Study of pricing Strategies &

Consumer Behaviour

Shreya Bhattacharji105
Rohan Desai109
Nidhi Jain116
Amlan Mitra128
Abhrajit Sett140
Sandeep Tamse152
History of chocolate

The origin of chocolate can be traced back to the ancient Maya and Aztec civilizations in
Central America, who first enjoyed “chocolati” a much-prized spicy drink made from
roasted cocoa beans.
Throughout its history, whether as cocoa or drinking chocolate beverage or confectionary treat,
chocolate has been a much sought after food.

The Aztec empire

“Chocolate”(in the form of a luxury drink) was consumed in large quantities by the Aztecs: the
drink was described as “ finely ground, soft, foamy, reddish, bitter with chilli water, aromatic
flowers, vanilla and wild bee honey.
The dry climate meant the Aztecs were unable to grow cocoa trees, and had to obtain
supplies of cocoa beans from “ tribute” or trade

Don Cortes
The Spanish invaded Mexico in the 16 th century, by this time the Aztecs had created a powerful
empire, and the Spanish armies conquered Mexico. Don Cortes was made captain general and
governor of Mexico.
When he returned to Spain in1528 he loaded his galleons with cocoa beans and equipment for
making the chocolate drink. Soon “chocolate” became a fashionable drink
enjoyed by the rich in Spain.

Chocolate across Europe

An Italian traveler, Francesco Carletti, was the first to break the Spanish monopoly. He had
visited Central America and seen how the Indians prepared the cocoa beans and how they made
the drink, and by 1606 chocolate was well established in Italy.
Drinking chocolate
The secret of chocolate was taken to France in 1615, when Anne, daughter of Phillip 2 of Spain
married king Louis 13 of France. The French court enthusiastically adopted this new exotic
drink, which was considered to have medicinal benefits as well as being a nourishing food.
Gradually the custom of drinking chocolate spread across Europe, reaching England in the
1650’s

First chocolate for eating

Up until this point all chocolate recipes were based on plain chocolate. It was an English
doctor, Sir Hans’s Sloane, who- after traveling in south America- focused on cocoa and food
values, bringing a milk chocolate recipe back to England. The original Cadbury milk chocolate
was prepared to his recipe.

History:
The earliest record of chocolate was over fifteen hundred years ago in the central America rain
forests, where the tropical mix of high rain fall combined with high year round temperatures and
humidity provide the ideal climate for cultivation of the plant from which chocolate is derived,
the cacao tree.
“Chocolate is made from the cocoa bean, found in pods growing from the trunk and lower
branches of the cacao tree, Latin name “ the Obroma cacao” meaning “ food of the Gods”.
Cacao was corrupted into the more familiar “cocoa” by the early European explorers. The Maya
brewed a spicy, bittersweet drink by roasting and pounding the seeds of the cacao tree with
maize and capsicum peppers and letting the mixture ferment. This drink was reserved for use in
ceremonies as well as for drinking by the wealthy and religious elite; they also ate cacao
porridge.
The Aztecs, like the Mayans, also enjoyed cacao as a beverage fermented from the raw beans,
which again featured prominently in ritual and as a luxury available only to the very wealthy.
The Aztecs called this drink xocolatl, the Spanish conquistadors found this almost impossible to
pronounce and so corrupted it to the easier “chocolat”. The English further changed this to
chocolate.
The Aztec’s regarded chocolate as an aphrodisiac and their emperor, Montezuma reputedly
drank it fifty times a day from a golden goblet and is quoted as saying of xocolatl: “the divine
drink, which builds up resistance and fights fatigue. A cup of this precious drink permits a man
to walk for a whole day without food”

Chocolate in Europe
Xocolatl! or chocolat or chocolate as it became known, was brought to Europe by Cortez, by this
time the conquistadors had learned to make the drink more palatable to European tastes by
mixing the ground roasted beans with sugar and vanilla ( a practice still continued today), thus
offsetting the spicy bitterness of the brew the Aztec’s drank.
The first chocolate factories opened in Spain, where the dried fermented beans brought back
from the new world by the Spanish treasure fleets were roasted and ground, and by the early 17 th
century chocolate powder – from which the European version of the drink was made- was being
exported to other parts of Europe. The Spanish kept the source of the drink- the beans- a secret
for many years, so successfully in fact, that when English buccaneers boarded what they thought
was a Spanish “treasurer galleon” in 1579, only to find it loaded with what appeared to be “dried
sheep’s droppings, they burned the whole ship in frustration. If only they had known, chocolate
was so expensive at that time, that it was worth it’s weight in silver (if not gold), chocolate was
treasure indeed !
Within a few years, the cocoa beverage made from the powder produced in Spain had become
popular throughout Europe, in the Spanish Netherlands, Italy, France, Germany and – in about
1520 – it arrived in England.
The first chocolate house in England opened in London in 1657 followed rapidly by many
others. Like the already well established coffee houses, they were used as clubs where the
wealthy and business community met to smoke a clay pipe of tobacco, conduct business and
socialize over a cup of chocolate.
Back to the America’s
Events went full circle when English colonists carried chocolate (and coffee) with them to
England’s colonies in North America. Destined to become the United States of America and
Canada, they are now the world’s largest consumers – by far – of both chocolate and coffee,
consuming over half of the words total production of chocolate alone.

