as well as cheaper piece

branded biscuits hold 57.5% of revenue share, 50% pf chocolate buyers switch to cheaper own labels when prices rise

product branding

distinct identity for a specific product, differentiating it: unique name, logo, design, and messaging to build a strong brand image and foster customer loyalty

• can charge a premium price

• Customers stay loyal

• Repeat purchases

  however

• Creating and branding new brands for each product can be expensive

• Can be difficult to make new brands form scratch

corporate branding

use of a company name or logo to promote all the products or services offered by the company

• Improves reputation for company, customer loyalty

• introduction of new products

• promote multiple products which reduces marketing costs

  cons

• time consuming and costly

• Influences sale of products strongly

Changed in branding and promotion to reflect social trends

viral marketing- brand awareness through word of mouth

Social media

Emotional branding- created bond between consumer and business

product life cycle

Development:

introduction: high cost for read watch and development

growth: rapid growth in sales and could gain economies of scale, investment would be in promotion

maturity: products face intense competition now all producers have joined the market

decline: limited on production or it any cease altogether

extension strategies

Product: updating or adding value to existing product

change packaging, promotion, find new uses for product, new markets, advertising, encourage grater it more frequent consumption

e.g. launching Snickers Ice Cream bars, new flavor variants (like Coca-Cola Zero Sugar), and seasonal items (like Reese’s Trees),

Cost plus pricing

The cost to produce the product and then money added on top

price skimming

A product is priced high to begin with because it has a desirability factor and then after a while price is decreased so customers will want it when new

penetration pricing

Setting prices really low on a new product to encourage sales and persuade customers to try it then when they lien the product and keep buying it, raise pricing, low prices should gain the business more market share

predatory pricing

existing business may hold if the threat of a new entrant by lower the prices so that any competition can’t make profit, deters and pushes competitors out the market

competitive pricing

Some products or service as priced in line with competitors, means a costumer will judge business on other non price factors

factors that determine price

• number of usps/ differentiation

• Price elasticity if demand

• Level of competition in the business environment

• Strength of brand

• Stages in the product life cycle

• Costs and the need to make a profit

use of PED: predictions

Change in price in total revenue of sales

Price volatility on the market

Effect of a change in an indirect tax, whether tax can be passed onto producer

As well can be used for price discrimination:

Charging different prices for some products to different segments of the market

Charge higher prices to consumer who demand is price in-elastic

Engage in surge pricing

effect on a business in changes in exchange rate

value of one currency expressed in terms of another

• important economic influence for businesses that import raw materials and components and for businesses that export their products

• fluctuate from:

  • Changing demand for a currency

  • Economic growth

  • Changes to interest rates

An increase in the value of the £: sales fall and may need to lower prices for exporting business, cost fall and may lead to expansion from importing businesses

decrease in the value of the £: sales rise and increased selling price for exporting businesses, costs rise and business may seek domestic sellers for importing business

imports for buying cocoa, sugar and packing

exporters for selling uk chocolate overseas

businesses importing finished products like ferrero rocher from italy

effect on a business in changes in business cycle

• upturns and downturns in the level of a country’s economic activity (GDP) over time

  • A recession occurs when an economy experiences two consecutive 6 months of negative growth

  • A boom is defined as a period of time where an economy experiences increasing/high rates of economic growth

recessions: less disposable income, easier hiring, delay spending, production levels reduced, stockpile, increased spending on welfare benefits.

boom: higher sales revenue, staff retention more challenging, expand and maximise profits, prodcution levels increase, interest rates rise, lower spending

effect of economic uncertainty on a business + confectionary businesses

• occurs when it is difficult to forecast the level of supply and demand in an economy

• planning difficult, reluctant to make significant decisions, with capital expenditure

• Economic uncertainty from:

