The ultimate aim of any business is survival. At least five groups want to see a company not only survive, but flourish: its shareholders, directors, employees, suppliers and customers. In certain industries, being big may be necessary for survival but may not guarantee it.
In the 1980s and 1990s Cadbury Schweppes wanted to secure its future through growth. Growth took two main forms: increasing the scale of the company's existing output and diversifying its product range.
- By increasing output in its core businesses, it looked to achieve economies of scale that would help it compete in world markets.
- By broadening its product range, the company spread its risks and made itself less vulnerable to downturns in any particular area of its business.
This approach transformed Cadbury Schweppes from a mainly UK and British Commonwealth confectionery business, allied to a single strong mixer beverage brand, into an international business with significant interests in confectionery and beverages worldwide.
Having achieved this, Cadbury Schweppes plc wanted to consolidate. It realised that policies and practices that 'get you there' may well not be enough to 'keep you there'. Growth through acquisition had enabled the group to build up a large portfolio of well-known brands, but it became clear that not all of its products were contributing equally well to its overall profitability.
There were other considerations too. Shareholders were no longer being attracted to companies simply because of their size. Aware of this, the management of Cadbury Schweppes decided that to stay attractive to shareholders it would need to amend the targets it set itself.
This case study looks at how, to try to improve its financial performance and become more attractive to shareholders, Cadbury Schweppes applied an adopted business philosophy (Managing for Value - refer to The Times 100 ) to one of its core business activities: selling chocolate products to children either directly or through their parents.
Managing for value (MFV)
Managing for Value moves the focus of business management away from a largely 'scale-driven' approach ("How much do we produce of this? How many countries do we sell to? Are we the biggest?") towards a 'value-driven' approach ("What contribution is this brand or this product range making to the overall value of the company? What financial return are we obtaining from our ongoing investment in it?").
This shift in approach recognised the importance of providing adequate returns to shareholders and of keeping the good opinion of institutional investors.
Adopting MFV caused Cadbury Schweppes to scrutinise all its operations. The company rationalised its activities, sold off those of its beverage brands that were underperforming and as a consequence withdrew from participating in beverages in more than 150 markets.
By selling its underperforming beverage brands to other firms, Cadbury Schweppes raised almost $1 billion. This led to a new challenge: how to put this inflow of funds to best use within the overall MFV initiative. It reviewed its business in search of the most promising 'areas for action'.
Applying MFV principles in 1999 Cadbury Schweppes challenged all its businesses to find ways to use funds that would tackle two problems simultaneously: to revitalise some familiar brands and produce a higher return on advertising expenditure. The response of one of the business units, Cadbury Trebor Bassett in the UK, is the subject of this case study.
Cadbury's famous brands include: Cadbury's Dairy Milk, Cadbury's Crunchie, Cadbury's Wispa and Cadbury's Roses. Good brands are valuable assets, but the products underlying them still need support. This is especially true when customer turnover is high, such as when children are the main consumers and parents the main buyers.
There is also a time lag challenge. Children, who stop being consumers of their parents' chocolate purchases when aged 12 or 13, have to be encouraged back to the product as buyers of it when they themselves become parents, perhaps 15 years later.
Good brand names supporting quality products have a long life, but they have to survive in a world of fickle tastes and changing images. Therefore, a popular product will need to be freshened up occasionally. It may be repackaged by, for example, a redesigned wrapper, or offered in a different form such as a new size. There has to be some visible continuity, for instance, by keeping a familiar logo.
Surveying its product range, Cadbury Trebor Bassett decided that its chocolate products aimed at children were most in need of a new approach. But how best to achieve it?
Since different chocolate-based products appeal to different age groups, Cadbury Trebor Bassett needs to offer a wide product range. Each product needs promotion, which implies an advertising budget for each product line, which is very expensive.
Products which are different from each other create an advertising problem. For example, a successful advertisement for 'a finger of fudge' may boost sales of Cadbury's Fudge, but is unlikely to lift sales of Cadbury's Curly Wurly.
One approach is to promote the firm as a whole, that is, raise awareness of Cadbury's, in the hope that this in itself will boost sales across Cadbury's product range. However, like a pantomime cast's attempts to throw Cadbury's products to its audiences, a catch-all approach can be rather hit or miss and may produce a poor return.
