Thorntons’ strategic choices

1.0 Introduction and company background

Thorntons Plc is a UK company dealing with the production and distribution of confectionaries, chocolates and sweet foods. The company operates over own 364 stores in the UK and Ireland. It also operates about 227 franchises (Onesource information services, 2012). The products are offered both in-store and through online retail. The product range includes chocolates, white chocolates, dark chocolates, milk chocolates, organic chocolates, chocolate truffles, fudges, sweets, toffees, corporate cards, greeting cards, wedding services, hampers, gift boxes, champagnes and flowers among others. In addition to these, the company offers specialised message deliveries among other specialised services (Thorntons plc, 2012). The company predominantly operates in the United Kingdom and Ireland.

Thorntons operates in an industry that is characterised by heightening rivalry and this limits the prospects of growth for the company. Numerous companies in the industry provide products that offer similar benefits with their prices either in the same range as Thorntons’ or even lower (Datamonitor, 2011). However, companies are able to weather out the rivalry through differentiation using unique tastes and designs as well as the use of an aggressive branding strategy (Datamonitor, 2011). Thorntons continues to have a strong command in the market through its strong brand with its high level of product diversification making it easier for it to survive the competition. This calls for the evaluation of various strategic options that may be available to them. The company could either opt to internationalise, to pursue further growth in its current markets or to implement strategies that advance both goals. The options could include product development, market developments and other strategies.

This paper evaluates the strategic position of Thorntons plc. It evaluates the industry rivalry and highlights relevant macro economic factors. It also gives an evaluation of the available strategic options and makes recommendations on which strategies to adopt to ensure that the company achieves its objectives.

2.0 Strategic positioning of the company

2.1 Internal analysis (SWOT- Strengths and Weaknesses)

The strategic positioning of Thorntons can best be explained through the SWOT model[1]. Thortons has been in operation for over 100 years in the UK market and has with time developed a strong brand (Thorntons, 2012). Even though the company hasn’t been known to be among the most innovative one, it has been faced with few problems when it comes to quality and this has helped in generating confidence in the market and in their brand. The company is also known to produce a large range of products ranging from sweets, chocolate bars, fudges, and many others (OneSource Information Services, 2012). In addition to the product range, the company offers gift items and provides services on delivery of messages and gift items to customers. This diversified approach gives it the ability to reach out to several customer segments hence its ability to grow in the market. Thorntons also enjoys a diversified retail channel with over 227 franchise stores and 364 fully owned stores (Thorntons plc, 2012). In addition to these, the company delivers gifts to birthday parties around the country (Thorntons, 2012). This diversified channel gives it the ability to reach out to a wide range of customers at any given time. 

            Despite a long presence in the market, Thorntons can only be associated with less than 10% of the market share in the industry (Thorntons plc, 2012). This presents it as an underdog in an industry where brand loyalty and consistency in product attributes play a major role in defining organisational success. It also makes them appear as inferior and as a producer of substandard products. The company has also been faced with declining financial performance. In 2011, the company’s profit before tax declined by 0.49% and its net profit went down by 0.11% (OneSource Information Services, 2012). This presents them as inefficient and incapable of harnessing their resources to realise value for the company.

 

The swot presentation (strengths and weaknesses) of Thorntons is as illustrated below:

Strengths -          Strong brand characterised by 100 years of consistency in meeting market demand -          Diversified product portfolio and a leading market position in the boxed chocolate market -          Diversified retail channels

