Hershey’s Marketing Strategy Analysis

Dr. George Gafencu, DBA, PMP, DTM

Hershey’s marketing strategy is the topic of the current posting. As of January 2019 (the date of publication for the current analysis), The Hershey Company (herein called Hershey) is a public U.S. company (NYSE: HSY, Fortune: #379) manufacturing chocolate products. Hershey’s has the second position in its industry (16.3%), after Mars In. (28.5%) (Amir, 2018). The company operates in North America and another 80 countries (The Hershey Company, 2018). The general strategy of the company is investing in new products, acquiring businesses, manufacturing chocolate products under license from competitors, and licensing its products and trademarks (The Hershey Company, 2018). The company uses an effective marketing mix (investing in new products, offering products in stores, delivered directly or online, targeting the public at large and businesses, and offering periodical incentives to buy) The marketing strategy has a strong alignment with the general strategy of the company. However, the company could use some enhancement for their marketing plan, as noted. Hershey’s has a strong CSR approach and a sizeable presence on social media. The company has a strong position for future growth.

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Marketing Strategy

Hershey’s Marketing Analysis

Hershey’s general growth strategy contains the development of new products, purchase businesses, manufacturing products under license, and licensing its products and trademarks (The Hershey Company, 2018). In 2017, Hershey’s sales of products in North America were 88.1% of the total revenue, and internationally (over 80 countries) the remainder of 11.9% (MarketLine, 2018). The company reported revenue of $7,515.4m in 2017, an increase of 1% from the previous year. Hershey’s recovered from a string of financial losses in previous years, due to an unsuccessful expansion in China (Gasparro, 2018a). The company needed to defend against a hostile takeover (Hoffman, Mattioli, Cimilluca, & Benoit, 2016) and faces higher prices for cocoa, driving the price of its products up (Gasparro, 2018a). The trend of the cost for the main ingredient used by the company (cocoa) is going up, requiring the company to make strategic changes, either by looking to substitute products or purchase cocoa suppliers to reign in the costs for materials.

Hershey’s invested in the development of new chocolate products in several countries (United States, Mexico, Brazil, India, and China) (The Hershey Company, 2018). The company appears investing in products targeted to developing countries (BRIC), which contributes to the growth of the company in these countries. Hershey’s other strategy of expansion is investing heavily in the snacking industry via the purchase of businesses (Gasparro, 2018b; Hufford, 2016). Another way of expansion is via purchasing licenses to manufacture products designed by European companies (Kraft, Cadbury, Nestlé, Huhtamäki) (The Hershey Company, 2018), for distribution in the U.S. or other countries. The company expands its brands globally by licensing trademarks and products to third parties around the world.

The lines of products Hershey’s has are chocolate, sugar, gum and mint products, pantry, and snack items (MarketLine, 2018). The company sells its products via grocery stores and warehouses, directly to other businesses for integration in their products, or online, using the Amazon portal, or Hershey’s online store). The company secured prime shelf space with leading national grocers, such as Kroger, placing its products at the end of the candy aisles in the store and next to the checkout counters. Hershey’s has an efficient pricing schema, offering discounts for larger quantities of products offered in stores (e.g., buying three chocolates for $5, or bags of chocolate candy at a discounted price). The company offers frequent product sales promotions, especially around holidays such as Valentine’s Day, Easter, Holloween, or Christmas. The structure of the marketing mix ensures the success of the company and confirms the company position in its market, primarily via the development of new products and the purchase of businesses, ensuring a steady growth (Bui, Nguyen, & Ngoc Thai, 2017), and a high value for its brands.

The principles of the marketing strategy are the selectivity and concentration, the value offered to the customer, differential advantage, and integration (Căescu, Constantinescu, & Ploeșteanu, 2012). The company selected to compete in the food industry, with a concentration on chocolate, snacks, and food additives. Hershey’s positioned itself as a top company with a competitive advantage of assessing the taste of a North American audience (operating in the market since 1894) and differentiating from foreign competitors through extensive knowledge of the local markets and keeping them away via licensing their products. The company integrated the marketing with the other departments of the organization, ensuring the financial success of the company. The company optimized the supply chain, manufacturing its products in the targeted region (The Hershey Company, 2018).

