MANAGEMENT CASE

LESSONS IN BRANDING FROM THE GUMS LINE OF PERFETTI VAN MELLE IN INDIA1
Anil Saraogi

In 2003, while the overall top line for the Indian operations of the global confectionery major Perfetti Van Melle was showing consistently upward trend (around 14% CAGR), the Gums line of the same was a drag for the company and was not able to make a positive contribution to the company bottom-line. In fact, Gums business grew only 3 per cent last fiscal. The line has been faced with stagnant sales and was unable to utilise the allocated plant capacity. The Divisional Head of the Line, along with his team was faced with this grave situation and was frantically looking for a break. Key Words : Positioning, Product Category Hierarchy, Benefit Proposition, Brand Equity, Duality of Brand, Target Market

N the then (2003), rupees 1,600 crore confectionery market in India, the local subsidiaries of the global confectionery majors Perfetti, Lotte, Wrigleys and Cadburys were swinging into action with new strategies, backed by fresh investments, to grab a larger slice of the rapidly growing confectionery market. Perfetti Van Melle, which entered into India as Perfetti in 1994, had manufacturing facilities at Manesar in Haryana and Chennai, by 2003. Perfetti Van Melle in India PVMIL started its domestic production in India in January 2001. However, before PVMIL set up its plant in India, it was present in this country since 1994. It was essentially importing its products from Indonesia and Holland and selling them here. Shortly after Perfetti started its Indian production operations, globally this company took over another global confectionery giant, Van Melle of Italy (see Exhibit 2). That was one full year after the plants set up by Perfetti in India, started functioning. While global merger was announced in 2001, the consolidation of the operations

in Chennai (India) happened only in January 2002, when the combined organisational structure with one Managing Director came into being. Initially, there was cooperation in distribution between the two companies region by region. The sales and distribution structure was merged between April and June 2002, and from December 2002 the legal merger also took place. The combined entity was named as Perfetti Van Mille India Pvt. Limited (PVMIPL). By 2002, this combined entity had invested about rupees 500 crore to rupees 600 crore in India. PVMIPLs turnover was expected to have crossed rupees 450 crore in fiscal 2002 - 03, up rupees 50 crores from rupees 400 crore in 2001. Apart from augmenting its manufacturing capacity, PVMIPL was also expanding its distribution network. In the last twelve months (2002), PVMIPL had strengthened its distribution network from 3500 to 4000. The friendly neighborhood panwalla (the ubiquitous kiosk selling beetle leaves and its formulations) now played a key role in the growth of companys distribution network. PVMIPLs products were stocked by an estimated 10 lakh (one million) outlets across the length and breadth of the country. Out of these 10 lakh outlets around 2.5 lakh were the ubiquitous pan shops.

1. This case has been prepared for class discussion only. Cases are not designed to present illustrations of either correct or incorrect handling of managerial problems. The data and sequence of presentation of events in the case may not reflect the real chronological happenings. And they might have been altered a bit to drive home a point. Moreover, the resemblance of characters depicted in the case with actual executives is purely incidental.

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Background of Confectionery Industry and Its Various Segments in India Confectionery industry in India has a long history and the sweet candies have been very popular among the kids in the country. However, most of the segments of the confectionary industry have been reserved for the small scale industries in the country. At the same time, the confectionery industry in India is highly fragmented with many players having a strong regional presence. While the products in the unorganised sector in the confectionery industry manifest themselves in various types, the organised sector is broadly categorised in following four or five categories: 1. Chocolate confectionery 2. Sugar boiled confectionery: Hard boiled, toffees and other sugar based candies 3. Gums (chewing gum and bubble gum) 4. Cereal bars 5. Mints (some put Mint in sugar boiled category) Sugar boiled category is by far the largest and also the most lucrative one. Sugar boiled confectionery is also suitable for Indian climate. The size is about rupees 600 crores and if we also include the share of unorganised sector, this category alone clocks around rupees 2000 crores annually. Chocolate and gum confectionery follow this, each with a similar sized share of the Indian market. In the approximately rupees 1600 crore organised market chocolate and gums account for about rupees 400 crore each. Although it is difficult to estimate the unorganised market, in the early nineties unorganised market was
S.N. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Company HUL Perfetti PVMIL ITC Wrigleys Parrys Dabur Nutrine Cadburys Nestle Warner Lambart Lotte Brands MAX

much bigger than the organised one. The ratio might have been around 70 (unorganised): 30 (organised) then. However with the entry of international players like Perfetti, Lotte, Warner Lambart etc, now (2003) it has reversed to 40 (unorganised): 60 (organised), in an approximately 220000 tones market. Parrys, Nutrine, Parle, Ravalgaon, etc are the longtime players in the Indian confectionery market. But none had been a very serious player in the Gums line. Of late many of them have either been marginalised or their operations have been taken over by international confectionary majors. As of 2003, in the rupees 1600 crore organised confectionery market, following is a partial list of major players with some of their brands. The Indian confectionery market is quite different compared to other Western markets. Some differences are: 1. India is primarily a mono pack market while the market worldwide is a multi pack market. 2. The trade is also significantly different with the global market relying heavily on organised trade. In India retail outlets like paan shops, kirana outlets result in the bulk of the sales and organised trade is still insignificant in terms of sales. 3. Functional products and sugar free confectionery dominate the worldwide market while that trend is yet to pick up in India. Competition By 2003, the rupees 1,600 crore confectionery market in India was exhibiting signs of recovery and growth and the local subsidiaries of global confectionery majors
Gum Brands Center Fresh, Center Shock, Big Babol Wrigleys, Boomer

Alpenlibe, Chlormint, Cofitos, Golia Min-o-fresh Solano Parrys Eclairs, Lacto King and Coffee Bite Hajmola Cadburys Eclairs, Gems, Five Star, Dairy Milk Nestles Eclairs Halls, Cloret Butter Scotch
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Chiclets (withdrawn since)