Another way around this is to promote chocolate consumption in general. This approach would require co-operation between competitive producers and implies some loss of control for Cadbury's.
Obtaining good returns from advertising has been made harder by the fragmentation of television audiences. When only one UK television channel showed advertisements, advertisers knew that their efforts would be seen by a huge audience and might well become a talking point nationwide. Nowadays a firm knows that to reach a high proportion of potential customers it will need to place its advertisement with several TV channels. This is expensive.
In line with its adding-value approach, the challenge to Cadbury Trebor Bassett was to promote its child-orientated products in a cost-effective manner. How might the company promote more than one product at once but without the large financial outlay normally associated with such a venture? A team was put together and was asked to produce a convincing proposal.
From within Cadbury Trebor Bassett came an interesting, attractive proposal based on some solid propositions:
- For children, consumption is linked to having fun. Any consumption that children regard as fun will also appeal to their parents, who do the spending.
- Other companies manage to associate consumption with children having fun. For example, Disney offers Disneyland, where, in the course of having a good time, children meet loveable characters whom they link with the purchases that parents make on their behalf, such as cinema tickets, videos, cuddly toys.
- Children value a sense of belonging. They like clubs. Lego runs the Lego Club and offers its members visits to Legoland, where children have fun with products reminiscent of the Lego products that parents buy for them.
- Good ideas may be transferable. For confectionery consumption to be viewed not merely as pleasurable but also fun, the company's products need to take on some characteristics of the entertainment industry.
- The company has 'a place where chocolate is made' - Cadbury World - that is a huge attraction to thousands of visitors each year. It is an asset that can be further developed.
Out of this line of thinking came a new Cadbury creation: Cadbury LAND.
In 1998 Cadbury Trebor Bassett rebranded its Cadbury chocolate lines aimed principally at children: Buttons, Fudge, Curly Wurly, Chomp, Wildlife, Taz and Freddo.
These products could not all become one brand, because of their very different brand characteristics. What was needed was a new 'umbrella' that gave them some togetherness whilst preserving their separate identities.
A lot was at stake. One third of all confectionery is consumed by people under 16, which represents annual sales of £1.8 billion. Of these, 75are bought for children rather than by them. Prior to launching Cadbury LAND, Cadbury had 33of this children's market.
The concept of Cadbury LAND took 12 months to develop. The company laid down certain requirements. Cadbury LAND had to be:
- media-neutral: suitable for promotion through all the various media forms
- flexible: able to survive the addition and subtraction of component brands
- robust: able to survive changes in fashion and not linked to a 'craze'
- acceptable internationally: not tied to one particular culture
- faithful to the products: reflecting them, rather than a contrived bolt-on
- sufficiently modern and different, but compatible with past product development.
Cadbury LAND capitalises on children's love of likeable characters placed in a world of their own. A character is attached to each brand. The character's persona reflects the brand. Each is rather zany. Thus, Buttons is 'a bit dizzy and giggles a lot', Wildlife is 'an eccentric old buffer' and Fudge is 'a bit of a loony'.
In Cadbury LAND, each character contributes in an endearing way to the making of 'their' product. Dudley Sidebottom represents the child consumer and his chocolate-related adventures offer the route by which everyone can enter and enjoy Cadbury LAND. Children feel comfortable with all this, because they have enjoyed something similar before in other contexts.
age 7: How successful?
Cadbury LAND has achieved spectacular results for Cadbury Trebor Bassett. These include:
- By April 1999, children's awareness of Cadbury LAND had reached 83 per cent
- On children's scoring of 'who makes the best chocolate for kids?' Cadbury rose from 47 to 67 per cent
- In 1999, sales of Cadbury LAND Buttons, the focus brand, grew 22 per cent
- In Spring 1999, Cadbury achieved the biggest share of the market for children's chocolate, in terms of total sales value - a position it has kept.
Best of all, these results have been achieved from a sensible marketing investment.
Managing for Value requires a company and all of its employees to understand how and where value is created and how and where it is destroyed.
Cadbury LAND was created within the disciplined framework that an MFV approach imposes. Its success is built around strict observance of some familiar rules of business:
- Test to confirm that a new idea really is a good idea.
- Remember whose money you are spending.
- Know your market. Listen to and understand your customers.
- Control your costs. Evaluate your products.