The marketing strategy of the company aligns with the general strategy of the company. Hershey’s has identified as market segments consumers and businesses (Căescu et al., 2012). For consumers, the company already manufactures a broad palette of products (chocolate, gums, mints, snacks, and pantry items). For the business segment, Hershey manufactures ingredients to integrate into cakes, cookies, and ice-cream (such as chocolate chips, sugar, syrup). The customer segment for consumers seems to contain all categories of demographics, served by various product lines. The main category of customers is the middle class in the U.S. For serving the upper-middle class, and the company sells products licensed from European manufacturers, complementing the company’s lines of products, eliminating at the same time competition on its principal market via these alliances. One look at the company packaging style of the products and the offering of products reveals that the company does not have a specifically targeted age demographics (the company has a general audience reflected by a generic packaging). Hershey’s could use the development of products developed for children and teenagers that it could sell on special occasions such as Halloween and Valentine’s Day, and others for everyday use, marked with adequate packaging to attract the targeted audience. The company could use special packaging for holidays and events (Rundh, 2016). An analysis of the packaging used by Hershey’s shows a reasonably standard packaging, less appealing than the one used by its main competitor, Mars (the packaging seems bland). The company could redesign its packaging to attract more customers (Rundh, 2016). There is no evidence that Hershey has implemented specific marketing strategies in developing economies (Sheth, 2011). The failure to implement a penetration in China (Gasparro, 2017) reveals that the company might not have implemented local marketing strategies, and may need to do so to ensure growth in the emerging economies.

Hershey’s uses intensively social media. The website of the company (“The Hershey Company,” 2019) contains links to the social media sites of the company  (Facebook, Twitter, Google+, Instagram, and LinkedIn). The Facebook pages of the company contain information about Corporate Social Initiatives of the company, company messages for holidays such as Martin Luther King, announcements about collaborations, new products, branding changes, and announcements about partner companies using Hershey’s products. The company shows on its Facebook page about tours to the chocolate factory, advertisement about sporting activities the company promotes, and promotional videos. What the company could do more to use its social media is opening up discussion groups about new products. The company could distribute samples via grocery stores and encourage people to participate in focus groups or group discussions about the taste and appearance of the new products. The electronic store of the company (The Hershey Company, 2019), at the end of January 2019, has the colors and the advertisement ready for the next holiday, Valentine’s Day.  The company could allow a star rating and postings to each of its products, similar to the way Amazon promotes its products. The addition of the rating system and the user recommendation could increase the customer advocacy of the products (Talpau, 2014).

The company could use some newer digital platform technologies to increase its customer base. Hershey’s could implement research stores, equipped with the latest technologies, to test its newer products. Using A.I., the company could detect the reaction of the customers to packaging while sampling the new products. The consumer could fill quick surveys online or in the store regarding the new products at the time of sampling. The company could use the same technology at particular times after rolling the product out in select stores. A quick browse of the Facebook pages of the company reveals that Hershey has renounced traditional T.V. advertisement, but posted many promotional videos about manufacturing and CSR initiatives. The company could use digital ads and banners placed on websites by Google (the use of browser cookies was not noted during the research), and T.V. ads used to announce new products or reinforce its brands.

A browse of the comments posted on product pages on Amazon showed that customers ordered chocolate in the summer months and received the product melted. The comments on social media revealed that the customers did not receive an answer to their complaints or any compensation from Hershey. The lack of an answer may damage the reputation of the company. Hershey would need to implement better shipment abilities in summer months and track better the social media on partner sites such as Amazon to avoid mass customer dissatisfaction and brand damages in the long term.

The company could use collaborations with movie companies such as Disney to promote its products via animation movies, similar to the manner its main competitors Mars does with their M & M brand. Producing movies featuring chocolate candy characters is a very efficient way to increase brand awareness to target audiences such as children. An association with Disney on animations could increase the presence of Hershey’s in Disney’s theme parks. Hershey has a good position for future growth given the evolution of the customer base, provided it implements solutions to the issues or solutions noted above.

Hershey’s includes CSR in its branding activities and appears to be a supporter of environmental initiatives.  The company issues an annual CSR report (The Hershey Company, 2017). One of the initiatives Hershey’s has is supporting children around the world (West Africa, India, the U.S., and Canada) get their nutrition supplements, and supporting schools in local communities in the U.S. (by supporting social services and tuition assistance). The company initiated programs for children in impoverished North American communities to increase food literacy awareness. Hershey started programs supporting small food manufacturers in Africa, helping them grow the local communities. The organization encouraged local innovation of nutritious food in these communities.

Hershey’s has initiated some programs eliminating waste in its supply chain, and reducing the size of its products to encourage a healthy consumption of chocolate and sweets. In this regard, Hershey offers small individual chocolate bars in stores and bags of chocolate candy with a small, bite-size. The company continues to innovate healthy snacks (“Hershey’s strategy for a healthy snack,” 2018). Hershey’s had initiatives in the field of sourcing responsibly from its suppliers in undeveloped countries, maintaining a high standard in what concerns human rights and working conditions. The company had sustainability initiatives, preferring to source sugar from sources promoting sustainability and eggs from suppliers offering improved animal welfare. Hershey’s rolled out a program offering the complete product nutrition information received via a Q.R. code printed on all its products.