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Perfetti, Lotte, Wrigleys and Cadbury were swinging into action with new strategies backed by larger investments to grab a larger slice of the confectionery market. Korean confectionery company Lotte India, which acquired a 60.39 per cent in Parrys Confectionery from the Murugappa group in January 2004 for rupees 64.47 crore, and another 20 per cent through an open offer, is looking to diversify into product categories like chocolates, biscuits, snack foods and ice creams. Lotte, counted among the five largest Korean Cheabols, has a huge portfolio of brands including beverages, bottled water, flavoured water, fruit juices, chocolates, biscuits and ice creams. Lotte will use the Parrys brand for five years and is paying EID Parry a royalty of rupees 5 lakh a year. Lotte is studying the domestic market and plans to roll out its global brands over a two to three year time frame. The company recently rolled out Butter Scotch, a new sugar boiled candy in butterscotch flavour and is planning to re-launch the blockbuster brand Coffee Bite very soon. As on 2003 the combined portfolio of brands did not have any offering in Gums category. Cadbury India, the venerable (the worms controversy apart) chocolates and confectioneries major in India is also eyeing the gum market and is looking at the possibility of bringing in some of the brands from Warner Lamberts international portfolio. However, Cadburys does not share Perfettis enthusiasm for the Indian market. According to company officials, The gums market was not doing well in India. We are evaluating if there is a market for gums in India and whether it is going to be worth our while, says Bharat Puri, Managing Director, Cadbury India. For Cadburys the attraction in the confectionery market lies in its faster growth over the chocolates market (still recovering from worms). Earlier Cadburys re-launched Halls, one of Warner Lamberts brands to push sales. The company says Halls has begun doing well after the re-launch. Last year Cadbury Indias foreign parent acquired Pfizers interests in the confectionery business for $4.2 billion. That included the Warner-Lambert product portfolio, known best for Halls, Clorets and Chiclets. The acquisition is now poised to become a growth area for Cadbury India, whose confectionery brands include Eclairs. Strangely enough, Cadburys is not using its existing chocolate network for retailing its confectionery and has set up an entirely new network. Apart from repackaging and re-launching candy brand Halls Cadburys does not seem to be doing anything about Warner Lamberts other brands such as Chiclets, the

