Theo Chocolate Marketing Functions
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Background
Theo Chocolate is an American chocolate manufacturing company that was established in 2006 and started its operation in the same year. The company was formed by Jeff Fairhall and Joe Whinney and is headquartered in Seattle, Washington (Gunter, 2014). Theo Chocolate manufactures organic chocolate bars through sourcing for fair trade certified cocoa. Theo Chocolate buys its cocoa from South American and African countries, for example, Costa Rica, Ecuador, Ghana, Peru, Cote d'Ivoire, and Congo. Theo Chocolate is a medium-sized company. In 2012, the company had a total of 50 employees in its factory.
The firm’s unique selling proposition exists in the form of offering organic dark chocolate. Theo Chocolate is engaged in selling fair trade certified products. Fairtrade certification in the cocoa industry is accredited to a company that buys cocoa at the prescribed market price plus a premium. At the moment, the price per metric ton set by the International Cocoa Association is US $2,800 and a premium of US $200 (ICCO, 2014). Theo Chocolate pays the US $800 more than the market price as it holds fast to its ambition to be socially responsible for the community (Gunter, 2014).
Purchasing cocoa at premium prices has, however, negatively impacted its profitability at times resulting in huge losses, especially between its inception and 2009. Theo Chocolate is yet to establish itself as a heavyweight in the confectionery industry, lurking in the shadows of Cadbury, Mars, Hershey, and Nestle (Cummings & Ottley, 2012). Even though their operational and marketing strategies are laudable, questions have been raised as to whether they are viable and strong enough to make the business venture profitable. This paper analyses Theo Chocolates' marketing functions identifying the best practices and giving recommendations on how they can be improved to increase profitability without derailing its social and environmental responsibilities efforts.
Problem Statement
Theo Chocolate operates in a small, constricted market. The company targets consumers who are keen to consume ethically produced chocolate. This niche forms less than 12% of the total chocolate market (Motavalli, 2012). This, coupled with the fact that Theo Chocolate does not pursue aggressive marketing strategies, makes optimization of profitability a daunting task. In its first three years of operation, the company made huge losses. Theo Chocolate relied on the word of mouth to increase its products’ awareness (Cummings & Ottley, 2012).
The managers reckoned that aggressive marketing styles would dilute the image and message they were trying to communicate: the image of conservative people who are conscious of environmental and societal injustices. After 2009, the company started pursuing online marketing. Its fortune improved a little bit and the company has been making profits ever since, though not substantially large (Cummings & Ottley, 2012).
The managers have been reluctant to engage in the mainstream and social media to improve their sales opting for direct marketing and distribution instead. However, the costs it incurs in ethically sourcing and producing its bean-to-bar chocolate continue to run high. Without rapidly expanding the market through intensive and expansive marketing strategies, Theo Chocolate will soon revert to losses again. Theo Chocolate, therefore, needs to examine its external and internal environments to determine its optimal product placement and how it can improve profitability by employing efficient marketing functions.
Methodology
This is a qualitative study that seeks to explore the marketing functions of Theo Chocolate and give recommendations on how they can be improved based on the confectionaries and retail industries’ best practices. Since there is a lot of material available on Theo Chocolate and its marketing functions, this study will employ documentary review as its primary data collection method. It is also cost-effective, efficient, and timely. Information will be obtained from both secondary and primary data. Qualitative content analysis will be employed to identify Theo Chocolate’s marketing strategies and product placement. The trends will identify the gaps in marketing that Theo Chocolate ought to explore (McDonald & Wilson, 2011).
The study will investigate Theo Chocolate’s marketing mix to recognize what Theo Chocolate is doing well and how successful it has been in the marketing strategies it pursues. Then the studies will identify its strengths, weaknesses, opportunities, and threats through the SWOT analysis. The SWOT analysis would be crucial in identifying the external opportunities and internal strengths it can leverage to optimize its marketing operations and increase profitability.
Marketing Mix
Marketing refers to the processes of product placement, communication, and delivery of goods and services to facilitate exchange offerings for the benefit of the proprietor (Hooley, Piercy, & Nicoulaud, 2012). Marketing, therefore, involves making a product known and available to the market. Marketing strategies are meant to develop a market through increasing product awareness and efficiency of the distribution channels. Marketing functions, therefore, encompass more than advertising and other methods of product promotion (Blythe & Megicks, 2010). They extend to branding strategies, product placement, and even vertical and horizontal integrations that enable value addition. To effectively analyze Theo Chocolate’s marketing functions, this study employs the 4Ps of marketing; Product, Price, Place, and Promotion.
