ECONOMIC ANALYSIS OF

CADBURY AND NESTLE

ss[Type text]

Page 1

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

Table of Content

INTRODUCTION:

THE QUAKER INFLUENCE:

CADBURY BROTHERS OF BIRMINGHAM
TECHNOLOGICAL ADVANCEMENTS
HISTORIC PACKAGING
CADBURY'S CHOCOLATE BOX
CADBURY BROTHERS LTD

7
8
8
8
9
10

MANUFACTURING PROCESS

10

PRODUCTS OF CADBURY:

12

DAIRY MILK
NUT FREE PRODUCTS
KOSHER PRODUCTS:

13
13
14

GLOBLE MARKET SHARE CONFECTIONALY OF CADBURY AND NESTLE:

14

FLOW CHART OF NEW PRODUCT LAUNCH CADBURY :

15

CADBURY MARKET SHARE OF PRODUCTION:

15

COST STRUCTURE:

16

PRICING STRATEGY:

18

PRICING TECHNIQUE FOR CADBURY

19

COST PLUS PRICING

DEMAND BASED PRICING:

19
19

COST CUTS SHOULD SIGNIFICANTLY BENEFIT CADBURY:

20

RISK
STRATEGY
MANAGEMENT & STEWARDSHIP
PROFILE
GROWTH
PROFITABILITY
FINANCIAL HEALTH
BULLS SAY
BEARS SAY

20
20
20
20
21
21
21
21
21

INDEPENDENT VARIABLES AFFECTING DEMAND OF CADBURY DAIRY MILK 22

PRICE:
INCOME:
POPULATION & AGE GROUP:
BRAND IMAGE:
CONSUMERS TASTE AND PREFERENCES:
COMPETITION
PRICE OF COMPLEMENTARY GOODS:
ADVERTISEMENT CAMPAIGN:
CELEBRATIONS & OCCASIONS:

22
22
22
22
22
22
23
23
23

PRICE ELASTICITY

23

ARC PRICE ELASTICITY:

24

INCOME ELASTICITY

24

CROSS ELASTICITY OF DEMAND

24

CROSS ELASTICITY FOR COMPLEMENTARY GOODS:

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

25
25

REVENUE STRUCTURE:

26

MARKET STRUCTURE:

27

SUPPLY CURVE:

28

DEMAND CURVE:

29

COMPARISON BETWEEN MARGINAL REVENUE AND MARGINAL COST:

30

CADBURY'S ADVERTISING STRATEGY:

31

MESSAGE EXECUTION

31

NESTLE:

32

INTRODUCTION:
MISSION STATEMENT:
CORPORATE SOCIAL RESPONSIBILITY
GOOD FOOD, GOOD LIFE
GOOD INGREDIENTS
GOOD PRACTICES
BRANDS

32
32
33
33
33
33
35

CONCLUSION

36

RECOMMANDATION

36

REFERENCES:

36

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.

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.
7

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
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".
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.
9

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.
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.

10

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, Cte d'Ivoire, Nigeria, and Cameroon are the leading African cocoa
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.
11

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
Boxed Chocolates
Old Gold
Coco by Cadbury
Be treatwise
Chocolate Bars
Bitesize
12

Pre-teens Confectionery
Pascall Confectionery
Nut Free Products
Kosher Products

13

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 nutfree 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.

14

Globle Market Share Confectionaly of Cadbury and Nestle:

Flow Chart of New Product launch Cadbury :

Tasting

Cadbury Market Share of production:

70% market share
Dairy milk alone accounts for 30% of market
15

 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

Material
processing
financial cost
sales team exp
others (Foh,HR)
Total

Per Pack
260
40
64
103
45
512

Per cotton
1300
200
320
515
225
2560

2012

16

Per Pack
320
65
83
132
60
660

Material
processing
financial cost
sales team exp
others (Foh,HR)
Total

Per cotton
1600
325
415
660
300
3300

Total Costs
1800

1650

1600
1400
1200
1000

870.4

800

Rs. In Millions

600

429

400
200
0

1
2010

2
2011

3
2012

Years

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
17

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

20gm pack,

Prices

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.