oldest chewing gum brand in India and Clorets, which sells with a small franchise without any advertising support. Meanwhile, the global leader in the gum market Wrigleys has also been aggressively expanding its presence in India. In June, 2003 Wm Wrigley acquired the worldwide Joyco gum and confectionery businesses from Agrolimen, a privately-held Spanish food conglomerate for 215 million. This cash transaction was for Joycos operations in China, France, India, Italy, Poland and Spain along with Cafosa, its chewing and bubble-gum base business. The deal gave Wrigleys a dominant position in confectionery lollipops and bubble gums in India, since Joyco was a leader in the Indian confectionery business and brought the Pim Pom candy, Boomer Gum and Solano lolli pop brands into Wrigleys portfolio. Joyco on its part came to India in 1999 when Joyco International, Spain bought out Daburs 49 per cent stake in the erstwhile General de Confiteria. And was bracing up for India was also preparing itself for the larger pie of the confectionery market in India. Along with its flagship brand Solano, Boomer and Pim Pom, it is fortifying its brand portfolio with a slew of brands like, Bonkers, Donald Bubble Gum, Donald Candy and Mickey Toffee, Aqtimint and Solano Coffee Bean. But of course now it was a part of consolidated operations of Wrigleys India Pvt. Limited. Other companies present in Indian confectionery market were Candico, Nutrine, Ravalgaon, Parle, ITC, Nestle, Amul etc. However, none of them had any significant presence in gums business in 2003. Industry Potential: High on Hopes But Slipping on Volumes On the face of it, the vital statistics of the confectionery segment seem more promising than the conventional FMCG categories such as toilet soaps or detergents. While toilet soaps and detergents already reach over 90 per cent of the households, both chocolate and sugar confectioneries have abysmally low penetration levels. In 2001, the average consumption per capita per year was around 250 gms of sugar confectionery in a year (and out of this only 100 gram is attributed to organised players), but in Australia it was around 2.50 kg (per year). And the North Americans consumed around 10.6 kg per capita in 2001. ORG-MARG estimates suggest that chocolates penetrated just 5 per cent of the Indian households in 2000 and gums could penetrate even less. On the other
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hand, sugar-boiled confectionery reaches 15 per cent of the households, leaving ample room for growth. Even considering the urban market alone, the category reaches just 22 per cent of the urban consumers. This category, therefore, has considerable potential to grow before it reaches saturation point as have traditional FMCG products such as soaps and detergents. Chocolates and gums have penetration levels lower than even biscuits, which reach 56 per cent of the households. The flip flop of the regulators in terms of Excise Duties has also contributed its mite in a stagnating confectionery industry in India from 1995 - 2003. At first in the late nineties, the central government increased the Excise Duty by 100 per cent from 8 per cent to 16 per cent, on all confectionery across the board. This was a bolt from the blue for an industry mired by an already somber mood. Many players either got disinterested and put their commitments on hold or altogether withdrew from the industry. However, in 2003, while sugar boiled category was provided relief by bringing the ED back to original level, many other confectionery categories including the chewing and bubble gums continue to reel under heavy burden of 16 per cent Excise Duty. Pricing Perils No Price Hikes Despite fairly aggressive promotional efforts by marketers, the overall penetration level for confectionery in India registered no increase between 1999 and 2000. Consumption could have been impacted by the selling price increases that marketers affected between 1999 and 2000. Even the long time established players like Cadburys and Nestle in the confectionery market have not been able to reflect even the increase in input costs in their pricing. In 1999 and 2000, selling prices of key chocolate brands were pegged up by 5 - 15 per cent, partly reflecting a spike in cocoa price in that period. This probably contributed to the sales growth for the year. However, with cocoa prices falling sharply in the second half of 2000, marketers were forced to maintain selling prices of most products, holding back value growth in sales. Cadbury India, the market leader in the chocolate segment (market share 71.9 per cent) saw the growth in its chocolate portfolio slow to 6 per cent in the April 2000 to April 2001 period, from nine per cent the previous year. This was mainly due to the healthy double digit
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growth rates in its flagship brand Cadburys Dairy Milk. Brands such as 5 Star and Perk stagnated in 2000 -01. Nestle Indias chocolate portfolio (comprising of KitKat, Munch and Charge commanding a total market share of 24.7 per cent) slowed even more dramatically, registering less than one per cent growth between April 2000 and April 2001. Though Nestles recent launch, Munch, has been a success, the low-priced brand has moderated the value growth in Nestles portfolio. Other confectionery segments are also reeling under similar perils of pricing. Sugar boiled confectionery and gums categories have typical problems of pricing in India. In fact the pricing issues of gums products can be particularly sticky and the leading players have learnt it the hard way. When Perfetti entered India in 1994 with its innovative center filled chewing gum brand Center Fresh it pegged the launch price at rupees 1.50 per solo piece. While it was about thrice the other alternatives available in the then Indian market, company was hopeful of enticing the consumers with its innovative product feature (first time center filled Chewing Gum) and attractive pillow packing. The marketing head of the company recalls, we thought we could command a premium for being an innovative liquid filled gum with a nicely pillow packed international brand However, they were wrong and while the initial ad blitzkrieg and novelty factors helped push trials for a few months, sales soon declined and in 1995 Perfetti had to drop the price to rupees 1/- per piece. In fact, the confectionery market is very peculiar in India as against other Western countries. In India, most candies and chewing gums are bought in solo piece, on impulse and rarely planned. As per a business review published by Nestle India in 2002, less than 30 percent of confectionery product purchases in India are planned purchases. Around 37 percent are semi-impulse and over 33 percent are pure impulse buys. Moreover in India the coinage are available in the form of 50 paisa and rupees 1/- and rupees 2/- only. Hence as has been unsuccessfully tried by many players, it is not possible to upwardly revise the price from 50 paisa to 75 paisa. For 75 paisa, exact change is a major issue and the product simply does not move over the counter at this price point. Hence the only option left is to revise from say 50 paisa to rupees 1/-, which once again raises stiff resistance. And that is more so for the chewing gum products in India, as is reflected in the fact that in India 98 per cent of gums sales happens
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between 50 paisa to rupees 1/-. In short marketers have very little options to try at the pricing front. Competitive Strategies to Arrest the Fall Leading players in the confectionery industry have been experimenting with several strategies to respond to the challenges put up by the stagnating performance. While some are trying to woo the adults, others are trying with smaller packs. One avenue for growth appears to lie in taking advantage of the low penetration level for confectionery by roping in new consumers. The chocolate majors attempted to do this by repositioning chocolate, earlier targeted at children, as a snack food for adults. Cadburys chocolate-coated wafer Perk and Nestles Charge and Munch were essentially sold on this platform. Though products such as Perk did succeed initially (Cadbury India claims to have added eight million new consumers in 2000), growth in this segment appears to be petering out. Both Perk and KitKat (the chocolate-coated wafer which are central to Nestles chocolate portfolio), have shown signs of stagnation in 2001, actually reporting negative growth rates for a few of the months. Alternatively others are trying the route of High pitch/ high visibility advertising and promotion programmes. This has been successfully tried by Perfetti for its various brands like Alpenlibe, but the route is very costly and required continuously high budgetary allocations. Additionally opportunities are also available in terms of tapping the channels of super markets, which are coming in a big way across the length, and breadth of India. Currently only 3 per cent of candies and gums get sold through organised retailers like super markets and hypermarkets. Packing also leaves room for experimentation in terms of trying to woo the consumer with modern utility packaging (i.e. bulk and not single). But the Indian consumer may pose tough resistance. If developed markets were to provide any cues, while in some segments, especially candy and gums categories, although traditional market is flat with little signs of stellar growth, adult confectionery is clocking faster growth @ around 10 - 15 per cent there. Back home in India, while adult confectionery is a miniscule market, it does provide opportunities to leverage pricing and packaging options. In 2003, some sugar free variants available in the Indian market could sell at 5 - 10 rupees per bulk pack.

And of course with the advances in the food technology the functional confectionery; an entirely new category itself in the confectionery industry has been doing rounds in the western world. Plethora of products ranging from drug delivery candies to Viagra chewing gums has sprung up. Market for Gum Products in India Before the launch of Center Shock, the confectionery market in India was on the road to decline. And within the same, the chewing gum segment was showing a 23 per cent decline. Under these circumstances Perfetti India Ltd. decided to launch a product that would shake up the market. And over the years Perfetti and other major players like Joyco, Wrigleys etc. had introduced a few international gum brands in India. As a result, as of 2003, the gums market in India was pegged at about $70 million or rupees 300 crores. The Sugar Free Way Interestingly except for Cadburys, the three confectionery giants, Perfetti, Lotte and Wrigleys were focusing on bubble gums and chewing gum even though the gum market is only one-fourth the size of the total confectionery market in India. However, the action being seen in this segment may soon lead to faster growth as more and more new products see the light of the day. In the recent past (2003), action has been revolving around chewing gums and that too the sugar-free variety. In the last decade or so sugar-free chewing gum has become preferred over sugary chewing gums in the obesity afflicted west (exhibit 4). Sugar-free chewing gum recently received a boost when a study revealed that the natural flavours found in Big Red, a chewing gum brand manufactured by Wrigleys can beat bacteria that cause bad breath. It also meant that it was beneficial to teeth as well. Christine Wu, professor of Periodontics at the University of Chicago and lead author of the study reportedly said chewing gum has significant impact on oral hygiene as it contained anti-microbial agents such as cinnamic aldehyde plant oil used in flavoring chewing gums. The study naturally boosted sales of US-based Wrigleys products. In India, recently the PFA has done away the restrictions against marketing of sugar free products in the confectionery category. This opens up an entirely new segment of functional confectionery (exhibit 4) to the confectionery makers, giving them an opportunity
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to tap on the health benefits aspects of sugar free chewing gum. US based Wrigley, the worlds leading chewing gum maker, recently launched Orbit, a sugar-free gum available in a flow pack of four for rupees 5. The company is also seeking a patent in the US market to come up with a Viagra gum. While Wrigleys is betting on the benefits of cinnamic aldehyde, Perfetti of Italy and Lotte of Korea are talking of the benefits of Xylitol. Cinnamic aldehyde plant oil and Xylitol are the naturally occurring sweeteners that provide an alternative to sugar in confectionery. Lotte also plans to begin manufacturing and marketing Lotte Xylitol a global $100 million sugar free chewing gum brand, and is installing an imported line at its factory in Nellikuppam in Tamil Nadu to manufacture chewing gums at an investment of around rupees 4 crore and another rupees 6 - 7 crore in brand building (2003). Cadburys India, while adopting a more cautious approach towards chewing gum launches, was looking at launching Warner Lamberts sugarless gum brands Dentyne Ice and Trident White, known for their functional benefits world-wide. However it felt that the brands may not work in India due to their steep prices. However, the confectionery makers in India are not sure whether enough market exists for sugar-free chewing gum in this country. Currently (2003) it is a minuscule market. Product Portfolio and Market Share of PVMIL PVMIPLs range of confectionary as on 2003 could be classified in two major categories: 1. Candies and 2. Gums (bubble gums and chewing gums). While the worldwide product and brand portfolio was much larger, they had introduced following brands in India by 2003:
Candies Alpenliebe Chlor-mint Fruitella Mentos Chocotella Cof]itos Gums Babol (Bubble) Big Babol (Bubble) Center Fresh (Chewing) Center Shock (Chewing) Digestives Chatarpatar

