Kit Kat Have a break

Sylvie Laforet* and Andy Hirst**

Sylvie Laforet

Introduction e

Sonia Ng sat down to have a cup of tea with her friend, David Johnson, in the company's dimly lit canteen in York, in the north of England. She unwrapped the bright red paper band from a KitKat, then ran a finger down the foil between the two biscuits. She snapped the biscuits apart, handed one to David and sighed: This KitKat is not going to be like any I have eaten before,' As a new assistant brand manager. Sonia had to prepare the 1995 brand plan for KitKat. It was a great break for her as KitKat was Nestle's top confectionery brand. Her first action was to gather what information she could about the brand, then talk to managers who knew about it.

Nestle Rowntree

Rowntree launched KitKat in August 1935 as 'Choeolate Crisp'. Renamed twice - in 1937 as 'KitKat Chocolate Crisp' and in 1949 as 'KitKat' - by 1950 it was Rowntree's biggest brand and it has rem.'iiued so ever since. The origin of KitKat s name is uncertain. Some believe the name came from the eighteenth-century political KitKat Club, itself named after one Christopher (or Kit) Cat, who kept a pie house where the club met. The name KitKat has favourable onomatopoeic qualities that help the association of the wafer biscuit with a dry, soft snapping or cracking, as of the biscuit being broken or bitten. Other Rowntree brands include Rowntree's Fruit Pastilles (launched 1881), Rowntree's Fruit Gums (1893), Black Magic (1933), Aero (1935), Dairy Box (1936), Smarties (1937), Polo (1948) and After Eight (1962).

Nestle Rowntree is Nestle's largest works and the United Kingdom's largest exporter of chocolate and sugar confectionery, selling to over 120 countries. The mast important markets are Europe and the Middle East. Besides the United Kingdom, the European markets include France, Germany, Belgium, Holland,

"Birmingham University. "* Lougliboroujih University

Italy and Ireland. The chocolate biscuit countline (CBCL) market is not as large in the rest of Europe as it is in the United Kingdom. The proportions of KitKat volume sales are 67 per cent for the United Kingdom, 10.6 for Germany and 5.6 for France. And since the early 1990s Nestle has developed its overseas markets by more than 50 per cent.

Strategic Objectives

Net operating profits, return on capital employed (ROCE) and market shares drive the company. Eaeh product group has objectives. The company has a cascade system so that each brand has its objectives as well. Each has a brand plan - business plans for each brand. One of the strategic objectives of Nestle is to increase sales across the European markets. Often the marketing managers are not always able to put in capital to supply across Europe, To do this Nestle have had to adopt a penetration strategy, which means that the margins are lower and this has a depressing effect on the group's ROCE.

The company's long-term aims are to become the clear leader in the UK confectionery industry and to generate real growth in the profitability and productivity of its confectionery business. It also aims to increase the efficiency of its supply chain and so improve customer service.

Business Strategy

The company's strategy is to pursue the company's objectives rather than to defend its position against competitors. For example, some ooantlines are 'below threshold size'. The objective for these is to improve the performance up to the threshold level. Rod Flint, the director of J. Walter Thompson, which is responsible for Nestle Rowritree's advertising, comments: 'Their objective is not always driven by the stock market. That gives Nestle a long-term perspective. They are into world brand domination and they are highly global in their approach now, since they arc also organizing their European marketing department.'

Basic principles drive the company's brand strategy. It believes in offering the consumer value for money. It also believes in developing long-term brands and aims to differentiate its products from one another within the brand portfolio, which the company thinks will offer a competitive advantage over those of its competitors. The company works to ensure that its brands maintain clear positions in order to prevent eanniballzation. Up to now, the best way to achieve this has been stand-alone product brands, as opposed to umbrella brands. More recently, however, the cost of establishing new brands has increased very dramatically. The company is continually looking for ways to leverage the brand across the confectionery business and other product categories. Nestle" also wishes to improve its corporate image by associating its name more closely with successful brands. For example, KitKat lias become Nestle KitKat. Part of the company's brand policy is also to dedicate significant sums of money to advertising and promotions. This helps to build customer loyalty and block the entrance of new competitors. On average, 10 per cent of the sales value of the brand goes on advertising and promotions.