Product
Theo Chocolate manufactures and sells organic chocolate bars (Gunter, 2014). The company pursues a focus differentiation strategy where it targets people who are environmentally conscious, sensitive toward social injustices, and inclined towards consuming organic foods. Theo Chocolate’s products are high-quality chocolate bars produced directly from cocoa beans. The company provides high-quality organic dark chocolate manufactured from ethically sourced beans bought at fair trade prices from farmers (Cummings & Ottley, 2012). Chocolate products are positioned in the market as products that promote sustainability and justice.
Moreover, Theo Chocolate uses green energy to power its manufacturing factory in Seattle (Gunter, 2014). The manufacturing processes involve sorting and roasting cocoa beans with similar flavors to develop unique chocolate flavors. Theo Chocolate does not use any chemicals to improve the flavors (Cummings & Ottley, 2012). While this appeals to the market that is keen to consume whole, organic foods, it chases away the others who may find the flavors to be rather flat. The competitors such as Hershey, Nestle, and Mars use chemicals to enhance flavors and this has helped them to cement their positions as market leaders in the chocolate sub-industry (ICCO, 2014).
Furthermore, in pursuance of its focus strategy, Theo Chocolate has a narrow range of products. Currently, it has only 6 product lines including Phinney, Classic, Confections, Specialty, Origin, and Miscellaneous (Cummings & Ottley, 2012). These products target various segments of the society including children, young educated people who are environmentally conscious, and senior people who are keen to eat healthy foods.
Price
Price is an important marketing element. Most people are sensitive to price changes with more than 60% of shoppers basing their purchasing decisions on the comparative prices of the products (McDonald & Wilson, 2011). Theo Chocolate’s products are sold at premium prices because they target specific markets. Since the company has differentiated its products, it can charge premium prices for its products without necessarily losing its customers (Hooley, Piercy, & Nicoulaud, 2012).
According to the law of demand, holding all the factors constant, shoppers will always prefer products with the smallest prices. Theo Chocolate provides chocolate products that are of high quality and organic. The market that values these attributes will not mind paying more to consume Theo Chocolate’s products provided they derive the amount of satisfaction they envisaged. Moreover, chocolate prices have proved to be somewhat insensitive to fluctuating marketing conditions (KPMG, 2012).
A study by KPMG (2012) indicates that the demand for chocolate soared during the economic downturn between 2007 and 2009. Theo Chocolate’s marketing strategies, therefore, do not involve enticing potential customers through price reduction. And this is a wise decision on their part because they cannot afford to price their products based on competitors’ or global market prices. If they do so they will end up making losses considering they buy their cocoa at premium prices so that they become fair trade certified (Cummings & Ottley, 2012).
Place
Theo Chocolate’s products are marketed to and sold through an extensive distribution channel (Gunter, 2014). Theo Chocolates sells its products directly to customers through its more than 4000 retail stores in the U.S. (Cummings & Ottley, 2012). Most of these stores are located in Seattle and its environs. Being the home of other organic food producers such as Starbucks, Theo Chocolate has achieved considerable success in the area but has consistently struggled to replicate the success in the rest of the U.S. markets. Theo Chocolate also sells through other retail stores such as supermarkets, convenience stores, and university cafeterias.
Promotion
Theo Chocolate promotes its products mainly through a word of mouth (Cummings & Ottley, 2012). This is understandable since Theo Chocolate is a middle-sized firm that does not have a lot of capital to spend on advertising. Theo Chocolate does not advertise in the mainstream media, for example by placing advertisements on newspapers, radio, and television (Gunter, 2014). The firm, instead, seeks a gradual and steady growth by permitting factory tours. Theo Chocolate accepts and takes its customers, also called Theonistas, on a factory tour each day of the week (Cummings & Ottley, 2012).
The marketing logic here is that if these individuals become indoctrinated with the organic and green foods principles, they will easily convert into loyal customers. Loyal customers do not easily shift their allegiance even when prices are hiked. Theo Chocolate also does a lot of Internet marketing by placing advertisements on its own and others’ websites. It also markets directly to individuals through e-mailing existing and prospective customers and promoting awareness of the products stocked on the social media platforms such as Twitter and Facebook (Motavalli, 2012).
