M&M's is owned by Mars, one of the largest chocolate company in the United States. The company, however, experiences relatively high competition from other producers in the market. The company produces competitive chocolates which have high demand within the United States. Yet, due to stiff competition imposed by other companies, the company has started producing alternative products that have high health value ensuring the company remains ahead of its customers. The paper focuses on analyzing M&M's company based on Porter's five forces.
The threat of new entrant: Moderate
Since its creation in the 1940s, M&M never had a threat to entry into the confectionery industry. Heirs founded it to the two largest confectionary companies in the United States. This was a blessing in disguise, as one of the highest barriers to entry to the market by new companies was the high cost of capital required to start the business—they a lot of financial aid from Mars corporation and the Hershey chocolate company (Lembkre 2016).
Although there was low customer loyalty because switching between products was relatively more comfortable for their customers, they used this to their advantage. They enticed customers from Mars and Hershey to their side, and this began the growth of the company domestically. The M&M company also used one of their threats of entry to the market to work for them by selling their products to the United States Military.
This helped them solidify their position in the country as even today they are still partners with the government military. Although they found it easier to enter into the market in their home country, in foreign nations, this was not the case in countries like China, which they had to fight to enter into the Chinese market.
In the Chinese market, more than 60% of assets were owned by the government. Hence this meant that negotiations with the government were critical to the entry of the market. Unfortunately, Mars, M&M's parent company, was the last confectionary company to attempt its luck in the Chinese market. Although they overcame these barriers to entry and established themselves as a multinational corporation, they did not find this easy as they did in the USA through overcoming policies such s price restrictions by the Chinese government.
The threat of Substitutes: Medium
M&M's company faces a common threat to substitutes. With the increase in health education on the general public, more customers are becoming informed hence reducing the customer base. Customers are becoming more health-conscious, changing the consumption of snacks due to the emergence of new healthier snacks from other industries. Essential products such as sugar-free, fruit-based snacks and cereal bars are confectionary healthier compared to the company snacks hence posing substitution risk. However, the company has added value to some of the products, such as snickers protein bars, to retain the changing market trend for chocolates.
Most supermarkets within the united states are actively introducing alternative chocolates similar to M&M's products hence increasing chances for company substitution in the market. The company offers comparatively expensive products that place the company at risk of being overthrown by alternative cheaper products offered by emerging companies. Chocolates offered by M&M's company regularly experience challenges from nutritionists and health experts. There is a constant claim that the company provides products with higher calories value and sugar content hence a threat of customers adopting low sugar content snacks.
M&M's company should consider offering alternative products that satisfy health demands. Some of the most recommended products include Maltesers' dark chocolate, which contains low sugar content. There is the versatility of chocolate extending beyond personal consumption; hence the risk of substitution can be considered to be partly offset. The company offers a wide range of products which make the brand well established in the market. Therefore, the company can compete comparatively with the emerging product hence the moderate threat of substitution.
Rivalry among existing firms: High
There is fierce competition in the confectionery industry in the united states since it is a mature industry. M&Ms main competitor is Hershey's chocolate. Hershey's introduction of its most popular brand of sweets of Hershey's kisses known as the kissable, which was meant to provide direct competition the m&m's in the market. Although Hershey's have been the main competitors for years, the introduction of significant players in the industry like Nestlé's smarties and Cadbury's gems has proved just how the industry has involved in a fierce shark pool all aiming at taking a leading command in the market (Isabelle et al. 2020).
Due to the industry having similar products and the cost for the customer to change brand loyalty being minimal, it truly puts influence from competitors at an all-time high. The world of chocolate has made it very difficult for the invention of new products and increasingly challenging to command the level market share as it did before.
The cost of making chocolate and candy in the industry has dramatically been increasing and keeping up with these costs as competitors continue rolling out new products to the consumers has made M&M company feel the pinch in the market. This has made the prices that were once affordable, a major advantage that the confectionary company held over their competitors to diminish and hence made customers transition to rival companies due to their lower prices of the same type of products.
Threats from companies like Nestle that produce low and fat content chocolates and candies have started edging the market in terms of the customers attracted to these products as compared to M&M products that have been constantly accused of their high fat and sugar content in their products and resulting in loss of some of their customers to competitors.
Buyer's bargaining power: Moderate
The confectionery industry is customer-oriented, as they play a key role in the active success and failure of the industry or company involved. The buyer's influence may be demonstrated by bargaining power to demand lower prices and high-quality products (Cho et al. 2019). This affected the company since lower prices if products and higher quality lead to more costs in production and reduced revenue.
The buyer's bargaining power is a significant threat to M&M because of the high number of competitors who make the same product. This power was visible when buyers openly lamented about the high levels of sugar and fat in the candy produced by the company. This led to an outcry on the levels of quality of the product, and this led to the company to adapt and change with regards to the customer's needs. This was a significant threat that needed to be dealt with because companies like Cadbury and Nestle already had candy that had significantly lower fat and sugar levels than M&M's.
The buyer's bargaining power is relatively more durable and has resulted in M&M's products to sell at a much lower price closer to their competitors. This is because the cost of the customer changing brands to either Nestle or Cadbury is reasonable and would not affect them significantly.
M&M has, however, been successful in trying to reduce the buyer's bargaining power by focusing on the innovation of its products to suit the need of its buyers. They have also focused on advertising and trying to appeal to their client base, which is children over ten years. This has much helped in reducing the buyer's bargaining power by creating a large group of buyers, and this has built brand loyalty.
Power of Suppliers: Medium
The bargaining power of suppliers is relatively low. Considering certain aspects such as the ingredients for chocolate is not widely, and unique available M&Ms bargaining power remains relatively high. The company's capability to buy in bulk makes it possible to outcompete most emerging companies. Seasonal shortage of certain raw materials such as cocoa provides the suppliers with some moderate bargaining. M&M's bargaining power is, therefore, relatively higher than that of the supplier due to the sheer ingredients the company purchases from the suppliers. Due to the company's ability to have a good reputation in purchasing raw materials in large quantities, the company is likely to have the ability to set cocoa prices in the market irrespective of the underlying conditions.
M&M's company faces substantial threats based on the competitor's power, the companies bargaining power and the risk of substitution. Therefore, the company should consider imposing measures that enable the company to stay ahead of its competitors. The company should maximize the production of healthier chocolate products and subsidize their prizes to win the customer's trust.
Cho, W., Ke, J. Y. F. & Han, C. (2019). An empirical examination of the use of bargaining power and its impacts on supply chain financial performance. Journal of Purchasing and Supply Management, 25(4), 100550. https://www.sciencedirect.com/science/article/pii/S1478409218303169
Isabelle, D., Horak, K., McKinnon, S., & Palumbo, C. (2020). Is Porter's Five Forces Framework Still Relevant? A study of the capital/labor intensity continuum via mining and IT industries. Technology Innovation Management Review, 10(6).
https://www.timreview.ca/article/1366Lembke, R. S. (2016). Process variability and capability in candy production and packaging. Decision Sciences Journal of Innovative Education, 14(3), 301-314. https://onlinelibrary.wiley.com/doi/abs/10.1111/dsji.12105
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