KitKat

When launched KitKat entered a market already dominated by Cadbury's Dairy Milk. From its beginning, KitKat was positioned as both a confectionery and a snack. It is now positioned half-way between a snack and an indulgence. In the consumers' eyes, however, KitKat is essentially a snack product and its 1957 -slogan 'Have a break, have a KitKat' is widely known through long-running ad.s on TV and in other media.

The KitKat brand has two formats in the UK. The two-finger format is bought in a mukipack (packs of eight or more) at large grocers by parents for their children. In contrast, the four-finger format is bought individually by 16-24-year-olds for their consumption (Exhibits 1.1 and 1.2). The two-finger format is part of the CBCL sector, which implies specific usage, non-personal and 'family' consumption, as well as in snack and lunch boxes for kids' consumption. The four-finger format is part of the general chocolate count line sector, which implies personal consumption, broad usage and the 'adults' and 'self-eats' categories. The

EXHIBIT 1.1 GBCL MULTIPACKS MARKET (£M)

YEAR

KITKAT 2-FiNGEK MULTIPACKS

MULTIPACKS AND MINIS

199O

91

6O

4O

449

1991

96

66

39

478

1992

1O1

68

39

6O8

1993

11O

63

46

63O

1994

112

48

47

636

SOURCES: BGCGA, AC Nielsen TN-AGB and despatches.

SOURCES: BGCGA, AC Nielsen TN-AGB and despatches.

EXHIBIT 1.2 CBCL MANUFACTURER PERFORMANCE (1994)

/ SHARK

% CHANGE YEAR ON YEAR

Nestle Rowntree

26.3

-2.6

United Biscuits

17.4

-15.7

Jacobs Baker;'

12.O

-1.5

Mars Confectionery

3.3

-14.0

Burtons

7.1

-14.3

Thomas Tunnocks

3.8

-3.5

Fox's

7.8

51.8

Others

6.7

3.6

Cadbury

2.2

n/a

Private label

16.3

25.6

Total market

0.9

SOURCE: AG-1! Superpanel.

EXHIBIT 1.3 COUNTLINE MARKET (£M)

YEAR KITKAT MASS TIME OUT COUNT-LINES

4-FINCER

1990 76 137 O 1,629

1991 87 138 O 1,677

1992 92 142 18 1,723

1993 93 148 2O 1,787

1994 96 169 39 1,866

SOURCES; BCCCft. AC Nielsen and despatches.

134 • Over-mew Case One; KitRat four-finger format was the main volume format, but was overtaken by the two-finger format (Exhibit 1.3) as the grocery sector rose at the expense of the CTNs (confeetioner/tobaeeonist/newsagent). About 18 per cent of KitKat two-finger's volume goes through cash-and-carry to CTN, compared with 80 per cent of the four-finger format.

Nestle Rowntree divides the chocolate market into three categories: chocolate box assortments (a gift-oriented marketplace); the countline market (a 'self-eat' market)-a consumer-product category'(i.e. KitKat four-finger); and CBGL-a sector that the company created. Thus Nestle Rowntree has developed the KitKat business by marketing it as a countline product in its four-finger format, and by developing it as a CBCL in its two-finger format. This helped KitKat cover two sections in their stores, one selling confectionery and the other selling biscuits.

Another reason for promoting KitKat as a CBCL is the growing power of the multiple grocers (Exhibits 1.4 and 1.5). There is a shift from a less structured retail sector into multiple businesses that are sophisticated and powerful. The company produces different packs for the multiple grocers and the independent sector. This avoids direct price and value comparison by the consumer and, therefore, restricts the power of the multiple retailers in their negotiations to increase their profitability.