SWOT Analysis
- Strength
One of Theo Chocolate’s greatest strengths that have come in handy in its marketing functions is its strong brand that is fairly globally recognizable. Its good brand positioning and manufacturing of high-quality chocolate bars create a unique value proposition for the firm (KPMG, 2012). Its reputation as an organic and green company ensures support from environment-conscious consumers and organic foods consumers (ICCO, 2014).
The company also has a strong marketing strategy where it markets extensively on the Internet and social media platforms. Its factory tours are invaluable to its customers. They have been crucial in converting average customers into loyal customers through the riveting experience they get from touring the green-energy-powered facility. The other point of strength is that the company has clearly defined distribution channels. It extends its products through food distributors, retail stores, and co-packing arrangements, and sometimes sells directly to retailers (Cummings & Ottley, 2012). Lastly, the company uses the latest technologies in chocolate production, advertising, and Internet marketing (Gunter, 2014).
- Weaknesses
One of the major weaknesses is that the company does not add any chemicals to its products unlike many of its competitors who add chemicals to enhance flavor. The flavors are few and in most instances flat hence making it easy to lose customers to flavorful brands (ICCO, 2014). Secondly, Theo Chocolate is adamant about using green energy to power its factory (Motavalli, 2012). However, this green energy production proves to be a costly venture in the long run and barely satisfies the energy needs of the firm necessitating it to operate at 33% of its capacity. These inefficiencies increase operational expenditure and adversely impact profitability. Thirdly, Theo Chocolate has a weak cost structure. It does not differentiate its market yet charges a premium price for its products (McDonald & Wilson, 2011).
Theo Chocolate charges more than all of its competitors for corresponding units of products. For instance, for 3 oz dark chocolate, Theo Chocolate charges the US $4, while Cadbury charges $3.69, Hershey charges $2.1 and Nestle charges $1.89 for the same (Gunter, 2014). Price-sensitive customers can easily shift to cheaper products that offer the same organic food experience such as Cadbury’s Green and Black, Mars’ Sneakers, and Nestl?’s Crunch (McDonald & Wilson, 2011). The company would have better profitability if it differentiated its prices for its various target markets with diverse purchasing power.
- Opportunities
The major opportunity is that chocolate consumption is on the increase around the world. Increased marketing efforts should enhance Theo Chocolate’s market share and consequent profitability. Furthermore, more and more people are embracing organic food, eco-friendly products, and fair trade certified foods (Motavalli, 2012). This trend should provide a huge opportunity to increase its profitability if Theo Chocolate sticks to its values. There are also many festivals and events during which the demand for chocolate escalates, for example, during Valentine’s Day, Christmas, and other holidays. These days present perfect opportunities to tailor specific brands for this time of the year and increase sales (Hooley, Piercy, & Nicoulaud, 2012).
- Threats
The main threat for Theo Chocolate is competition from large and established multinational companies such as Cadbury, Nestle, Hershey, and Mars (ICCO, 2014). These competitors are large and use state-of-the-art technologies in products that enable them to enjoy economies of scale. They can, therefore, easily price Theo Chocolate out of the market since its fair trade cannot allow it to price competitively without making losses. There is a threat of being forced out of the market if profitability does not improve (Blythe & Megicks, 2010). The other threat is that the confectionery industry, and especially the chocolate sub-industry, is experiencing a very slow growth of less than 5% per annum (KPMG, 2012).
This may not hold much promise for Theo Chocolate in terms of enlarging its market since it has to wrestle the customers from competitors as there is a low influx of new chocolate consumers. The threat of obesity is increasing fast and can easily dissuade people from consuming chocolate altogether (KPMG, 2012).
How the Marketing Functions may be Improved
While Theo Chocolate has embraced most of the best practices in marketing in the retail industry, there is still room for improvement. The following recommendations should help Theo Chocolate enhance its profitability through marketing efficiency. First, Theo Chocolate should restructure its promotions strategies. It cannot optimize sales using the current strategies that rely majorly on the word of mouth (McDonald & Wilson, 2011). Even its online marketing campaigns are not as vigorous and thorough as its competitors’ campaigns. Theo Chocolate should improve its sales by increasing its product promotion means and strategies (Motavalli, 2012).
For instance, the company should place advertisements in the mainstream media such as television, newspapers, and radio. The potential these communication channels have to enhance their sales is unfathomable. The most popular brands such as Coca-Cola, Samsung, Nokia, and Toshiba use the mainstream media to market their products. Theo Chocolate should follow suit.