The Quakers
The Quakers were, and still are, a pacifist religious sect, an offshoot of the puritans of English
civil war and pilgrim fathers fame and a history of chocolate would not be complete without
mentioning their part in it. Some of the most famous names in chocolate were Quakers, who for
centuries held a virtual monopoly of chocolate making in the English speaking world – fry,
Cadbury and row tree are probably the best known. Its probably before the time of the English
civil war between parliament and king Charles I that the Quakers who evolved from the puritans,
first began their historic association with chocolate. Because of their pacifist religion, they were
prohibited from many normal business activities, so as an industrious people with a strong belief
in the work ethic (like the puritans), they involved themselves in food related businesses and did
very well. Baking was a common occupation for them because bread was regarded as the biblical
“staff of life”, and bakers in England were the first to add chocolate to cakes so it would be a
natural progression for them to start making pure chocolate. They were also heavily involved in
breakfast cereals but that’s another story.
What is certain is that the fry, row tree and Cadbury families in England among others, began
chocolate making and in fact Joseph fry of fry &sons (founded 1728 in Bristol, England) is
credited with producing and selling the world’s first chocolate bar. Fry’s have now all but
disappeared (taken over by Cadbury) and row tree have merged Swiss company nestle, to form
the largest chocolate manufacturer in the world. Cadbury have stayed with chocolate production
and are now, if not quite the largest, probably one of the best-known chocolate makers in the
world.
Chocolate as we know it
The first mention of chocolate being eaten in solid form is when bakers in England began adding
cocoa powder to cakes in the mid 1600’s. Then in 1828 a Dutch chemist, Johannes Van Houten,
invented a method of extracting the bitter tasting fat or “cocoa butter” from the roasted ground
beans, his aim was to make the drink smoother and more palatable, however he unknowingly
paved the way for solid chocolate as we know it. Chocolate as we know it today first appeared in
1847 when fry & sons of Bristol, England – mixed sugar with cocoa powder and cocoa butter
(made by the Van Houten process) to produce the first solid chocolate bar. Then in1875 a Swiss
manufacturer, Daniel peters, found a way to combine (some would say improve, some would say
ruin) cocoa powder and cocoa butter with sugar and dried milk powder to produce the first milk
chocolate.

CHOCOLATE PRODUCTION
The cocoa-bean -- the heart of the sweetest delicacy in the world – is bitter! This is
why, up to the 18th century some native tribes ate only the sweetish flesh of the
cocoa fruit. They regarded the precious bean as waste or used it, as was the case
among the Aztecs, as a form of currency.

The Varieties
There are two quite different basic classifications of cocoa, under which practically all varieties
can be categorized: Criollo and Forastero cocoas. The pure variety of the Criollo
tree is found mainly in its native Equador and Venezuela. The seeds are of finer
quality than those of the Forastero variety.
They have a particularly fine, mild aroma and are, therefore, used only in the
production of high-quality chocolate and for blending. However, Criollo cocoa accounts for only
10% of the world crop. The remaining 90% is harvested from trees of the Forastero family, with
its many hybrids and varieties. The main growing area is West Africa. The cocoa tree can
flourish only in the hottest regions of the world.

The Harvest
Immediately after harvesting, the fruit is treated to prevent it from rotting. At
fermentation sites either in the plantation or at, collecting points, the fruit is
opened.

Fermentation
The fermentation process is decisive in the production of high quality raw cocoa. The technique
varies depending on the growing region.

Drying
After fermentation, the raw cocoa still contains far too much water; in fact about 60%.
Most of this has to be removed. What could be more natural than to spread the beans out to dry
on the sun-soaked ground or on mats? After a week or so, all but a small percentage of the water
has evaporated.