EXHIBIT 1.4 KITKAT VOLUME DISTRIBUTION

INDEPENDENT GROCERS COVERED INDEPENDENT CTNs COVERED

YBAK KITKAT Z-FIKGER PENGUIN KITKAT 4-i'iNGK,u MARK BAR TIME OUT

1990 W 65 99 99 0

1992 57 52 99 99 33

1993 64 64 99 99 95

1994 65 71 99 99 94

(is) KITKAT 2-riNGER SHARE OF CBCL FORWARD STORKS (%)

MULTIPLE GROCERS MULTIPLE CTNs INDEPENDENT GROCERS

(is) KITKAT 2-riNGER SHARE OF CBCL FORWARD STORKS (%)

MULTIPLE GROCERS MULTIPLE CTNs INDEPENDENT GROCERS

YEAR

KITKAT

PENGUIN

KITKAT

PENGUIN

KITKAT

PENGUIN

1990

20.3

12.9

45.2

3.8

12.8

15.9

1991

14.9

12.3

43.9

5.1

12.1

14.6

1992

11.9

10.3

43.4

6.5

15.0

14.3

1993

12.2

9.3

28.0

8.4

12.6

14.4

1994

12.6

9.9

38.5

5.5

13.4

15.8

(c) KITKAT 4-riNGER SHARE COUNTLINE OF FORWARD STOCKS (%)

MULTIPLE

MULTIPLE

INDEPENDENT

INDEPENDENT

YEAR

GROCERS

CTNs

CTNs

GROCERS

1990

5.4

4.2

4.7

5.8

1991

5.3

4.1

4.6

6.0

1992

4.4

3.7

4.8

5.4

1993

4.4

4.0

4.5

5.5

1994

6.0

3.6

4.4

5.1

SOURCE: AC Xielsen.

SOURCE: AC Xielsen.

Overview Case One: KitKat

EXHIBIT !..-> KITKAT SALES BY PACK AND SECTOR (TONNES)

2-RNGER

4-FINGER

YEAR

SlNOI.KS

MULTIPACKS

OTHER

SINGLES

MULTIPACKS

OTHER

All customers

1990

1,150

20,750

300

15,550

3,000

0

1991

1,200

20,800

200

16,950

3,700

50

1992

1,200

21,300

100

17,150

3,250

0

1993

800

21,900

0

16,300

3,300

0

1994

700

23,150

100

15,850

3,750

0

Multiple retail

1990

50

18,750

100

1,800

2,750

0

1991

50

18,850

50

2,050

3.450

0

1992

50

19,300

50

2,100

3,100

0

1993

50

19,950

0

1,950

3,200

0

1994

50

21,200

50

1,900

3,600

0

Wholesale/

independent

199(1

1,100

2,000

200

13,750

250

0

1991

1,150

1,950

150

14,900

250

50

1992

1,150

2,000

50

15,050

150

0

1993

750

1,950

0

14,350

100

0

1994

650

1,950

50

13,950

150

0

SOURCES: Intern a 1.

The market share for KitKat two-finger was 19.5 per cent of the GBCL market in 1994-the no. 1 seller (Exhibit 1.6). KitKat's nearest competitors are Mars Bars and Twix, both Mars products. Twix was launched as a countline product, but is now marketed as single fingers in the multipack format in the GBCL category. KitKnt two-finger's main CBGL competitors are United Biscuits and Jacobs; in the general chocolate countline category, KitKat four-finger's main competitors are Mars and Cadbury.

EXHIBIT 1,6 GBCL BRAND PERFORMANCE

% SliARE

% CHANGE

BRAND

(EXPENDITURE)

(YEAR ON YEAR)

KitKat 2 -finger

19.5

2.5

Penguin

8.8

7.4

Club

9.0

-7.7

Twix

3.3

-13.6

Rocky

4.1

159.3

Blue Riband

2.7

-4.0

Breakaway

2.7

-7.9

Wagon Wheel

4.7

-15.3

Tunnocks CW

3.4

-2.1

Classic

2.4

-11.2

Trio

2.2

-5.3

Private label

15.3

AGB Superpanel.