Furthermore, since Theo Chocolate has a strong Internet presence, it should explore the potential of Internet marketing to the fullest (McDonald & Wilson, 2011). Currently, its Internet marketing efforts can best be described as lethargic. There is no aggressiveness in Theo Chocolate’s Internet marketing campaigns. The Facebook page goes for days without a post yet it should be the one that drives traffic to its website. Theo Chocolate should also conduct sales promotion campaigns, even if they are not accompanied by a reduction in their prices (Hooley, Piercy, & Nicoulaud, 2012). Theo Chocolate does not need to be restricted to online marketing and word of mouth. Sales promotions would instantly boost sales and would complement the word of mouth strategy (Blythe & Megicks, 2010).
Theo Chocolate should also consider substituting its factory tours with brand ambassadors. While the factory tours act as a window into Theo Chocolate’s soul, they are inconvenienced since they are conducted daily (Cummings & Ottley, 2012). Theo Chocolate should make loyal customers its brand ambassadors. Better yet, there are many organizations and persons who are keen on promoting healthy living and environment conservation, and Theo Chocolate should partner with such. This would come in handy in terms of increased publicity, especially in case of financial constraints. Engaging and partnering with influential personalities and celebrities such as Jane Goodall or Ben Affleck who have the Eastern Congo Initiative would be invaluable in marketing Theo Chocolate products (Motavalli, 2012).
To improve its market share and enhance the effectiveness of marketing interventions, Theo Chocolate should differentiate its products and their consumption experiences just as Starbucks does with coffee (Cummings & Ottley, 2012). To achieve this, Theo Chocolate should open a store that is dedicated to serving customers organic chocolate only. For a full experience, the company ought to come up with other products to complement the organic chocolate products on offer. Currently, its stores stock a host of other different products. This does not give the customers distinct dark chocolate feel when they visit the stores.
Theo Chocolates offers its products at premium prices partly because it is necessary to cover its costs and partly because this creates an illusion of excellent quality (McDonald & Wilson, 2011). However, this kind of pricing locks away a substantive part of prospective customers. Theo Chocolate should pursue price differentiation to increase its revenue. The targeted population is not homogenous. The customers have different purchasing powers. It is not wise to presume that all prospective customers will be willing to pay an extra dollar for organic chocolate or chocolate that has been produced through green energy. Charging a premium price for all the products locks out some prospective customers who would buy the products if they had enough money. Price differentiation enables the marketing of the same product to different markets with different purchasing power. This will increase its profitability if well implemented.
Lastly, Theo Chocolate should increase the number of product lines and flavors. Currently, Theo Chocolate is manufacturing 6 product lines only, namely Phinney, Classic, Confections, Specialty, Origin, and Miscellaneous (Cummings & Ottley, 2012). Holding other factors constant, an increase in product lines will increase its market base which, in turn, will increase profitability (Blythe & Megicks, 2010). Moreover, competitors are swiftly venturing into the manufacturing and selling of organic chocolate. Theo Chocolate should increase the number of flavors it offers and seek ways to improve its tastes. Its current flavors are rather flat. While it is commendable that it stays true to its principles by not adding chemical flavors, it should enhance its products’ appeal through other means. One such way is offering a diverse range of flavors that offers customers value for their money and dissuades them from shifting to chemically-enhanced ‘organic’ chocolates offered by competitors (KPMG, 2012).
Conclusion
In summary, Theo Chocolate employs many of the best practices in the retail industry so far as marketing functions are concerned. Since the confectionaries industry is highly competitive, Theo Chocolate opts for a focus differentiation strategy where it offers organic chocolate at premium prices. Its unique selling proposition is eco-friendly, fair trade-certified, organic chocolate bars. Theo Chocolate relies on word of mouth, Internet marketing, and factory tours to drive its sales. However, these marketing interventions have proved to be less than effective. To enhance its marketing functions and consequent sales, Theo Chocolate should pursue robust marketing campaigns. Most importantly, it should start advertising in the mainstream media.
It should also crucially leverage the power of online marketing to increase its sales. Since it cannot afford price wars, Theo Chocolate should pursue further product differentiation through enhanced product innovation. If Theo Chocolate considers the aforementioned recommendations, it will be able to improve its marketing functions’ efficiency and improve productivity without having to compromise on its eco-friendly, organic, and fair trade principles.