Weaknesses -          Low market share -          Declining profitability

2.2 Industry analysis

The porter’s five forces outline a framework that ensures a balanced analysis of the environment and it mainly focuses on industry rivalry[2]. Industry analysis helps in determining the strategic positioning of companies and helps in influencing their choice of strategy. The forces under consideration include market rivalry, buyer power, supplier power, threat of entry and threat of substitutes (Porter, 1996). In the industry analysis, the main industry players include Thorntons and other manufacturers of chocolates, sweets and other confectionaries (Jennings, 2004). The key buyers are the consumers of the confectionaries and key retailers while suppliers are the farmers of cocoa and suppliers of other raw materials. In the UK’s confectionaries industry, over 60% of the market share is held by 3 of the largest players (Datamonitor, 2011). The largest players include Mars Inc, Kraft Foods Inc and Nestle S.A. This leaves only about 40% to be scrambled for by the remaining industry players and this heightens rivalry[3]. However, there is a great deal of differentiation where various industry players seek to create unique tastes and designs for their products. An overall analysis of the industry forces reveals that this industry can be categorised as having moderate level of rivalry (Datamonitor, 2011; Irish Food Board, 2011).

2.2 Macro environment analysis

The most appropriate framework for evaluating the macro environment is the PESTEL model which highlights political, economic, social, technological, environmental and legal factors (Chorafas, 2011).

2.21 Political and legal factors

Political stability in the UK is high and is expected to remain high in subsequent years. The levels of political stability have also been rising in many parts of the world with emerging economies such as Brazil, India and China exhibiting high levels of stability. The commitment by the political class to respect the relative autonomy of the market economy has been growing in some economies that have traditionally leaned towards communism such as China and India (Ellis and Singh, 2010). In the UK market economy is entrenched in their political culture. There have also been decisive moves to remove all legal hurdles that could discourage entrepreneurial practise through legislations guaranteeing fair business practice in the markets. These developments in the politico-legal environment help in making the economies easy to operate in. The legal provisions have also made it easy for new entrants to set up businesses with decisive government action to fight cybercrime also contributing to growing the popularity of the internet. On the other hand, the relatively liberal legal frameworks in place make it possible for counterfeits to enter the market and this presents a serious threat to the companies in the industry in terms of lost revenues and erosion of value.

2.22 Economic factors

The economic growth rate in the UK has been modest and has barely hit 2% since the end of the global recession (Ellis and Singh, 2010). This slow pace of recovery provides opportunities for growth albeit limited. This rate is low as contrasted to emerging economies such as China and India whose growth rates have remained at over 8% despite the recession (Mangalorkar, Kuppuswany and Groeber, 2011).

2.23 Socio-cultural factors

Socio-cultural factors can also impact business significantly by impacting the tastes and preferences of consumers. Even though the consumption of confectionaries is entrenched in the British culture, there has been mounting pressure from nutritionists discouraging their consumption due to their association with rising cases of obesity and weight related conditions (Jennings, 2004). Pressure is mounting on heavy consumers of confectionaries to substitute them with fruits and other snacks considered as being healthier. This is a threat to the industry and it could make the products in question less popular in the market.

2.24 Technological factors

Technological advancements make it easy for organisations to replicate product features with ease and that makes it difficult for particular organisations to achieve differentiation permanently. This implies the need to remain innovative with frequent introduction of new products that aimed at satisfying changing tastes. A Company that remains consistent in innovation stands a better chance in the market. Technological advancements also help in the refining of manufacturing processes in a manner that lowers unit costs hence allowing for competitive pricing (Hill, Jones and Galvin, 2004).

2.25 Environmental factors

The sustainability agenda dominates concerns on how to ensure that the environment is not adversely affected by business activity (Barney, 2010). This implies the need to refine business processes to minimise adverse impact on the environment. Wastage through unnecessary packaging and the use of organic materials in packing are among the approaches embraced in advancing the sustainability agenda.    

The swot representation of Opportunities and Threats arising from external factors is as follows:

Opportunities -          Technological advancement in communication technologies and the internet provides opportunities in E-retailing and online branding opportunities -          Economic growth rate translates into growing demand for industry products hence opportunity for growth in demand (albeit marginal) -          Technological advancements facilitating rapid product development hence ease of gaining an edge in innovation

Threats -          Legal frameworks make it easy for entry of local and international players hence the risk of heightening competition in the market -          Presence of counterfeits in the market which attract price sensitive consumers and erode the brand of the original producers by making their products untrustworthy.