The Market

The ehocolate confectionery market is concentrated, stahle and very competitive. The leading suppliers are Cadbury (28 per cent market share), Nestle Rowntree (25), Mars (21) and Terry's Suchard (5). KitKat has the biggest advertising expenditure in the UK confectioner;' market. The £1.5 billion confectioner;' snack market, including eountlines and chocolate blocks, is 38 per cent of the confectionery market. This market has grown by 20 per cent over the past five years, following the rise in popularity of' snacking. Growth in both the countline market and the CBCL sector has now stabilized. As market leader, KitKat has retained a price premium and set prices for its competitors to follow. There is a risk to volume if the market does not follow. The market share for KitKat four-finger was 7 per cent within the general countline market. KitKat four-finger had lost some of its market share to Mars Bar (Exhibit 1.7). However, it still remains a weak no. 3, competing with two other Mars products, Twix and Snickers.

EXHIBIT 1.7 BRAND SHARES

VALUE VOLUME

BRAND

%1994

% POINTS CHANGE

%1994

% POINTS CHANGE

KitKat 4-finger

6.7

-0.1

7.1

0

Mars Bar

13.9

0.8

19.0

1.1

Snickers

7.5

-0.3

9.2

-0.3

Twix

4.9

0

6.1

0

Twirl

3.3

-0.2

2.7

-0.3

Time Out

2.7

-0.3

2.2

-0.2

Drifter

1.3

0

1.4

0

SOURCE: Nielsen (eountlines and filled blocks excluding CFiCL multis).

SOURCE: Nielsen (eountlines and filled blocks excluding CFiCL multis).

New-product development, which fuelled eountfine growth, has seen a number of new entrants. Firstly, the GBCL market has seen the entrance of Fox's Rocky bar. Rocky has claimed 4.1 per cent of the market. The second major new-product development has been made by Cadhury. It launched the Fuse bar - a mixture of chocolate, fudge and raisins. It cost £7 million to create, sold 40 million bars in its first week and was becoming the second most popular chocolate bar in the UK.

Pressure will continue to be on the countline market as the population of 1524-year-olds declines. The KitKat two-finger sales are biased towards the Cl and C2 socioeconomic and the 35-44 age groups. There is also a high penetration of very young consumers, particularly in the 12-15 age group. The four-finger format has a smarter image, inclines more towards 'chocolate occasions' consumption, and is consumed on the street. Consumption is heavily biased towards female buyers. The two-finger format ads aim at the 35-44 year olds through morning television. Children are not specifically targeted. The four-finger format ads target the 1624-year-olds through TV and youth press. The ad strategy for this format is different from that of the two-finger. The company puts an emphasis on updating KltKat's brand image by making it appeal to the younger generation through advertising in trendy and young people's magazines and independent radio.

The promotions for the two-finger format are value- and grocery-trade-oriented (for example, 'one bar free' activity, or repeat purchase incentives). For the four-finger format, the promotions are different because of the different segments targeted (for example, Ip off). However, there is an annual pan-

Overview Case One: KitKat

promotion for KitKat as a whole that consists of big promotions, price and emphasis on brand awareness. There is a price differentiation between the two formats. KitKat four-finger is 'twin-priced' in parallel with Twix, and 2p below the Mars Bar. This is because KitKat is 'snaclw' and not as hunger satisfying as the Mars Bar. If the company deviated from this pricing strategy, its volume share might drop. The two-finger format is not as price-sensitive as the four-finger. As a market leader within the CBCL category, it can more or less dictate price. Thus its competitor Penguin is priced 2p below KitKat two-finger. According to Nestle brand managers, 'The objective for KitKat is to maintain customer loyalty by being innovative, and to remain the number one UK confectionery brand.' There is evidence of relative brand loyalty for KitKat. However, people who buy KitKat two-finger will also be likely to buy other brands, such as Classic, Club Orange, Penguin. Twix, Blue Riband and Gold. According to Brian Ford, the brand manager for the KitKat two-finger: 'Although Nestle has tried to differentiate the two formats of KitKat in its segmentation and positioning strategies, the consumer sees no difference in the total brand.'