Hajmola from Dabur. Moreover the Indian arm had also developed a candy called Cofitos with coffee flavour. The unique flavour of the candy and a successful run in the Indian market got it introduced globally in many markets that Perfetti served. Big Babol is an upward variant of Babol and is almost replacing it. In the organised confectionery market in the year 2003 the estimated share of PVMIL in various categories is as follows:
Market Size in Tons Chewing Gum Bubble Gum Candies and Toffees Breath Freshners Other Categories Total 3350 14000 68000 7000 45650 138000 17% Perfetti Market Share 94% 42% 18% 25%

Existing (2003) Positioning of Perfetti Gums Products Perfetti had mainly three brands under its gums category, namely Big Babol, Centre Fresh and Centre Shock. The Big Babol has come to almost replace its predecessor Babol and it is a Bubble Gum, target segment of the Kids. Predominantly its communications are on Fun plank. By 2003, the company had invested around rupees 35 crore towards Brand Building. For Big Babol promotions, the company has an ongoing Quiz for Kids programme covering over 1100 schools across length and breadth. As for the Centre Fresh, it is a chewing gum and was introduced in India way back in 1994. Its value proposition rests around Fun and Freshness with target segment of kids, teenagers and sportspersons. Similarly, Center Shock is also a fun product. It has an extremely sour taste and the product proposition is Shocking Taste. It is a gum that shakes you up the feeling summed up by its positioning base line Hila Ke Rakh De! (will shake you up). The product proposition of Shocking Taste is the cue for the positioning of the product. A series of conventional and non-conventional branding techniques have been utilised to promote Center Shock. 1. Novel Launch - Center Shock has been launched with magic shows across the country where the product was revealed. Retailers along with their families were invited for the show.
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Chatarpatar was an India exclusive solo product in a category named Digestives. It was pitched against the
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2. Advertising by TV/Radio etc. - Two clutter breaking creative executions were developed and aired with the simple message of a product which shakes you up. A series of 5 radio spots broadcasted on FM Radio across select Metros Press and Outdoor Tactical advertising undertaken. 3. Media Innovations - Who Dares Wins Center Shock appropriated one of the segments on street dares gave the unique opportunity to integrate the product with the dare and maximise product exposure on-air and on-ground. 4. Cricket - The base line Hila Ke Rakh De appeared on television at the fall of every opposition team wicket. Target Segment For Center Fresh and Centre Shock, the company has following profile as Target segment: Age 10 19 years Sex Male and Female

deliver the desired results and Perfetti has taken care to ensure the same. THE DILEMMA (Readers are advised to refer to the Exhibit-3 to get to know the characters in the following conversation). In this tumultuous market situation, on a sultry afternoon in May 2005, in a hurriedly convened meeting of his colleagues at Gums Division of PVMIPL, Mr. Sameer Agrawal2 , Division Head (gums), while overlooking the Arabian Sea through his 29th floor office at Nariman Point, was lost in his thoughts. At the ensuing meeting with the top honchos from Italy, visiting the Indian subsidiary, he was supposed to present his plan of action for the next year for his product portfolio. His product portfolio essentially included the entire Gums line from the stable of PVMIPL. In fact, he was likely to face many pointed questions, like:
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Why were the sales of the Gums Division not growing in line with the companys overall business growth? How was it that the capacity utilisation by the Gums products abysmally low in both the plants of PVMIPL plants (Chennai and Haryana)? What was being done to improve the Brand presence of the Gums products in the Indian market?

Brand Buiding Efforts by Perfetti India At Perfetti Van Melle India, Brand Building is a cohesive and integrated exercise, wherein not only a unified and holistic approach is developed for the entire product portfolio, various tools of IMC and other marketing mix are also judiciously used to ensure maximum synergy and leverage. Perfetti Van Melle has also shown creativity in its packaging as well as communication and promotions. Big Babol redemption contests, Cofitos Click Card promotion are examples of this. Alpenliebe, Big Babol, Chlor-mint are all brands built in the past decade and advertising has played a key role in the same. A series of conventional and non-conventional branding techniques and media innovations have been utilised to promote the companys products in India. Besides media vehicles like television, radio (FM), press, outdoor and on ground activities as well as point of purchase promotional material have been used tactically, across the country. The company believes in being flexible when deciding spends on a specific brand and lets the market factors determine spends on the brand and on different media vehicles. However, advertising has to be backed by availability of the product, in order for the advertising to
2 The names and characters are disguised
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There were many reasons contributing to the somber mood at the Gums Division of PVMIPL. For one, although throughout its decade long presence in India, while the demographic profile of Indian populace was changing for the better and other similar companies (homegrown and MNCs both) had been reaping the benefits of the demographic dividend, the performance of the Gums line of PVMIPL, was nothing to boast about. In fact, riding the LPG wave unleashed in India, most of India Inc. had been able to post incredible bottom-lines, supported by robust top line growth. A 35 - 40 per cent growth in the bottom-line was not an exception, across the board. However, that was not the case with the Gums Division of the PVMIPL. The series of thoughts running through Mr. Agrawal was disrupted when Mr. Naresh Patil (National Marketing Manager- Gums) said: While it was true that many other sectors might have been witnessing stellar growths, the confectionary industry in general and gums market in particular had been able to record only 5 - 10 per cent