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.
18

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 dont
then they wont sell as good as they thought. If they do sell at the customers 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

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.
19

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

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.
20

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 costreduction 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
price chocolate like clair or melody of Rs.1 or Rs. 2. So, there is a positive relationship between
income and the product demand.
Population & Age group:
21

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.
Consumers 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 competitors 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 its a product for
enjoying the taste of each and every moment with harmony.

22

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 .

Px

5 .
1

P
R
I
C
E

7
6
5
4
3
2
1

5
0 90 95 100

100

105

110

115

120

= 0.25
Deman

[Our Products price elasticity is <1 because our product is in monopolistic market]

Arc price elasticity:

EP = Q2-Q1 .

P2-P1

Q2+Q1

95-100 .

6+5

6-5
=

P2+P1

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)
23

EI =
Ix

Qd . I

10

. 10000

2000

100

14
13
12
I 11
N 10
C
9
O
8
M
E

= 0.50

90 95 100 105 110

115

120

Demand

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 substitutes price then the demand of the dairy milk will
increase by 8%)

EXY = QX . PY
PY QX
=

8 .
1

5
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.

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 dont
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 companys product is greatly appreciated and valued and
hence 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.
25

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

Total Revenues
2500
2062.5
2000
1500
1088

$ in Billions

1000
572
500
0

2010

2011

2012

Years

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
26

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

2010

Market

Percenta

2011

ge %
1,100,0

Percenta
ge %

1,700,0

Cadbury

00
1,100,

35.48

00
1,200,

36.17

Nestle

000

35.48

000

25.53

200,
Kraft Foods

000

400,
6.45

000

100,
Ferrero

000

3.23

000

400,
others

000
3,100,

Total demand

000

8.51
200,
4.26
550,

12.90
100.00

000
4,700,
000

11.70
100.00

27

Market Share 2011

40
35
30
25

Percentage %

20
15
10
5
0
Cadbury

Nestle

Karft foods

farrero

Other

Supply Curve:
Looking at this curve which for three years shows significantly their increase in production for
respective years which has greatly benefited companys revenues.

Supply Curve
1000
825

800
640

600

Sales prices per year

520

Price Rs.
400

Quantity

28

Demand Curve:

Chart Title
0.5
0

1.5

2.5

3.5

100
200
300
Axis Title

400
500

520

600

640

700
800

825

900
Axis Title

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

1,700,000
1,088,000

1,100,000
572,000

600,000
516,000

Increase in quantity
(Units)
Increase in Revenue ($.)

MR =

516,000,000
600,000
29

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 Cadburys 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 Cadburys.
CILs 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
Cadburys multi-award winning campaign - The Real Taste of Life - launched in the 90s
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. Cadburys Perk, the light snack, addresses the hungry
child in every adult, as exemplified by the bride who nibbles at a Perk under her pallu.
Cadburys 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 Cadburys advertisements.

Advertising Media
Television, the print media and posters have been the main media of communication for
Cadburys 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 Cadburys is found in almost every shop
stocking their chocolates. Since it is placed on the cash counter, its 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.

31

Nestle:
Introduction:
Nestl 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 Nestl
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:
"Nestl 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 Nestl 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.

32

Good Food, Good Life

Henri Nestl chose his own coat of arms to represent the
company's philosophy: a bird's nest, with a mother feeding her
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 Nestl and come together in our brands: our people, our
research and development, and our commitment to quality. The dedicated people who make up
the Nestl 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 Nestl
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 Nestl 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:
Nestl'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.

Nestl does not favour short-term profit at the expense of successful long-term business
development.

Nestl 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.
33

Nestl 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.

Nestl 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.

Nestls global vision is to be the recognized leading Nutrition, Health and Wellness Company.
Nestl 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.
Nestl is a Swiss-German word which means Little Nest which is its trademark
Nestl 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

34

Brands

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 its necessary to pay attention to the brand image. In
todays world most of the people see the image of the product and then purchase it. So its
necessary to make an image in market.
Consumer prefers those goods whose advertisements are shown on television.
Price should be according to the competitors price .i.e the price of Cadbury should be
less or same as the competitors price.
.
35

RECOMMANDATION

There should be difference in pricing strategy of Cadbury i.e. in term of rural and urban
areas.
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_8467000/8
467606.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

36