In light of the recent developments, KitKat has worked hard to maintain its position as the market leader. In the spring of 1996, the UK's favourite confectionery brand took on a new taste. Nestle launched KitKat Orange, the first flavour variant in its 59-year history. However, the variant was launched as a limited edition and the product was released for only one month. The success of the product was so phenomenal that customers were writing letters to have the product re-released. On 31 January 1997 a Nestle press release revealed that Nestle was launching a limited edition Mint KitKat. This new variant was even more popular in trials than KitKat Orange.

Competition

Competition is likely to come from small brands, grocery retailers' own labels and other lines coming into the United Kingdom. There is also a cross-over between the chocolate countline and the CBCL sector. Oadbury has recently encroached into KitKat's TIave a break' territory with Time Out - a bar aimed at the CBCL sector. Time Out aims to bridge the gap between chocolate snack bars, such as Twirl, and wafer-based snacks, such as KitKat. It will compete with KitKat and Twix and should take sales away from brands with a 'heavy sweet' product image, likeSpira and Twix.

Competition from other European confectioners has intensified with the growth of discounters such as Aldi and Netto. This might lead to a price-cutting war in the multiple grocery sector, especially among Kwik Save, Lo-Cost and Asda. Aldi is a particular concern because it is importing bags of KitKat minis from Germany. Although Nestle Rowntree sells many of its countlines as minis, it does not make or sell KitKat in that format. Besides losing it revenue, Aldi's KitKat minis cause other problems: first, large grocers, like Sainsbury and Tesco, now want supplies of minis like Aldi's; second, the biscuit and chocolate used to make the German KitKat are distinctly different from those used in Britain,

Outside the United Kingdom, the four-finger format sells more than the two-finger format. European retailers outside the United Kingdom also emphasize minis (Aldi only imports that form). Nesde Rowntree does sell minis in the United Kingdom, but these are very low-volume products and appear only in variety packs with other Nestle minis. The company does not see them as a threat to its existing brands as the volume of minis is relatively low in comparison.

The company is now producing to capacity. The problem is managing demand in the marketplace. We can't give them any more, so we use price to limit demand and to get maximum profit return on the amount we produce,' explains Ford. In his opinion, this is easier for the two-finger format because it is the market lender in the CBCL category, but is less easy in the four-finger case. 'It is not the market leader in the chocolate countline sector, therefore we cannot dictate price.'

Pan-European Marketing

To fit the regulations across Europe, some KitKats produced by Nestle Rowntree have different chocolate to others. Although they taste different consumers cannot tell the difference. The management of so many internationally important brands limits Nestle Rowntree's freedom of action outside the United Kingdom. The pricing relationships between, say, France, Germany and the United Kingdom need careful controlling. At the same time, the company needs to achieve its UK business objectives. The marketing of brands will be different because these brands are at different product life-cycle states in different markets. 'The United Kingdom is probably the most sophisticated confectionery market in Europe,' claims Robertson. 'Therefore, for example, the company's advertising style for KitKat is not directly transferable to Germany. The German consumer does not understand the British sense of humour,' explains Robertson. 'So, from clie business perspective, there is a [fulling together in Europe, while from the consumer perspective, there are still marked differences between different types of consumers, and that is the biggest problem.'

The packing used for KitKat in the United Kingdom is different from that used elsewhere. So KitKat exported to Germany does not have UK packaging and vice versa. Germany's KitKat is flow-wrapped, whereas the United Kingdom has a foil and band. This relatively expensive format appeared because of the early competition with Cadbury, whose market-leading milk chocolate bars had blue foil and a blue wrapper. To differentiate it from Cadbury, the KitKat pack is a silver foil with a visually strong red band wrapped end to end.

Standardization to less expensive flow wrap is resisted in the United Kingdom because of the ritualistic way that UK consumers eat KitKat. Often they eat KitKat socially over a cup of tea. When eating KitKat, many consumers first take off the red wrapper, then run a finger down the foil between two biscuits. With the top of the foil broken, the KitKat fingers are snapped off and then eaten one by one, just as KitKat's new assistant brand manager, Sonia Ng, did. Her job was to develop a brand plan for KitKat. For her it was a great break; but not an easy one.