Cleaning
Before the real processing begins, the raw cocoa is thoroughly cleaned by
passing through sieves, and by brushing. Finally, the last vestiges of wood, jute
fibres, sand and even the finest dust are extracted by powerful vacuum
equipment.

Roasting
The subsequent roasting process is primarily designed to develop the aroma. The entire roasting
process, during which the air in the nearly 10 feet high furnaces reaches a temperature of 130 °C,
is carried out automatically.

Crushing
The roasted beans are now broken into medium sized pieces in the crushing machine.

Blending
Before grinding, the crushed beans are weighed and blended according to special recipes. The
secret of every chocolate factory lies in the special mixing ratios, which it has developed for
different types of cocoa.

Grinding
The crushed cocoa beans, which are still fairly coarse are now pre-ground by special milling
equipment and then fed on to rollers where they are ground into a fine paste. The heat generated
by the resulting pressure and friction causes the cocoa butter (approximately 50% of the bean)
contained in the beans to melt, producing a thick, liquid mixture. This is dark brown in color
with a characteristic, strong odour. During cooling it gradually sets: this is the cocoa paste.
At this point the production process divides into two paths, but which soon join again. A part of
the cocoa paste is taken to large presses, which extract the cocoa butter. The other part passes
through various blending and refining processes, during which some of the cocoa butter is added
to it. The two paths have rejoined.

Cocoa Butter
The cocoa butter has important functions. It not only forms part of every
recipe, but it also later gives the chocolate its fine structure, beautiful lustre
and delicate, attractive glaze.

Cocoa Powder
After the cocoa butter has left the press; cocoa cakes are left which still contain
a 10 to 20% proportion of fat depending on the intensity of compression. These
cakes are crushed again, ground to powder and finely sifted in several stages
and we obtain a dark, strongly aromatic powder, which is excellent for the
preparation of delicious drinks - cocoa. Cocoa paste, cocoa butter, sugar and milk are the four
basic ingredients for making chocolate. By blending them in accordance with specific recipes the
three types of chocolate are obtained which form the basis of ever product assortment.

Kneading
In the case of milk chocolate for example, the cocoa paste, cocoa butter, powdered or condensed
milk, sugar and flavouring - maybe vanilla - go into the mixer, where they are pulverized and
kneaded.

Rolling
Depending on the design of the rolling mills, three or five vertically mounted
steel rollers rotate in opposite directions. Under heavy pressure, they pulverize
the tiny particles of cocoa and sugar down to a size of approx. 30 microns. (One
micron is a thousandth part of a millimeter.)

Conching
But still the chocolate paste is not smooth enough to satisfy our palates. But
within two or three days all that will have been put right. For during this period
the chocolate paste will be refined to such an extent in the conches that it will
flatter even the most discriminating palate. Conches (from the Spanish word
"concha", meaning a shell) is the name given to the troughs in which 100 to 1000 kilograms of
chocolate paste at a time can be heated up to 80 °C and, while being constantly stirred, is given a
velvet smoothness by the addition of certain amounts of cocoa butter. A kind of aeration of the
liquid chocolate paste then takes place in the conches: its bitter taste gradually disappears and the
flavor is fully developed. The chocolate no longer seems sandy, but dissolves meltingly on the
tongue.
It has attained the outstanding purity, which gives it its reputation.
 Market Structure of Chocolate
The chocolate industry in India as it stands today is dominated by two companies, both
multinationals. The market leader is Cadbury with a lion's share of 72 percent. The company's
brands (Five Star, Gems, Eclairs, Perk, Dairy Milk) are leaders their segments. Till the early 90s,
Cadbury had a market share of over 80 percent, but its party was spoiled when Nestle appeared
on the scene. The latter has introduced its international brands in the country (Kit Kat, Munch,
Bar one, Milky bar), and now commands approximately 15 percent market share. The Gujarat
Co-operative Milk Marketing Federation (GCMMF) and Central Areca nut and Cocoa
Manufactures and Processors Co-operative (CAMPCO) are the other companies operating in this
segment. Competition in the segment will get keener as overseas chocolate giants Hershey's and
Mars consolidate to grab a bite of the Indian chocolate pie.