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growth over the last couple of years. In fact in the years 2002, only 3 - 4 per cent growth could be achieved. Hence there was nothing particularly wrong with us and we need not worry. Before Mr. Agrawal could organise his thoughts to respond to Mr. Patil, Mr. N Chinnaswamy- Regional Manager (West), corroborating Mr. Patil, said: The government policies had not been conducive, either. As all of us are aware, the Excise Duty on confectionary products had been increased from 8 per cent to 16 per cent in the nineties. While the Excise Duty on many categories of the confectionary like sugar boiled confectionary was reverted back to 8 per cent in the finance bill announced on 28th February, 2003, the Bubble Gums/Chewing Gums category continues to reel under the burden of 16 per cent ED. In a so called benign excise duty structure, this was absurd and was nothing less than a bolt from the blue. Mr. Agrawal: Yes, Mr. Chinnaswamy, that is exactly the point. In such an unpredictable regime, how can we commit ourselves into a particular direction? And any such uncertainty would only breed stagnation in the industry. Moreover, in order to analyse the situation in proper perspective, we have to understand the peculiarities of an industry said Mr. Das, Regional Manager (North). What do you mean? Blurted Mr. Agrawal. See, as all of us are aware that the bottom-line depends substantially upon our capability to extract higher realisations from our consumers. Unfortunately the gums products in India are mainly purchased only in single pieces and are predominantly purchased on impulse only. And in India, the ceiling to the price of any such single candy or gum is fixed at 50 paisa and one rupee. We simply cannot price our single gum anything beyond rupees 1/- per piece. Hence, how can we realise more per piece? said Mr. Das. Mr. Patil said: you are right, Mr. Chinnaswamy. In fact many in the industry are plagued by this malice. Take the example of the cookies major Parle Biscuits. Even they had been selling their virtually monopolistic brand Parle-G at rupees 4 per pack of 100 grams. And you know for how long, for over last five years? Since there was a stiff resistance from the consumers beyond 4 rupees, they are simply not able to break this barrier. And, in fact, that is what Brand Equity is all about. If we are not able to price our products one notch higher to reap the advantages of our Brand Equity, what is the fun in spending a fortune in building it in the first place itself?
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By the time Mr. Patil was barely over, Mr. Thomas (Manager Product Development) opnioned, On top of all this, we cant even do a major product differentiation. In fact Indian Prevention of Food Adulteration Act is too archaic to be tenable. If we look at its counterparts in the western countries, Indian PFA has completely lost its relevance and simply does not recognise the scientific advances made in food and beverages industry during the last fifty years. Fed up of all these, Mr. Agrawal interrupted: Mr. Thomas, PFA or no PFA what difference does it make? In a product as mundane as a chewing gum, what product innovations can we think of? Mr. Thomas replied, Sir, yes, I do agree that no major or breakthrough innovation is possible with gums, but then isnt it an incremental product differentiation that can turn out to be money spinner and help us race ahead of the competition? And for that we should be able to experiment with our ingredients. If we can incorporate better, safer and healthier ingredients we can at least have some differentiating plank. Take for example, most of the western countries have allowed naturally occurring sugar like sugar alcohols, Xylitol, etc (see exhibit 4) in confectionary. But this medieval PFA is simply absurd. It just does not allow us any legroom. Mr. Chinnaswamy added, YesI do agree that PFA is a big bottleneck in Product Innovation. But just to update youthe naturally occurring sugars like Xylitol is now permitted under PFA. Just then Mr. Agrawal said: While I do agree with this, let me put it this way. As it is proverbially said, we have to perform in spite of the environmentand not because of the environment. After a long silence, Mr. Patil said, Well Sir, isnt that easier said than done? How can we swim against the stream? We are a part of the whole and part cannot be greater than the whole. Yeah quipped Mr. Chinnaswamy. Well, that would be too myopic a view and we ought not only develop a greater understanding of the situation but also evolve certain strategic options, whose implementation can improve our top line and bottom line both, responded Mr. Agrawal. While there was an uneasy silence in the room, Mr. Kesava Murthy - Sr. Executive Market Research, was trying hard to get an insight into all these and other related
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issues. He argued with himself that the solutions of all these problems lay somewhere in the minds of the consumers. Or perhaps it lay in our understanding of the consumers and the markets. Breaking the lull, Mr. Kesava Murthy said, Sir, in my view, we need to have a re-look at our understanding of the markets and our target segments. Hamm, true Mr. Murthy, need of the hour is to develop a killer strategy that can help us achieve non linear growth for the top line in the near future. This alone can make up for the near stagnation in the last four/five years. And of course it goes without saying that, over the next few years our efforts should percolate down to the bottom-line too, said Mr. Agrawal. I firmly believe that one way to break out of the rut is to critically evaluate our Brand Positioning Strategies, said Mr. Murthy. Suggested Issues to kick-start the Discussion 1) How would you characterise PVMIPLs Gum brands equity as of 2003? What factors and decisions contributed to the building of this equity? You can develop your response around any of the popular Brand Equity models, one such being Customer

Based Brand Equity Model- CBBE proposed by Kevin Keller. 2) What would you recommend to the Gums team at PVMIPL as of 2003? You can develop on the various opportunities offered by the Functional Confectionery market. What should be the next steps in the companys marketing programme? Based upon your proposition, define your TM (target market), positioning, pricing, packaging, promotion and distribution strategies. If any data is required, draw from secondary sources, or assume. 3) Conduct an Audit of the Brand Positioning of the Current (2008) Gums Brands of PVMIPL. What according to you are the possible challenges that the company may face or may actually be facing right away? Can you draw some important issues that the marketers need to keep in mind when a company attempts at a new product that may need different positioning, non-overlapping target segment and a diagonally opposite value proposition? 4) Do you think that the emerging opportunity may pose a threat of duality in terms of Fun and Frolic v/s New positioning that you may propose, in the mind of consumer and dilution of core Brand Value? Offer your perspective.

