Theo Chocolate Harvard Case Solution & Analysis

Porter’s Five Forces Model

Threat of a New Entrant

The treat of a new entrant is low in the US market because huge amount of capital is required to build factories and to purchase machineries for production. Companies in the industry also needs to open their factory outlet or referred to as company retail store which could increase cost. The cocoa market is volatile as beans are available in those countries where there is political unrest. However, it also restricts new companies to enter the market due to safe and healthy production of chocolates.

Threat of New Substitute

            The threat of a new substitute is moderate as in one hand many big companies are competing in similar industry of chocolates but produces a slight different product than Theo Chocolate. These companies include Nestle, Mars, Hershey’s and others which add up extra artificial flavors to enhance the taste of chocolate. On the other hand there are sweets and candies that could be considered as a possible threat for the chocolate industry as it is highly consumed amongst children.

Competitive Rivalry

            The competitive rivalry is higher in the United States with 400 companies in the chocolate industry are competing against each other amongst which around 90% of the chocolate is consumed in the United States. The companies that compete in the industry are from different origins which include Italy, France, Switzerland, and many others. However, there are very few companies that produces environmental friendly and sustainable products in which Theo Chocolate competes. Moreover, due to the consumer inclination towards environmental friendly products, the company has huge advantage to exploit the market.

Bargaining Power of a Supplier

Since the requirement for Theo Chocolate in selecting their suppliers is higher, therefore this strategy also prompts the bargaining power of supplier which remains higher. The company has high expectations from its supplier as it requires high quality beans with a mindset of being environmental friendly. It is difficult for the company to select from the various suppliers in different countries which tends to increase the bargaining power of supplier.

Bargaining Power of a Buyer

            There could be two different categories of buyers that have contrasting buying behaviors. The general buyers are more inclined towards the taste and price of the chocolate, whereas, environmental conscious buyers consider fair-trade and the sustainability business process. In the case of general buyers the bargaining power is high, whereas, for environmental conscious buyer the bargaining power of a buyer is low. The bargaining power remains low in the case of latter buyer because of limited options available for consumers in choosing between different products.

PESTLE Analysis

Political

Since Theo Chocolate is a food company, therefore it is regulated by Food and Drug Administration in the United States. The suppliers of Theo Chocolate includes Belize, Peru, Ecuador, and many others which have a history of civil unrest. Any disruption in the import of Cocoa can disrupt the supply and demand of the product in the United States.

Economical

The company is expecting profitability from its current business model in the fall of the year 2009, however an economic recession has hit the country in 2008 which has lowered the spending power of its citizen. These habits have allowed consumers to spend little on the high priced products as Theo Chocolateproducts are expensive than its competitors. The devaluation of US dollars have also affected the international trade as the company has to pay a much higher price to buy the same unit of Cocoa.

Social

Economic recession has also been beneficial for the company as it has allowed a shift in the consumer preferences towards organic and natural food products. Therefore, Theo Chocolate provides an organic and natural chocolate which is also a part of its business model. Although there is a perception that has also been created in the mind of consumers that eating chocolate promotes an unhealthy lifestyle which shall be avoided.

Technological

There has been a strong influence of social media in buying different consumer products since the introduction of social networking websites. Companies have been promoting their products through targeting a specific target audience according to their preferences while collaborating it with the social networking websites on legal terms. Online websites and other blogs and forums have also allowed companies to remain directly in contact with its consumers. Moreover, mobile phones have increasingly become an effective tool in marketing its consumers through the development of mobile application.........................................

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