SOURCES: Prepared with assistance from: the advertising agency J.Walter Thompson, London; Nestle Rowntree, York; and Nestec, Vevey, Switzerland, Updated from the original by Sylvie Laforet: Kotler. Armstrong, Snundcrs and Wong, Principles of Marketing: The European Edition (London: Prentice Hall, 1996), pp. 115-26. Names, statistics and some details have been changed for commercial reasons.

Questions r

1. What is the situation facing KitKat: the strengths and weaknesses of the brand and the opportunities and threats it faces?

2. Why are the KitKat two-fingers and four-fingers marketed differently? How do the customers for the KitKat four-finger differ from those for the KitKat two-finger? What are the differences in the way the company addresses the two target markets?

Overview Case Onv, KitKat

What is the effect of European integration on the marketing of KitKatV What are the barriers to the brand's standardization across Europe? Should the company now move towards standardizing its brand and packaging across Europe?

How would you describe rhe organizational structure of the company and its marketing department? In what alternative ways could the company organize the management of its wide range of confectionery? What structure would you recommend? Prepare a brand plan for KitKat.

Having observed Hadbury's launch of Time Out in Ireland (Overview Case 4), how should KitKat defend itself against Time Out's anticipated launch in the rest of Europe?

Kitkat Org Structure Image

the great world spin for e-ver down the ringing grooves of change.'

ALh'KED LORD TENNYSON

Part Introduction

Part Two of Principles of Marketing looks at the environment in which marketing operates, customer behaviour and how information from the environment is fed into the marketing decision-making process. It has five chapters:

Chapter 4 looks at the environment in two parts: the micro environment that is specific to an organization's operation, such as suppliers and competitors; and the macro environment of wider forces that shape society, such as the natural and political environment. Global markets make it even harder to understand the social environment of marketing. Chapter 5 looks at these and forces us to see how much we have to change to succeed in international markets.

Chapter 6 explores ways of understanding consumer markets: individuals and households who buy goods and services for final consumption. The many ways of doing this give insights that can help in the design of marketing research and guide marketing decision making. Although consumer marketing is the most visible, the majority of marketing is to other organizations. These include retailers that sell on to final consumers, sellers of capital equipment - such as trucks - raw materials, components or business services. Chapter 7 reviews this wide range of business markets.

As Giuither Grass recognized, 'Information networks straddle the world. Nothing remains concealed. But the sheer volume of information dissolves the information. We are unable to take it all in.' Chapter 8 shows how marketing information systems gather, process and present this overwhelming flow of information to support marketing decision making.

chapter 4 The Marketing Environment chapter 5 The Global Marketplace

CHAPTER 6 Consumer Buyer Behaviour chapter 7

Business Markets and Business Buyer Behaviour chapter 8 Market Information and Marketing Research

OVERVIEW CASE 2

BaUyg&wan Springs into New Age Kisqua

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Responses

  • OLLI
    How kitkat penetrate into europe market?
    6 years ago
  • athanaric burrows
    How to promote kit kat chocolate?
    6 years ago
  • marigold puddifoot
    What are the marketing objectives for nestle's kit kat?
    5 years ago
  • aili
    How is kit kat positioned in the market?
    5 years ago
  • mirabella
    How kit kat increase their sale?
    5 years ago
  • Anni
    How the launching of kitkat differs acording to different cultures?
    5 years ago
  • jennifer weissmuller
    How to block the competitors in confectionary market?
    5 years ago
  • wiseman
    Have a break have a kit kat street marketing?
    5 years ago
  • Matilda
    What is the Marketing information management of kit kat?
    5 years ago
  • AZIZA
    What sales promotions are used internationally?
    5 years ago
  • torsten
    Have a break have a kitkat who is it aimed at?
    5 years ago
  • anna maria moretti
    What differentiates mars bar from its competitors?
    5 years ago
  • Indro
    Has kit kat take a marketing oriented approach to developing its confectionery brand?
    4 years ago
  • nina
    How does kit kat target both the consumer and the purchaser?
    4 years ago
  • Margaret
    Have a break have a kitkat promotion?
    1 year ago
  • Austin
    How do kitkat use sales promotions?
    7 months ago

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