Exhibit 1
List of Abbreviations/important Terms Chaebols Chicle Confectionery ED FMCG Gums LPG PFA Act PVMIPL FDA A conglomerate of businesses, usually owned by a single family, especially in Korea Chicle gum - gum-like substance from the sapodilla, principle ingredient of chewing gum Sweet - a food rich in sugar, such as a candy, chocolate or chewing gum etc. Excise Duty, It is the duty levied by the government of India from the goods manufactured in the country Fast moving consumer goods, like soaps, biscuits, chocolates, chewing gums etc. A preparation (usually made of sweetened chicle) for chewing A term that has got currency in India after 1991, ever since popular Liberalisation, Privatisation and Globalisation Efforts were initiated by the government of India Prevention of Food Adulteration Act (1954). It is the flagship Act in India that has been mandated to regulate the Indian Food and beverages market. It is the equivalent of FDA of USA and CODEX of WHO Perfetti Van Mille India Pvt.Limited Food and Drug Administration (Regulatory Authority under US Department of Health and Human Services). FDA is the federal agency responsible for ensuring that foods are safe, wholesome and sanitary; human and veterinary drugs, biological products, and medical devices are safe and effective; cosmetics are safe; and electronic products that emit radiation are safe. FDA also ensures that these products are honestly, accurately and informatively represented to the public Codex Alimentarius Commission. The Commission was created in 1963 by FAO and WHO to develop food standards, guidelines and related texts such as codes of practice under the Joint FAO/WHO Food Standards Programme. The main purposes of this Programme are protecting health of the consumers and ensuring fair trade practices in the food trade, and promoting coordination of all food standards work undertaken by international governmental and non-governmental organisations

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Exhibit 2: Global Overview of Perfetti Van Melle

Perfetti Van Melle, one of the largest manufacturers of confectionery and chewing gum products in the world, was formed when the company Perfetti acquired Van Melle in January 2001.Two brothers, Ambrogio and Egidio Perfetti had founded Perfetti more than sixty years back in 1946.They opened the Perfetti Dolcificio Lombardo in Lainate, near Milan. The Perfetti Group then began to expand into international markets through a series of company acquisitions, holding shares in foreign firms and installing production units in strategic areas. Izaak van Melle founded Van Melle in 1841 when he opened a bakery in Breskens in Netherlands. It was later taken over by his sons who decided to focus on confectionery. In 1900, they began industrial production of confectionery. Van Melles Breskens factory was destroyed in the war in 1944 and relocated to Rotterdam. In the early 1980s, Van Melles production was moved to a larger factory complex in Breda. The company expanded by acquiring companies such as Verduijn, Peco, Look- Olook and the VDG-companies in Hungary and the Czech and Slovak Republics. In 1999, it purchased the Wybert brand and Klene, a Dutch licorice company. Prior to the merger, Perfetti and Van Melle had a 20-year strategic partnership together, with Perfetti owning 37 per cent of Van Melle stock. Post the acquisition, the new entity Perfetti Van Melle has resulted in a broad brand portfolio of sugar confectionery and chewing gum, based on the combined market share of the two companies it was formed from. Among the companys leading brands globally are Airheads, Alpenliebe, Big Babol, Bloop, Brooklyn, Chloralit, Daygum, Frisk, Fruittella, Golia, Happydent, Mentos, Morositas, Tab, Vigorsol and Vivident. Perfetti Van Melle then went on to expand its activities in Asia and Europe by building a manufacturing unit in Istra, Russia and forming a new company in Bangladesh in 2004. It also formed a joint-venture partnership with Lofthouse Fleetwood in 2005 to market its products in Germany. In July 2006, Perfetti Van Melle acquired the Spanish lollipop manufacturer, Chupa Chups, bringing under its umbrella the Chupa Chups brand of lollipops and Smints mints. Today the company has operations in Europe, the Middle East, Asia-Pacific, North America, South America and Africa. Perfetti Van Melle is headquartered in Lainate, Italy. During the fiscal year ended December 2005, the company generated revenues of Euro 1.43 billion, up 4.3 per cent on the previous financial year. It is a privately owned company. It has its own production facilities and distributes to more than 130 countries in Europe, the Middle East, North America, South America, Asia-Pacific and Africa. Its key competitors globally include Cadbury Schweppes, Mars, Wm. Wrigley Jr. Company, Haribo Gmbh and Nestle.

Exhibit 3: List of Characters in the Conversation

Mr. Samer Agrawal Mr. Naresh Patil Mr. N Chinnaswamy Mr. Kallol Das Mr. K T Thomas Divisional Head of Gums Division of Perfetti Van Mille India Pvt. Ltd. (PVMIL) National Marketing Head - Gums Divison- PVMIPL Regional Manager (West) - Gums Divison- PVMIPL Regional Manager( North ) - Gums Divison- PVMIPL Manager (Product Development) - Gums Divison- PVMIPL