Market Share
8%
6%
Cadbury
Nestle
15% Amul
Others

71%

Some interesting facts about chocolate industry are as follows:

 Chocolate market is estimated to be around 1500 crores (ACNielson) growing at 18-20%
per annum
 Cadbury is the market leader with 72% market share
 The per capita consumption of chocolate in India is 300 gram compared with 1.9
kilograms in developed markets such as the United Kingdom
 Over 70 per cent of the consumption takes place in the urban markets
  Margins in the chocolate industry range between 10 and 20 per cent, depending on the
price point at which the product is placed
 Chocolate sales have risen by 15% in 2007 to reach 36000 tonnes according to one
estimate. Another estimate puts the figure at 25000 tonnes
 The chocolate wafer market (Perk, Kitkat etc.) is around 35 % of the total chocolate
market and has been growing at around 13% annually
 As per Euro monitor study, Indian candy market is currently valued at around USD 664
million, with about 70%, or USD 461 million, in sugar confectionery and the remaining
30%, or USD 203 million, in chocolate confectionery
 Entire Celebrations range market share is 6.5%
 The global chocolate market is worth $75 billion annually

Chocolate companies present in India

 The chocolate market in India has only three big players, Cadbury, Nestle and Amul
 New brands such as Sweet World, Candico and Chocolatiers are present in several malls
 Delhi-based Chocolatiers, started with a small shop in south Delhi’s Chittaranjan Park
and has now ventured into malls and multiplexes in NCR, Mumbai and Bangalore, with
focus on high-end or designer chocolates, a niche market of their own
 Candico India is aiming for 400 locations across malls and multiplexes in the country by
2010.
 Priya Gold the leading biscuit producers recently launched a chocolate variety ‘Snakker’
in competition to Five Star of Cadbury and Bar one of Nestle
 Seeing the growing trend in chocolate consumption in India the concept of ‘Chocolate
Boutique’ specializing in handmade chocolates.
Consumer Trends
1. Mithai- the traditional Indian sweats is getting substituted by chocolates among upwardly
mobile Indians. Instead of buying sweats on Raksha Bandhan, sisters prefer offering chocolates
to their brothers. This is the reason for sudden spurt in advertisement between July & Sep by
most of the companies .
2. The range and variety of chocolates
available in malls seems to be growing day
by day, which leads to lot of impulse sales
for chocolate companies
3. Chocolates which use to be unaffordable,
is now considered mid- priced. Convenience
over Mithai in terms of packaging and shelf
life in making both middle class and rich
Indians opt for chocolates
4. Designer chocolates have become status
symbols. They are linked to one’s aspiration
and lifestyle and malls are perfect points of
sale as people usually are happy and gay at these destinations
5. Cadbury initial communication for Celebrations was concentrated on occasions like Diwali
and Raksha Bandhan. Over the last seven to eight years, the brand emerged as a good gift
proposition for occasions and enabled people to come closer. Research done by Cadbury
suggested that they should extend the plank of occasion-based gifting to social gifting i.e. all-
year-round gifting options
6. Consumers can choose from wide range of chocolates, which initially was limited to Milk
chocolates like Dairy Milk and Milky Bar. In past few years we have seen so many SKUs with
almonds, raisins and all sort of nuts. And how can we forget latest 5 star crunchy and Ultra Perk,
which has opened new windows for consumers
7. In past, consumers had negligible inclination for dark chocolates. But now we have seen a
change in the Indian palate, which is increasing the base of this sub-segment
 Pricing Strategy of Chocolate industry

If a company is to sell a new product it has developed, choosing the correct price is vital. If the
price is set too high it may be more than the product’s target customer can afford, more
expensive than similar products sold by other companies, meaning that few will be sold.
However, if it is set too low, the company will make less profit and customers may think that the
product is inferior to similar products at a higher price.

Chocolate Market in India is very price sensitive. Some of the key features of pricing strategy of
chocolate industry are as follows;

 Chocolate is “Going On On the Go” product. Customers don’t plan before buying the
product in the price band of Rs 1 to Rs 10.
 The Rs 5 price point accounts for more than half of all chocolate sales. Nestle had seized
the initiative at this price point, with its launch of Munch, now a roaring success (and the
largest selling product at that price point). Today, Cadbury has four products at this price
point: CDM, Perk, 5 star and Gems — and the five-rupee CDM bar is its single largest-
selling SKU. This is a potent price point in India, because the average purchasing power
is abysmally low.

 Apart from the huge success of Rs 5 price point, other price points are determined
depending on the “Coinage availability”. As the 25 paise and 50 paise coins are out of
circulation. The companies are focusing more on Rupees 1, Rupees 2, 5,10 and 20 price
bands. People don’t prefer to pay the odd amount like Rs 8 or Rs 13. They prefer the
price should be in the availability of the coinage.
 Pricing Strategy of Cadbury

 As per the industry trend, all the chocolates offered by Cadbury depend on coinage
availability and have price tag of either Rupee 1 (Éclairs), Rupees 2 (Chocki), Rupees 5,
10 (CDM, 5 star). (Nestlé’s Kit-Kat is in odd price range. It is available in price tag of
Rupees 7 and Rupees 14, which is quite unusual in the chocolate industry.)

