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Zotter Living by Chocolate Case Solution

Solution Id Length Case Author Case Publisher
1011 2069 Words (7 Pages) Mukti Khaire, Stefan Aichinger, Monika Hoffman, Maximilian Schnoedl Harvard Business School : 810091
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There are many external forces that can affect the operational strategies of chocolate producers. However, within these external forces, some forces have a rampant impact as compare to others. One of the most important external forces with promulgated impact on business and strategies is competition. These chocolate producers are operating in a very competitive environment where innovation is at acme. This competition is categorized with both local and global competitors like Kraft, Ferrero, Lindt, etc. In order to maintain their market share, these competitors are coming up with innovation like the introduction of 70 new flavors within a year and copying of brand names and strategies. Because of this, each player in this field has to be on toes and keep an eye on competitors and be more innovative.  

Following questions are answered in this case study solution:

  1. Briefly discuss some (at least 2) general external environmental influences that affect chocolate producers. 

  2. Conduct a Porters Five Forces Analysis of the chocolate producer industry in Austria. How has Zotter's strategy helped change the balance of power (of the 5 Forces) in his favor? Explain.

  3. Identify the key resources, capabilities, and core competencies of Zotter.

  4. How well do they meet the VRIO criteria?

  5. Zotter is confronted with several decisions. One of them focuses on where and if to expand. Apply the CAGE framework (discussed in class and also posted in eLearning Learning Modules) to China and the US. Based on your analysis make a recommendation on whether Zotter should expand to China or the US. What entry mode should be used and why?

Zotter Living by Chocolate Case Analysis

In addition to the competitive environment, chocolate producers face some legislative challenges. Austria has strict laws, which bound the producers with few SKUs, like, law allow chocolate producers to deal with 50 or 100 gram SKU. In addition to that, this law also has strict rules for production material techniques used in production to ensure quality.

The increase in competition is leading to the problem of communication. Where all brands are trying to reach their target market through massive media campaigns. In doing to, the clutter is increasing, and consumers are becoming more independent to skip these Ads because of improvement in technology and channels. Addition to that, the recall of advertisements has decreased significantly. In other words, it has become very difficult for an advertisement to break through the clutter and communicate its offerings to the customers and educate them.

The main ingredients of chocolate are derived from seeds of the cocoa tree. In other words, its production has a direct effect on the production of chocolate. On the other hand, only three countries control almost 73% of the production. Consequently, any change in supply, of seeds of cocoa will directly affect the production and producers. Last, but, not the least, one cannot deny the bargaining power of suppliers and distributors of brands countrywide. Their demands are also a serious consideration for the producers.

Conduct a Porters Five Forces Analysis of the chocolate producer industry in Austria. How has Zotter's strategy helped change the balance of power (of the 5 Forces) in his favor? Explain.

Industry in which Zotter is operating has a higher degree of rivalry. This industry is categorized with lower differentiation. The differentiation is usually based on chocolate art, innovative flavors and chocolate making techniques. Another way around, the industry growth rate in Austria was very slow i.e. 1% per annum, which was increasing rivalry.

This industry is characterized by higher buyer power because there is a sluggish growth rate with the industry growing at 1%pa in Austria and 4%pa worldwide. Moreover, there are many local and foreign operators in this field making switching costs very low. There is less differentiation in chocolate production, only branding, packaging and flavors present differentiation that can be replicated as we saw handgeschopfte being replicated by some local players.

Bargaining power of suppliers in also increasing as cocoa, the main ingredient, is imported from countries like Nicaragua, Dominican Republic, Ecuador and Brazil etc. Any changing in price or supply of cocoa will directly affect the chocolate production.

There can be threats to new entrants as there are lower barriers to entry. An entrepreneur can open and start operating and producing chocolate, so, there are fewer barriers to entry. As a result of that there is a chance of new players coming to market and increasing competition. It seems like there are less government restrictions in startups and patents, on the other way the large capital cost is a barrier to entry.

Because of the slow growth rate and many local players, the competition is increasing. Moreover, many entrepreneurial ventures are kick-starting coming up with the new products. On the other hand, chocolate, in one’s view is not facing any threat in the form of substitutes. The chocolate producers are coming up with innovative flavors, but they all lie in the chocolate category, making this industry prone to substitutes.