Exhibit 4: Functional Confectionery: Prospects and Challenges

Excerpts from the article, The Functional Confectionery Market: How Sweet It Is, 2007 05 -14, In todays marketplace, there are three reasons companies choose the confectionery route for adding healthy ingredients. In the first case, companies firmly established in the confectionery segment are adding healthy ingredients to their brands in an effort to differentiate them a good example would include Jelly Bellys new Sport Beans product. Also playing in the confectionery segment are companies searching for alternative delivery systems for their health ingredients a good example would include Flintstones Vitamins, which recently launched a gummi version to increase its appeal to children. Lastly, there are companies seeking to exploit the inherent health benefits of their confectionery products a good example would include the recent boom in dark chocolate. Whatever the classification, most experts agree that functional confectionery continues to pique the interest of both companies and consumers who are looking forward to the innovative days ahead. VISIONThe Journal of Business Perspective Vol. 12 No. 2 AprilJune 2008
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Sweet Revelations According to a report released last year by Leatherhead Food International, Surrey, U.K., the driving force and most innovative area within the confectionery industry has been health. But just as functional foods make up a very small percentage of the food products out there functional confectionery too makes up only a very small portion of overall confectionery sales. Jenn Ellek, director of trade communications and marketing, National Confectioners Association (NCA), Vienna, VA, says the breakdown of the confectionery market, a nearly $29 billion industry, includes three major categories: chocolate (60%), gums/ mints (11%) and non-chocolate candies (29%). Currently, one of the most popular vehicles for functional ingredients is gum, which is being utilised not only for its appeal as a unique delivery system, but also as a way in which to improve the delivery of the health ingredient in question. Many studies have shown that gum can get certain ingredients into the bloodstream faster than other delivery systems like nutrition bars or functional beverages. In fact, Ms. Ellek said, Wrigley just patented a gum vehicle for Viagra for this very purpose. Last year, Wrigley unveiled the Wrigley Science Institute to study whether chewing gum may help consumers as a tool in weight management, stress relief and increasing alertness and concentration. At the time, Wrigley claimed chewing gum was the number one snack choice among U.S. adults aged 18 - 54, and that new studies might provide even more motivation to chew gum. The company had planned in 2006 alone to support at least 10 studies investigating the health benefits of chewing gum. Since this announcement, however, Wrigley has issued no new information regarding outcomes of any of the studies originally discussed. In addition, no new or existing brands are touting the addition of functional ingredients. Philippe Levresse, project manager, Technology and Applications Development, Roquette, Keokuk, IA, surveyed recent product launches and said the numbers are still pretty low but increasing when it comes to fortified confectionery products. He said products claiming to possess vitamins and minerals accounted for 3 per cent of launches in confectionery, and 4 per cent of the launches in chewing gum. He also noticed energy being touted in 5 per cent of chewing gum launches, with most products using caffeine or ginseng as the energy source. Lastly, he said green tea is being highlighted in 6 per cent of chewing gum launches.