 As we go higher the price range coinage availability doesn’t matter much. The
celebration pack of Cadbury is available in range of Rs 75, 125, 225.

 Cadbury’s new Bourneville is made from the finest Ghana cocoa beans and is 44%
cocoa, is also exception to this price strategy. 80 grams of Bourneville is tagged Rupees
80 and 30 gm Bourneville has price tag of Rupees 30. The higher the product variant the
less sensitive it towards the normal trend of the pricing.

 The other pricing gimmick offered by Cadbury is it sells it CDM of 160gm at price
Rupees 99 and 80 gm at price tag of Rupees 49. This is a mix of coinage availability
concept and the price tag of 99 concept.
 Cadbury has followed a well-planned strategy of fuelling volume growth by introducing
smaller unit packs at lower price points. Simultaneously, the company seems to have
astutely juggled with the larger pack sizes and raised prices to a degree higher than what
appears at face. The strategy has driven volumes in the last two years and we expect the
volume growth to continue in the next two years.

 Cadbury extensively use Focus group discussion before launching any new product and
before changing its price strategy. In case of Cadbury most of the time this focus group is
youngsters of age group 15-25.

 Aspect Ratio is important factor which helps to maintain the price tag of Rupees 5 or 10
for Cadbury. Aspect ratio is ratio of width to the height. Few month back Cadbury
decreased the length of its flagship brand 5 star. As per the focus group interview it came
to know that people notice the change in length easily and which caused the decline in the
sales. So company corrected this by keeping the length same and decreasing its width.
 There was minimal impact on consumer buying behavior. So Cadbury if necessary tries
to maintain its aspect ratio constant. And in case like 5 star’s case it maintains its profit
margin by reducing the width and not length of the chocolate bar, if there is rise in price
of raw materials.

 Raw materials and granule size are important factors determining the price of the
chocolate. Bourneville which is made from the finest Ghana cocoa beans and is 44%
cocoa is a premium product. Cadbury’s Dairy milk Silk which has more fats and finer
granules of coco due to 50 to 90% more efficiency in production is at higher price band
than Crackle which is made of only coco and milk.

 In the chocolate industry the concept of Price Discounts and Allowance is extremely low.
The pricing is independent of Channel, season or location.
 Comparative Price Table for various products

As per the survey conducted by us, we came across two major brands Cadbury and Nestle. The price of
the products which were available in the market is depicted in below tables:

Cadbury

Brand Weight Price

5 star 14gm 5

5 star: 5 star 28gm 10

5 star 84gm 30

Brand Weight Price

CDM 9.5gm 5
CDM 20gm 10
CDM: CDM 38gm 20
CDM 98gm 49
CDM 196gm 99
CDM-Silk 69gm 49

Brand Weight Price

Bourneville 30gm 30
Bourneville 80gm 80
Bourneville:
 Brand Weight Price
Temptation-almond 30gm 30
Temptation-raisin 30gm 30
Temptation: Temptation-orange 30gm 30
Temptation-cashew 30gm 30
Temptation-rum 30gm 30

Brand Weight Price

Perk: Perk-Mini 7.5gm 2
Perk 21gm 5
Perk 42gm 10

Brand Weight Price

Celebrations: Celebration assorted 75
Celebration assorted 125
Celebration assorted 175
Celebration assorted 200
 Nestle

Brand Weight Price

Kitkat: Kitkat 16.5gm 7
Kitkat 33gm 14
Kitkat 49gm 20
Kitkat 99gm 40

Brand Weight Price

Bar-One: Bar one 15gm 5
Bar one 30gm 10

Brand Weight Price

Milky Bar 11.5gm 5
Milky Bar:
Milky Bar 23gm 10
Milky Bar 46gm 20

Brand Weight Price

Munch: Munch 7.5gm 2
Munch 15gm 5
Munch 30gm 10

Amul
 Brand Weight Price
Milk Chocolate 35gm 15
Fruit and nut 35gm 16
Almond bar 35gm 12
Bindazz 30gm 12
Fundoo 30gm 12

Brand Weight Price

Choco zoo Tin 232gm 115
Choco zoo: Choco zoo Tub 500gm 148

References
http://fmcgmarketers.blogspot.com/2007/12/chocolate-market-in-india.html
http://www.cadburyindia.com/brands/choco1.asp
http://www.nestle.in/nestle_india_landing.aspx