  • Fluctuating exchange rate

  • Economic growth uncertainty

  • Turbulence in the price of key commodities

• Businesses must always be prepared by

  • Building up cash reserves

  • informed about the economic climate

  • Being ready to take advantage of opportunities when they arise

cocoa prices late 2023 to 2025 surged to ver $12,000 tonne and early 2026 below $4,000 per tonne

us tariffs

post brexit eu trade

cptpp membership

eu deforestation rules

external factors affecting a business

Political: HFSS advertising restrictions and displays in store (small businesses exempt), natasha’s law, post brexit trade barriers,

Economic: cocoa prices, inflation, cost of living squeeze (37% rise in food prices), rising wages

Social: health consciousness (40% looking for healthier options), ethical sourcing, premiumisation (has a 6.71% annual growth and 61% see premium chocolate as a treat they can still afford), plantbased (64% businesses have added vegan products)

Technological: e-commerce (estimated 800m in online confectionary sales with 25% yearly growth), ai, social media (dubai chocolate, candy kittens grew 23% in 2024)

Legislation: packaging taxes, allergen labelling, eu deforestation regulation, post brexit trade barriers (exports have dropped 34% since brexit)

Environment: climate impact, season (easter, bournville factory produces 47m easter eggs a year, christmas knoops saw a 22% sales growth at christmas)

changing competitive environment

• change as a result of some internal factors can be rapid and can lead to swift improvements in competitiveness

• change as a result of external factors is more likely to be gradual and involves a business carefully selecting and pursuing an appropriate long term competitive strategy

• research suggests that change has an overall positive effect on a business competitiveness when it brings management and engaged employees together and their efforts coordinated

global marketing

proccess of planning, producing, placing and promoting a businesses product or service to the global market

ethnocentric

• businesses see the domestic and foreign markets as very similar, this approach is based on the belief that the companies home country culture and marketing practices are superior to those of other countries.

• no changes to products for overseas customers and marketing of the product will be the same

• e.g. traditional British Sweet Shops: Bon Bon’s is a wholesaler that supplies traditional British confectionery—such as boiled sweets and classic liquorices—to high-quality retailers

advantages:

• businesses can benefit from economies of scale as the product is standardised and produced on a large scale

• costs are also lower as there is no investment into product development to adapt products for different markets

disadvantages:

• this business could potentially lose sales as the product is not tailored to the needs and wants of markets overseas

• this approach can lead to cultural insensitivity and may not resonate with local customers in other countries

polycentric

• businesses adapt their marketing strategy by tailoring their products to the local market

• the company treats each country as a unique market and develops a customised marketing mix for each market

• e.g. kitkat developed different adaptations of the chocolate to reach the different consumers in the international market, packaging for kitkat in japan was changed to include cherry blossoms (symbol of good luck), additional flavours such as purple sweet potato and matcha powder

advantages:

• sales are likely to increase as the product is tailored to meet customer needs

• this helps to develop brand loyalty in overseas markets

disadvantages:

• product development to adapt the product may increase average unit costs

• there will also be additional costs in market research to find out about the market

geocentric

• mix of poly and ethnocentric

• utilises the benefits of standardised products but also tailor products to meet the needs of local markets overseas while maintaining a consistent brand image across markets

• Ferrero Group: An exemplar of a geocentric approach, Ferrero provides nearly identical high-quality products globally, with consistent branding for products like Kinder and Tic Tac across different markets.

advantages:

• sales are likely to increase as the product is tailored to meet the needs of customers

• this helps to develop brand loyalty in overseas market

disadvantages:

• there will be costs associated with the product development and menu changes required to meet the needs of the local market

adapting and applying marketing mix to global markets

place: identify best channel of distribution to get the product/service to the customer in a particular market, available technology as many transactions take place via e-commerce (large groceries take up 72% of confectionary sales, convenience growing, specialist retailers, DTC 800m, subscription boxes)

product: how much they should modify or adapt their products to meet new markets overseas, consider if they take an ethnocentric, polycentric or geocentric approach

price: consider customer incomes, cost of production and taxes, stage of product life cycle, state of economy will impact