Not to be forgotten are those products trying to create a healthier image for themselves by including less or no sugar. Within the sugar-free candy category, Ms. Ellek says gum reigns supreme. She also continues to see a lot more sugar-free lollipops, as well as candies opting to use fruit juice and fruit juice blends as opposed to artificial flavourings. Mints and gums are becoming popular vehicles for energy. According to Ms. Ellek, this is because these types of products are much more portable than a drink and come at a fraction of the price. A good example of a portable energy product is Shock-A-Lots, a product that consists of a coffee bean surrounded in dark chocolate and topped off by a candy coating. This product is the brainchild of Shock Coffee, which was looking for an alternative delivery system for its coffee beans. Instead of getting a buzz by drinking Shocks coffee varieties, the company came up with a confectionery product that packs the equivalent of two cups of coffee in one 1-oz. pack of the candy-covered beans. Another confectionery company capitalising on the portable energy trend is Jelly Belly, Fairfield, CA. Its goal is to attract the sports nutrition crowd with a new product it calls Sport Beans. Tomi Holt, company spokesperson for Jelly Belly, says the company broke ground when it created this product by jumping the divide between energy and candy products. One of the interesting asides is the little known background on how the product came to be. According to Ms. Holt Jelly Belly chairman Herman Rowland, a fourth generation candyman, was intrigued by the idea of a product named Sport Beans. His own experience as a swimmer in high school was that the coach gave the team honey just before they went into the water during competitions. He knew energy came from simple sugars and was helpful for athletes. He also recognised a lot of the sports products on the market used the vary same ingredients the company was using to make the candy. The company was sponsoring a professional cycling team that was using Jelly Belly beans, and they began asking the team what else might be helpful to their performance. From there a variety of formulas were developed and tested before the official launch of Sport Beans. Sport Beans jelly beans are formulated with electrolytes, carbohydrates and vitamins B and C to sustain and replenish energy levels during intense exercise. Further, the product is intended to maximise
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performance and ensures ideal portion control. Tested and endorsed by elite endurance athletes, Sport Beans are available in Lemon Lime, Fruit Punch, Orange and Berry Blue varieties. Speaking of testing, researchers from the University of California Davis Sports Medicine Programme recently found Sports Beans to be just as effective as popular sports drinks and gels in maintaining blood sugar levels and improving exercise performance among competitive endurance athletes. Sixteen cyclists and athletes between the ages of 23 and 45 participated in an 80-minute period of moderately intense exercise, followed by a series of four 10-kilometer time trials. During the study, subjects ingested three different kinds of carbohydrate supplements (drink, gel and Sports Beans jelly beans) or water only. The athletes achieved 32 - 38 second faster times in the trials with the carbohydrate supplements than they did while consuming only water. In addition, the athletes completed the time trails with the highest average power outputs the amounts of force applied to the bicycle pedals to go faster with Sports Beans jelly beans. According to Jelly Belly no study had previously assessed the benefits of sports gels or Sports Beans jelly beans. Pondering Product Positioning One factor to consider when developing a healthy confectionery product is where to shelve these products in stores. In other words, do you shelve healthy confectionery products in the candy aisle or in the health and beauty aisle? Also, who should companies target with these products i.e., kids or their moms? Lastly, what distribution channels make the most sense for these products, mainstream grocery or smaller venues like coffee shops or gas stations? Until recently, according to market research firm Mintel, Chicago, IL, most functional gum and mint products have focused on close-in benefits such as cavity prevention, mouth cleaning and most recently, teeth whitening. With the exception of smoking cessation gum which, arguably, is viewed by consumers primarily as medication rather than gum products with furtherout benefits have not been met with much success. For example, Mintel pointed out, Wrigley discontinued its Stay Alert caffeine gum and Surpass antacid gum due to disappointing performance; it turned out that heartburn relief and energy did not fit with confections in the minds of consumers. In addition, retailers were faced with a dilemma of where to place such products
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in the candy aisle or with antacids? As a result, many large companies have been hesitant to launch products with health claims. However, Mintel believes the tide is starting to turn as functional foods and beverages grow in popularity and become more mainstream. We are starting to see more gum and mint products offering further-out benefits such as energy and weight loss. At the same time, these items are moving from health food stores and getting distribution in mainstream channels, the market research firm noted in its January 2006 report, Gums, Mints and Breath Fresheners. Regardless of where these types of products end up, Bob Boutin, owner, Knechtel, Inc, Skokie, IL, firmly believes there needs to be some education in place, especially since there is a health proposition attached. And because some of these products are premium priced, consumers need to know why they should spend the extra money for them. Consumers have to be educated as to the value of these health ingredients, he said. Unfortunately, once ingredients hit a point of critical mass, other players will flood the market with less efficient forms. This is precisely whats happening with zinc, according to Mr. Boutin. Zinc gluconate is used for lozenges and sprays, but recently less than reputable companies have come out with products containing zinc chloride, which is a form that is not as bioavailable, he said. This is ruining the zinc market. Another popular functional ingredient is xylitol, which is very well known in Europe. Over 25 years of testing in widely different conditions confirm that xylitol is the best sweetener for teeth, according to Xylitol.org. Xylitol use reduces tooth decay rates both in high-risk groups (high caries prevalence, poor nutrition and poor oral hygiene) and in low risk groups (low caries incidence using all current prevention recommendations), the website said. Sugar-free chewing gums and candies made with xylitol as the principal sweetener have already received official endorsements from six national dental associations. Xylitol continues to gain ground in the U.S., especially in the gums category. But it may wander to other confectionery categories in the future due to its low glycemic index. In fact, touting the glycemic index of products is something Mr. Boutin sees happening in the future for a variety of confections. Globally speaking, Mark Fanion, communications manager, Fortitech, Inc., Schenectady, NY, said the U.S. and Europe definitely represent the most potential for
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the development of fortified confections, while Japan, France and Italy have very small confectionery markets. Some of the more mature markets for functional confections fall within parts of Western Europe and the U.K., he said. In these areas, sugar-free chewing gum with added nutrients is very popular with marketing campaigns specifically focusing on promoting oral care. In general, the global confections market should continue to grow with new research substantiating the health benefits of new functional food ingredients. Keys to a Successful, Innovative Future Although opportunities in the healthy confectionery segment remain attractive, companies must keep in mind that it is still a risky proposition for some consumers who may find it hard to digest that an indulgence can actually be good for them or their children. Offering an optimistic point of view about this issue was Fortitechs Mr. Fanion. Consumers are always going to eat candy and chocolates, so as the word spreads of the potential health benefits of fortification, we expect consumers to purchase more fortified/ functional products. There is still some confusion, but we see this simply as part of a learning process for the general public who may not fully understand fortification, he said. Progress is being made and more people seem to understand how certain nutrients can benefit them regardless of the application type. Opportunities aside, Mr. Fanion also emphasised the need to stress moderation with consumers. Consumers need to be responsible for their own actions and not go out and eat a half-pound of dark chocolate assuming this will improve their cardiovascular health just because its fortified with antioxidants, Ms. Ellek of the NCA agreed. Functional is fine and good, but at the end of the day candy is candy. It is a product that should be consumed in moderation and viewed as a treat or indulgence, she said. Given the education gap and consumer confusion, would functional confectionery products benefit from building a body of research behind them? Roquettes Mr. Levresse certainly believes so. Look at what science has done for chocolate, he said. I think it would be very useful to build the science behind product applications the more evidence there is, the easier it is to get the message across.

Jelly Bellys Ms. Holt assessed consumer understanding in the context of Sport Beans. The endurance athlete really knew what Sport Beans were. With the normal consumer, however, the company really had some explaining to do, she said. As far as research goes, I dont know that its necessary but it certainly helps. Mr. Fanion also discussed research as a means of education. As more research is done on the benefits of fortification, I think people worldwide will begin to understand better what they should and should not be eating, he said. Functional confections represent a very specialised sector of the functional foods industry and should probably still be viewed as just a sweet treat for consumers with some added nutrition inside. Although confectionery manufacturers were late in visualising the role nutraceuticals could play in this market, Knechtels Mr. Boutin believes a lot of these companies will welcome them as a way in which to grow their businesses. I think companies assumed these nutraceutical ingredients would fade in popularity, but they havent. By and large you will definitely see the confectionery industry embrace healthy ingredients in the future, he said. But the adoption of healthy confectionery wont stop there. NCAs Ms. Ellek believes companies from several different industries will be using the candy-making process to put their items on the shelf in the near future. Mintel believes while there has been a lot of activity in the functional arena, it remains to be seen whether functional will become a sizable segment in the gum and mints market. To date, the market research firm claims most functional gum and mint products have come from smaller companies. Bigger companies, it says, continue to struggle with adding functional benefits to existing brands, fearing that new benefits will compete with and perhaps detract from the brands core positioning. In addition, there is still a question of whether functional benefits like energy and weight management fit with confections in consumers minds. Lastly, Mintel thinks product positioning will remain a problem should functional candies be placed in the candy section or, in the case of weight management gum, in the diet aid section? Despite these challenges, Mintel expects the pace of functional gum and mint launches to increase in the next few years as manufacturers seek to differentiate themselves from the competition.

Anil Saraogi (anil.saraogi@gmail.com) is Assistant Professor, Marketing at the Shrimad Rajchandra Institute of Management and Computer Application , Surat, India. His areas of research include Marketing of Services and Franchising as a Growth Strategy.

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