Source: Datamonitor, 2011; Onesource information services, 2011; The Times 100, 2010; Thorntons, 2012

3.0 Strategic options available to the company

There are various options that Thorntons could take in order to achieve their objectives. These options have different merits and demerits and it is important that such factors be taken into consideration before any decisions can be taken on the strategic direction the organisation should take. The four main strategic options that could be embraced by a company include market penetration, product development, market development and diversification as illustrated in the ansoff’s model in appendix 1.

3.1 Market penetration

Market penetration or consolidation refers to the strategy where an organisation seeks to increase its market share (Wheelen, 2008). This is done by focusing on the current markets while marketing the existing products. This strategy can work well where the industry rivalry is low and where substantial parts of the market are yet to be ably captured by the given organisations. The market penetration strategy often involves intensive marketing with huge investments done in advertising and other elements of the promotional mix (Hughes, 2011; Grant, 2007). Increasing the distribution network, aggressive marketing and branding, introduction of loyalty schemes, and an overall focus on the promotional mix are among the approaches that can be used in implementing this strategy. 

3.2 Product development

The option of product development involves the introduction of new products in existing markets. This implies the need to engage in new product development come up with product features that are desired in the market. Market research is needed to capture information that would lead to the manufacturing of such products (Battley, Mayle and Tantoush, 2005; Doherty and Tranchell, 2005). Such an approach also requires that organisations set up mechanisms through which market sentiments can be captured and relayed to the management for decision making with speed and accuracy. The product development approach requires substantial investment in terms of actual product development the accompanying intensive marketing campaigns aimed at getting the markets to adopt the product (De Wit and Meyer, 2010). This could lead to substantial losses where the products fail to take place. In an increasingly volatile market with changing preferences, this approach appears to be a necessity. This approach tends to be prevalent in the confectionaries industry with hundreds of products introduced and pulled out of the product lines per year. Technological advancements also aid this strategy by making it easy for new products to be manufactured (De Wit and Meyer, 2010). However, these advancements can also be a source of threat as rival companies are able to replicate product features with ease and robbing the initial innovators of the benefits if their ingenuity (De Wit and Meyer, 2010).

3.3 Market development

Market development is a strategy used to introduce existing products to new market segments (Quickmba, 2010). This can be done where a product is mainly consumed by a given segment to the exclusion of others. The case mostly arises in new market segments with many of the initiatives considered the blue ocean strategy. For instance, the introduction of the circus product that suits children was an initiative that shifted the market from teenage and adult customers to the children (Vjay, 2005). In the case of confectionaries, the products tend to be most popular among children and young adults. Consumption levels among the older members of the society would need to be examined carefully in order to determine whether they were a segment worth pursuing. The most commonly practised option in market development is the pursuit of an internationalisation strategy (Vjay, 2005). Expanding into potent economies with higher levels of economic growth and low levels of industry rivalry can provide organisations with the much needed opportunity for growth.

This approach has the advantage of making use of existing products where lower levels of investment are needed in terms of product development. The products tend to be already well known among the current markets and in most cases the targeted markets are likely to be well aware of them (Bonham, 2008). This is especially the case in contemporary times where product information can be found over the internet which is mainly borderless. This approach serves the purpose of lessening rivalry as the new market segments may not be as saturated as the current ones. However, it must be appreciated that there may be the risk that the products may not prove successful in the new markets.

3.4 Diversification

The diversification strategy deals with the introduction of new products in new markets. This is considered to be the riskiest strategy that any organisation could take. This is because the uncertainties are on the higher side. To begin with, the organisation may not have sufficient exposure in the market. Analysts hold the view that there are many market characteristics that can only be mastered through experience: research tends to fail to uncover such pieces of information (Holbeche, 2009). This uncertainty is compounded by the fact that the development of new products may result in rejection by the market. In terms of the actual resource requirement, this strategic approach is the costliest. Massive investments must be made into product development where extensive research is done to determine market preferences and further research done to determine which product and product features are likely to satisfy these demands (Holbeche, 2009). Further investments must be made in marketing and branding exercises as the organisation seeks to create brand awareness in the new markets and develop brand loyalty.    