promotion: meet language and cultural differences, must ai to choose the most effective method of promotion of products in that market, e.g. social media may be an effective marketing tool in some markets but less effective in others

adapting and applying ansoffs matrix to global markets

market penetration: selling existing products into existing markets, carries the least risk- if a business operates in a market and launches another product, customers are already familiar with the business (harder with HFSS rules)

market development: selling existing products in a new market. businesses have to adapt the product to meet the needs of customers in global markets who have different preferences, carries more risk as customers may not understand the product, e.g. withdrawal of tesco from chinese markets as they lacked understanding of consumer habits (emerging markets growing at 5.8%)

diversification: new products for new markets, high risk as businesses have limited knowledge about markets, requires deep understanding of local market conditions and consumer behaviour to ensure that the new product and market are a good fit for the business (mars buying kellanova for 35.9bn moving into wider snacking)

product development: a growth strategy where a business aims to introduce new products into existing markets, which requires market research to identify the target markets needs and preferences, developing products that meet those needs and adapting the marketing mix to ensure that the products resonate with local consumers (reformulation for HFSS)

cultural diversity

• recognises the ideas, customs and social behaviours of a particular people or society in different global markets

• businesses need to take into account the different cultural behaviours and customs when operating in overseas markets

• eg. UAE rules around consumption of alcohol that businesses need to adhere to

impact of MNCs on the local economy: employment wages and working conditions

advantages: job creation for the local community

more competitive wages than local businesses

offer better working conditions than local businesses

disadvantages: may exploit local workers if employment regulations are weakened or not enforced

tend to establish production facilities in regions where labour cost are low and pay relatively low wages

may not care for job creation as they may relocate workers from their own country to work abroad (specifically chinese companies)

impact of MNCs on the local economy: local businesses

advantages: can help to boost the local economy creating opportunities for local business- if population is benefiting from higher wages they may spend more on local business products, mncs may utilise the services of local businesses

there may be a potential opportunities for joint ventures and partnerships with MNCs who seek to gain knowledge of the local market: local forms may learn new skills and production methods that allow them to become more efficient

disadvantages: mncs reduce supply of workers available to local businesses if they offer better pay and working conditions

if mncs are able to produce at a lower cost and compete with local businesses they may lose local customers: causing unemployment for workers of local businesses

impact of MNCs on the local economy: local communities and environment

advantages: local residents may benefit from job opportunities and growth in the local economy

mncs often invest to improve infrastructure- roads, transportation, access to water and electricity

mncs may have to pay taxes and business rates to local councils/ authorities: reinvested back into local community

mncs can establish charitable initiatives that have a positive effect on the local community

disadvantages: damage to local habitats/ environment during production process e.g. shell oil pollution in vulnerable communities in nigeria

mncs may leave unsightly production facilities behind one they have extracted all the resources and left the country

impact of MNCs on national economy : FDI flows

• inflow of money in a country if a MNC decides to invest money into a country through FDI

advantages:

• initial lump sum of money that enters the country to pay for the investment: this enriches local firms and citizens who now have more money able to spend in the economy, if money is reinvested back into the local economy, it may help to generate new jobs and boost economic growth

disadvantages:

• assets from the home country are now owned (or partly owned) by foreign businesses

• the local firms or individuals who have sold the asset, may not reinvest the money into the local economy but may move it abroad/ offshore

impact of MNCs on the national economy: technology and skills transfer

• can bring new technologies and skills to local businesses

• this will help improve efficiency and productivity, helping domestic businesses to become more competitive in the national and international market

impact of MNCs on the national economy: consumers

advantages: consumers benefit from-

• a wider choice of goods/services

• lower prices if MNCs pass their cost advantages on in the form of lower prices

• better quality of goods and services

• improved living standards as people may have higher incomes due to the job creation and the resulting reduction in unemployment

disadvantages:

• push domestic businesses out of the market leaving consumers with less choice

• may lead to MNCs exploiting customers with higher prices and low quality products as they have limited choice

impact of MNCs on the national economy: business culture

advantages:

• domestic businesses may be influenced by business culture of mncs: uk businesses in 1990s adopting japanese working practices because of nissan, more open and employers start to copy ideas such as kaizen

• culture of entrepreneurship: help boost overall economic growth

disadvantages:

• mncs may demonstrate unethical behaviour and have a company culture of exploitation: e.g. bangladesh is used by many clothing brands to produce cheap clothes and many turn blind eyes to the bad working conditions, which encourages local firms to do the same

impact of MNCs on the national economy: tax revenue and transfer pricing

• potential for host country to gain significant tax revenue

• governments can use tax revenue paid by MNCs to invest in improving public services and infrastructure

however, MNCs seek to maximise profits and will try to reduce their tax liabilities: transfer pricing is a technique used by MNCs to shift profits from where they are generated to countries with lower tax rates, this is a method of tax avoidance and means that the businesses will pay less tax in the host country

impact of MNCs on the national economy; balance of payments

• shows all the financial transactions between a country and the rest of the world

advantages:

• MNCs can help to improve the balance of payment of a country as the FDI flows into the country will help improve their balance of payments

• any goods or services exported for sale by the MNC will generate further inflows to the country’s balance of payments, especially beneficial to a country when the mnc is exporting a rare and valuable raw material e.g. cobalt

disadvantages:

• if an MNC buys raw materials or equipment abroad there is a flow of money out of the country

• if the MNC sends profits back to their home country, this represents a flow of money out of the country

conditions that prompt trade: push and pull factors

push factors: saturated markets as too much competition may lea to business having to grow to survive and not make profit (reduce prices, expensive risky expansion) , competition (threat of substitutes)

pull factors: economies of scale as cost are reduced, benefit from bulk buying, technology and productivity and spreading of risk as it can take more risks as it has business to fall back on in case of failure)

conditions that prompt trade: offshoring and outsourcing and examples

offshoring- relocate business overseas, taking advantage of low labour costs in manufacturing, cost efficiencies and supply chains

outsourcing- business function is contracted out to a third party which may or may not be located abroad, like HR, IT, accountancy, research, marketing

call centre in India: hub of talent, software and infrastructure, 24/7 operation, English speaking

china and Brazil have a lot of cheap skilled workers

Philippines have a lot of young graduates with strong work ethics

reasons for global mergers

• spreading risk over different countries

• entering new markets/ trade blocs

• acquiring international patents/ brand names

• securing resources/ supplies

• maintaining/ increasing global competitiveness

porters strategic mix

cost leadership

differentiation

focus

reasons for staying small

• can offer more personalised service- excellent customer service

• unable to access finance for expansion

• provide a product in a niche market- small market size but very profitable

• high ability to respond quickly to changing customer needs

• rapid growth can cause dis economies of scale

• The owner's goal is not profit maximisation

• market may have low barrier to entry and may be a side business

• owners preference: do not want to move into the bracket of adding vat

CSR

voluntary actions businesses take to manage their social, environmental, and ethical impacts beyond legal requirements. It aims to improve reputation, build trust with stakeholders (employees, customers, community), and strengthen competitiveness, often balancing profit with purpose

impact of MNCs on the national economy: environmental considerations

• climate change and global warming increasing concerns for government, encouraging to improve environmental impact

• waste management many developed countries have regulations about how businesses should dispose of their waste, LEDCs usually have less regulation and enforcement on waste management- poor waste management infrastructure, also dispose of waste in LEDCs at a cheaper costs which allows maintenance of profits

• four major MNCs (coke, pepsi, nestle, unilever) dispose of over half a million tonnes of plastic across six developing countries

• emissions are often released from factories or products made by MNCs

• carbon database found that 100 companies are responsible for 71% of the global emissions that cause global warming

• emissions have a negative impact on local communities- health issues, asthma, cancer, skin irritations

volume vs value

volumes are falling but spending is rising:

• less being bought as households moving from 143g to 126g per person of chocolate