Zotter was proactive and anticipative of upcoming industry trends. It was quite innovative in coming up with 70 different flavors in a year. Moreover, it was importing its material from different countries to fulfill the demand. It was anticipative and came up with innovative packaging and won the series of awards including iF-packaging. In addition to this, it differentiated with a unique offering of SKUs and even production techniques like going beyond the traditional “in&out” technique and coming with innovative ways of production.

Identify the key resources, capabilities, and core competencies of Zotter.

Zotter, after getting a setback initially, came up strongly and managed most of the things properly to prove it to be more competitive. Zotter realized that sustainability lies in being more innovative and educating of the customers. Zotter has always focused on differentiation. Zotter, from the very basics, focused on differentiation. It went against the industry trend and moved production to the house. He used natural ingredients and focused on the improvement of quality. Not only this, he communicated the production techniques to the customer by showing them how actually the chocolate if produced.

Unlike industry, he focused on natural ingredients and prohibited the usage of natural flavors. He shifted to the usage of organic material and fair production. In order to support the plan of fair production and material, he started to import cocoa and other material from different countries.

Moreover, he focused on innovation and come up with 70 different flavors in a year, to be nominated amount most innovative firms. In addition to that, he promoted creativity and differentiation through packaging. Zotter won numerous awards for packaging and creativity. Because of this level of innovation and creativity, Zotter didn’t have to spend extra marketing dollars; word of mouth and media attention already are marketing for Zotter. One of Zotter’s innovations was handgeschopfte that was imitated by many of the local competitors. However, one can argue that the first entrant has always a competitive advantage.

Till the date, one can see that Zotter is coming up with more innovations; its handgeschopfte is now getting replaced with many innovations. Before Zotter never focused on branding and marketing but now, one can see that it has enhanced its marketing budget and now it started to brand its products like competitors.

How well do they meet the VRIO criteria?

Zotter is quite innovative and proactive in its approach to create value for the customer. The V in the VRIO framework reflects the internal analysis that creates and questions the value creation capabilities of the firm. It has created value by the introduction of 70 flavors in a year, communicating it to be a very innovative organization. In addition to that, it has shown customer with documentaries. In addition to that, it shifted to organic food and focused on the usage of natural items to be used in production. Zotter never utilized dollars in the marketing of their product, but still, it is quite successful, which represents its value creation.

The resources that are used in the production of chocolates are not rare and even not persistent over time. One can say that this really is not the strength for the Zotter. Most of the cocoa, 73% of world production is controlled by only three countries. One can assume that any change in climatic conditions can have disastrous consequences on the production of chocolate. There are many players operating in this industry and few suppliers this increases the bargaining power of suppliers.

There is no cost of imitating the brand or product. One saw from the case that, handgeschopfte was imitated by the local players; an addition to that, the giants like Kraft have capabilities to imitate any product and provide intense competition. Moreover, the flavors that serve as differentiation for Zotter can also be imitated and presented with a different brand name. In other words, this is a low differentiation industry with intense competition, where imitating in not a big deal.

Despite all competition and few other disadvantages, Zotter was quite successful in competing and overcoming these barriers. It is anticipative and it knows what future of the chocolate industry lies in. It was declared to bring the most number of flavors in a year. It changed its production techniques and items. It focused on natural ingredients and won many awards in designing and packaging of chocolates. It's facing few problems like distribution, but it seems that Zotter, being so anticipative, can come up with the solution to these small problems. Overall, there are industrial challenges, but Zotter is capable enough to overcome those hurdles.

Zotter is confronted with several decisions. One of them focuses on where and if to expand. Apply the CAGE framework (discussed in class and also posted in eLearning Learning Modules) to China and US. Based on your analysis make a recommendation on whether Zotter should expand to China or the US. What entry mode should be used and why?

Zotter, after being successful in Austria and Germany, decided to expand to other regions. This decision was also supported by a slower growth rate in this industry, 4-5%pa, and its ability to compete worldwide. If one applies the CAGE framework to China and the US, one can come up with a decision or a view of where should be Zotter’s next destination.

If one looks at China, China has a long history of its culture and values. It’s considered to be one of the oldest civilizations with a very strong culture. Dominant parts of Chinese are Han, belonging to one party. Most of the Chinese are atheists as they don’t follow any religion. The hierarchies are of utmost importance. On the other side of it, USA is comprised of different races and religions. One can call the US a bowl of salad with people from different cultural and religious backgrounds. The dominant part speaks English, but there are people from almost every part of the world. The culture of Austria resembles somewhat to the US, while very different from China.

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