4.0 Evaluation of strategic approaches in Thorntons’ context

An evaluation of the strategic options open to an organisation must seek to match its strengths and weaknesses to the factors in the environment. As has been noted above, Thorntons sources of strength include its strong brand image, diversified product portfolio and diversified approach to the distribution system. Having a strong brand makes it relatively easy for an organisation to market its products and services successfully (Lawrence, 2006). The brand establishes a connection with the consumers and where the brand image inspires action, marketing efforts are fairly successful. In addition, the possession of a strong brand makes it easy for organisations to generate the desired levels of brand loyalty (Lawrence, 2006). This strength can be very useful in all the strategic options available to the organisation. The diversification strategy is not under consideration in relation to options pursuable by Thorntons due its high risk of failure.  

4.1 Market penetration

The market penetration strategy is the easiest one of all the four options to implement. It involves little investment in product development and also needs less advertising for the organisation. The successful implementation of this strategy involves the use of intensive marketing campaigns and this is where the strength of the brand comes in (Haberberg and Rieple, 2007). Thorntons has a strong brand. This means that their marketing endeavours are likely to be successful if executed well. The ease of implementing this strategy can also serve the company well in view of the fact that its profitability is declining and in need of a quick turnaround. The chances of success of this strategy are heightened by the fact that market rivalry is moderate.

The growing popularity of the internet also gives Thorntons the opportunity to come up with a creative approach to marketing with advances in communication systems expected to play an integral part in capturing information on current and prospective customers. These technologies are also expected to play an integral role in the implementation of any loyalty schemes aimed at boosting brand loyalty. The possession of a diversified product portfolio and distribution system helps in serving the markets efficiently (Sun and Wang, 2011). The opportunities availed by the internet also provides great chances of success where online retail portfolios are brought into play. It must however be appreciated that the initiation of such initiatives often triggers similar action from competitors seeking to safeguard their market shares. This puts the chances of success of such a strategy in jeopardy. Moreover, the sole use of this strategic approach is not sustainable in the face of changing preferences and heightened competition and innovation by consumers.   

The main merit refers to the level of exposure that the company already has in the market. The fact that the organisation is already operating in the market means that they already have sufficient knowledge of the peculiar characteristics of the market (Killen, 2012). On the other hand, market penetration tends to yield poor results where a given market is saturated or where there is little or no economic growth (Cohen, 2004).

4.2 Product development

The product development option requires that an organisation conducts market research, accurately captures information on consumer preferences, and translates such information into appropriate product features. The success of a product depends on the extent to which such products satisfy the need. Innovation and the effectiveness of the innovation systems are critical to the success of this strategy. Whereas Thorntons has been in operation in the UK market for over 100 years, it appears to have been outpaced as far as innovation is concerned and that is partly the reason why it does not feature among the top three industry players in the industry. This strategy involves both the innovation of new products and massive campaigns to popularise and ensure the adoption of the products in the market (Hubbard, Rice and Beamish, 2008). Where the organisation has a strong brand as Thorntons’ the campaigns may tend to be more successful. While this approach may be riskier than the market penetration approach, its chances of success are very high; especially where the innovations are aligned to the desires of the market.  The risks involved in this strategy includes failure to capture market sentiments correctly hence leading to losses and swift replication of product features by competitors hence allowing no opportunity for the initial innovator to reap the benefits of their extensive investments (Sun and Wang, 2011).