• but chocolates prices up 17% year on year and still strong growth

shrinkflation and skimpflation

shrinkflation is the same price but smaller product (quality street rubs from 600 to 550g)

skimpflation is the same price with cheaper ingredients (penguin bars now chocolate flavoured instead of chocolate)

global vs uk confectionery market

uk market- chocolate has a value of 4.5bn with a 5.1% projected growth and takes up 72% of the confectionary market

confectionery volumes fell 11.9% between 2023-24

own label is the fastest growing

household purchases 143-126g a week

cpi index 126.4 ro 156.9 from 2023-26

global- worth $220-325bn with annual growth between 3-6%

Asia Pacific is the fastest growing region 5-7%

indian chocolate market is growth at 6.75-8.1%

china generates $7.75bn in chocolate revenue

middle east and africa the fastest growing chocolate region (7.5%)

external growth + examples in the confectionary business

when a business expands by joining with or taking over other businesses, rather than expanding its own operations.

e.g. in the confectionary business

mars and hotel chocolate to give mars a strong position in premium gifting

ferrero and wk kellogg which helped make giants in north america

mondelez and hershey- would have put nearly 50% of global chocolate in three companies

internal growth

occurs when a business expands its own operations rather than merging or taking over other firms. It is achieved by developing new products, increasing production capacity, investing in new technology, or entering new markets

new product launches- cadbury dairy milk biscoff, kitkats 30% reduced sugar tablets, dubai style pistachio bars

own label catching up- aldi is now the top company for chocolate launches in the uk

cocoa alternatives- mondele invested 4.5 million in celeste bio (cell- cultured cocoa)

independents vs MNCs

typical usp: independents have craft, locality, storytelling and experience, MNCs have scale, consistencies, mass marketing

cost structure: Independents have higher unit costs, less hedging, less automation, MNCs have lower unit costs, hedging teams and automated production

pricing power: independents can charge 20-40% premium in niche, MNCs strong for iconic brands

commodity shock resilience: independents have low cocoa volatility, MNCs high as they can hedge

best strategy: independents use a focus strategy through premium niche ethical and local, MNCs use differentiation and scale

HFSS impact: independents exempt under 250 staff and can online advertise, MNCs restricted in placements, promotion and online

typical price point: independent can charge 4-8 pound per bar, MNCs can charge £1-2 per bar

how multinationals vs independents compete

MNCs:

• EOS- pladis runs 27 factories in 11 countries, mass production, mondelez has factories in every continent

• hedging and risk management: can lock in cocoa prices

• brand portfolio power- mondelez owns cadbury, orea, toblerone and green and blacks

• distribution and shelf space- 96% of uk adults recognise cadbury

• marketing budgets

independents:

• differentiation strategies: premium pricing, ethical positioning (tonys chocolonely $230m brand), provenance and craft (willies cacao grows its own beans), experiential retail, DTC

porters 5 forces

supplier power: MNCs can hedge and buy in bulk so low, high for independents buy spot prices from small volumes

buyer power: for mncs medium due to strong brand but supermarkets still dictate terms, high for independents as supermarkets can delist easily

threat of new entrants: MNCs low as barriers are huge, medium for independents as low barriers to start but hard to grow

threat of substitutes: MNCs medium due to own label, healthier snacks for independents medium due to similar threats but compete with MNCs

competitive rivalry: MNCs intense as three firms control 60% of chocolate so price wars possible, intense for independents as hundred of small brands in fragmented premium segment

how small business response to external factors

raising price

reduce pack sizes

go premium/ ethical

shift to DTC/ online

reforumlate

international marketing approaches examples

cadbury- same purple globally, and dairy milk as the core product across all markets, but cheaper pack sizes for different price points, #notjustacadburyad diwali

snickers- same idea, done differently in every market, china is adapted through celebrities and cultural contexts

kitkat- have a break and have a kitkat runs across 80 countries, 400 new flavours for japan

differing regulations: HFSS, EUDR/deforestation, labelling and allergen rules, tariffs