Conclusions

Hershey’s is in an excellent strategic position in its markets. The company invested in acquiring snacking brands to shore up its product base. Hershey’s invested in healthier products. The organization has a massive presence on social media, having a few Facebook pages promoting several aspects of its business. The company invested in R & D in developing countries and set a foothold in over 80 countries. Hershey’s already has a large footprint in the U.S. and is the second chocolate manufacturer in the country, having a vast experience in determining the preferences of the American audience, coming from its 125 years of existence. The company invested in online retailing, via its online store or Amazon marketplace. The organization has strong CSR initiatives and issues a CSR report on a yearly basis.

The company could use better digital platforms to promote its products, by implementing banners and ads inserted in web pages, use smartly digital advertisement on T.V. stations to keep the brands strong or announce new products and associate with studios such as Disney to create animations promoting its brands. The company needs to implement a rating system and allow comments on its digital store and pay attention to negative comments it gets when things go wrong with shipments. Hershey has an excellent marketing plan, aligned with its strategic plan, and has good growth perspectives in future years.

References

Amir, A. (2018). IBISWorld Industry Report 31135:  Chocolate Production in the U.S. Retrieved from IBISWorld database

Bui, T. Q., Nguyen, H. V., & Ngoc Thai, P. (2017). The effects of selected marketing mix elements on customer-based brand equity: The case of coffee chains in Vietnam. PRIMA, 8(1), 38-47.

Căescu, Ș. C., Constantinescu, M., & Ploeșteanu, M. G. (2012). Strategic marketing and quality of life (1). Annals of the University of Oradea, Economic Science Series, 21(2), 801-806.

Gasparro, A. (2017, Mar 01). Hershey shifts gears under new CEO; After years of losing money in China, Hershey returns focus to U.S. Wall Street Journal (Online). Retrieved from http://www.wsj.com

Gasparro, A. (2018a, Oct 25). Hershey fights higher costs by charging more for chocolate; Chocolate maker Hershey says price increases, ‘hot cocoa’ Kisses and a thinner Reese’s peanut butter cup will help boost sales next year. Wall Street Journal (Online). Retrieved from https://www.wsj.com/

Gasparro, A. (2018b, Sep 12). Hershey to Buy Pirate’s Booty Maker for $420 Million; The deal with B&G Foods will add to Hershey’s growing roster of salty snacks. Wall Street Journal (Online). Retrieved from https://www.wsj.com

Hershey’s strategy for a healthy-snack world; Hershey CEO Michele Buck talks about surviving as a big legacy brand in an era of healthier snacks. (2018, Oct 03). Wall Street Journal (Online). Retrieved from https://www.wsj.com

The Hershey Company. (2019). Retrieved from https://www.thehersheycompany.com/en_us/home.html

Hoffman, L., Mattioli, D., Cimilluca, D., & Benoit, D. (2016, Jun 30). Snack giant Mondelez makes $23 Billion takeover bid for Hershey; Hershey rebuffs bid, which would create the world’s biggest candy company. Wall Street Journal (Online). Retrieved from https://www.wsj.com

Hufford, A. (2016, Apr 26). Hershey buys Alliance Consumer-Backed maker of BarkTHINS; Hershey Co. has acquired snacking chocolate maker Ripple Brand Collective, in which Alliance Consumer Growth has held a minority stake since 2014. Wall Street Journal (Online). Retrieved from https://www.wsj.com

MarketLine. (2018, 26 July). Company profile: The Hershey Co. Retrieved from Business Source Complete database

Rundh, B. (2016). The role of packaging within marketing and value creation. British Food Journal, 118(10), 2491-2511. http://dx.doi.org/10.1108/BFJ-10-2015-0390

Sheth, J. N. (2011). Impact of emerging markets on marketing: Rethinking existing perspectives and practices. Journal of Marketing, 75(4), 166-182. doi:10.1509/jmkg.75.4.166

Talpau, A. (2014). The marketing mix in the online environment. Bulletin of the Transilvania University of Brasov. Economic Sciences. Series V, 7(2), 53-58.

The Hershey Company. (2017). 2017 CSR report. Retrieved from https://www.thehersheycompany.com/content/dam/corporate-us/documents/csr-reports/2017-hershey-csr-report.pdf

The Hershey Company. (2018). SEC form 10-K for the year ended December 31, 2017. Retrieved from https://www.sec.gov/Archives/edgar/data/47111/000004711118000011/a2017_formx10-kq4.htm

The Hershey Company. (2019). Welcome to the official Hershey’s online store!

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