4.3 Market development

The internationalisation option tends to be the most common approach taken by organisations pursuing the market development strategy. With the heightening competition in the UK, it is wise for organisations to consider expanding into markets with lower levels of industry rivalry. Most markets in the emerging economies have lower levels of industry rivalry in their confectionary industries and much higher rates of economic growth. For instance, while the UK’s economy grows at an annual rate of less than 2%, China and India continue to grow at over 8%. (Bosworth, 2010) This impressive growth rate is a cue for businesses to pursue the emerging markets. The pursuit of market development strategy in developed countries such as Germany, and USA could lead to failure due to the fact that such markets are already facing high levels of industry rivalry with established brands presenting low prospects of success to entrants. Moreover, there is a growing liking among the members of the populations for luxury products and goods. This is especially the case in China where the populations are quickly turning away from their thrifty approach to spending. Having developed a successful business model in the UK, Thorntons should draw on its experiences in the UK and other markets to venture into international markets. This strategic approach is not without complications. To begin with, it is easy to misunderstand a market and thereby fail to come up with a successful business. Thortons has in the past been forced to close down its international subsidiaries for this very reason and they should be able to draw from their experiences to ensure that such failures are not replicated.   

The strategic options available to the company are therefore as evaluated below:

Strategy evaluation matrix

	Suitable	Feasible	Acceptable
Market penetration/Consolidation	√	√	√
Product development	√	√	√
Market development- China and India	√	?	?
Market development –Germany and USA	x	x	x
Diversification	x	x	x

5.0 Recommendations

Thorntons plc is faced with declining profitability levels and should therefore take swift measures to reverse its position. The first priority should be to return the organisation to a solid footing. The company should thereafter make plans to strengthen its position and ensure long term stability.

In the business practice, no single strategy works best when used to the exclusion of others. Various strategic approaches should be used in conjunction with each other or in quick succession. The initial step of returning the company to profitability should be done through the market penetration and product development strategies. Several approaches can be taken to ensure that the market penetration strategy is successful. To begin with, the company should redefine its marketing theme to reflect on the realities and preferences in the market[4]. The message should be impulsive enough to attract attention and meaningful enough to encourage the audience to take action. The company’s strong brand should aid in assuring the success of these approaches. The use of the internet should be engaged in addition to other communication channels. The use of the internet should factor in the increasing desire of internet users to be active participants in the branding process and should allow for ventilation on the products and their features. Such interactions are likely to breed greater levels of brand loyalty. Advertisements should be accompanied by much publicised launches of loyalty programs in a move aimed at ensuring that the customers gained are retained.

The product development option should be exercised with tact. Since the market penetration strategy is expected to actively engage the market, it can act as one of the avenues through which crucial information on consumer preferences is conducted. The use of viral marketing in addition to regular advertisements on the mass media and other outdoor mediums can help in assuring the success of the project.

Market development should be pursued after stability has been realised. This process should be preceded by thorough research of the targeted markets in a research that is expected to not only determine the needs of the consumers but also determine the appropriate modes of entry. The internationalisation process could be implemented gradually in line with the theory of internationalisation where a trade-off between commitment of resources and market knowledge are considered in incremental stages. 

In terms of scheduling, the market penetration approach could be adopted for the first 6 months with an aim to exert its brand image, generate sales and stabilise its financial position. The implementation of the market penetration approach is expected to generate substantial levels of interaction between the company and the market and it should therefore be used as an avenue for collecting market intelligence to facilitate new product development. This means that by the time the 6 months lapse, there should be new products ready for launching. The subsequent 18 months should see the company engage market penetration and product development strategies in a manner that creates synergy. It is expected that the 2 years of these approaches will give the organisation the solid financial footing on which it can launch international operations. As from year 3, gradual involvement with the chosen international market should be embraced culminating into the setting up of operations in year 5.

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[1] The SWOT summary provides for the identification of an organisation’s strategic position at a glance

[2] Model developed by Michael Porter has been the most popular tool for analysis of the micro environment in the strategy formulation processes

[3] Market rivalry is heightened where over 50% of the market share is held by few industry players and is characterized by strong competition among companies trying to safeguard their market shares

[4] Relevance of message greatly improves the effectiveness of a marketing campaign and this calls for frequent alterations as perceptions keep changing