Nutella Company, Nutella was first created in the 1940s by Mr. Pietro Ferrero, a patisserie maker and founder of the Ferrero Company. (Please refer to appendices: figure 1, 3, 4, and 5) Since European families and visitors have enjoyed Nutella® as a breakfast staple on bread and toast for more than 40 years, the Ferrero Company introduce this traditional Italian breakfast item to the U. S. market in order to share the enjoyment of such a unique, convenient and tasty product. Nutella® was first imported from Italy to the U. S. over 25 years ago in 1983 and was initially distributed in the Northeastern part of the country.
The popularity of Nutella® has grown steadily over the years and it is now available across the United States. In addition, Nutella® is also marketed and sold all over the world. 1. 2 Introduction of product brand line The related product of Nutella is Ferrero Rocher, it was the favorite chocolate treat for millions of people. Its innovative shape – round but irregular – and its unmistakable golden wrapping give it that elegance that has made it famous and also hint at the unique taste of this specialty: a creamy filling, a crunchy wafer and a delicious hazelnut centre.
The another example was Kinder Bueno , is a harmonious blend of contrasting tastes and textures that engages the senses in every surprising bite—stimulatingly crispy on the outside and delectably creamy on the inside. Kinder Bueno offers both a refined and dynamic taste sensation that yields a sensory lightness, inviting people to indulge with carefree abandon. 1. 3 Introduction of product Nutella is a deliciously unique spread made from the combination of roasted hazelnuts, skim milk and a hint of cocoa. Nutella has no artificial colors or preservatives.
It can be used on a wide variety of breads. It has a deliciously unique creamy chocolaty taste. Mixing of that taste is a roasted nut flavor that will delight your taste buds. Hazelnuts are a main ingredient in Nutella and each 13 OZ jar contains about 50 hazelnuts. Nutella® spread can be added to a balanced breakfast for the entire family. There is a chart to show the nutritional information of Nutella. Nutritional Information |NUTELLA | |Nutritional Information Panel | | |Ave Quantity per serve (20g)|Ave Quantity per 100g | |Energy |435kj |2175kj | |Protein |1. g |7. 3g | |Fat, total |6. 1g |30. 3g | |Saturated |2. 0g |10. 0g | |Carbohydrate |10. 9g |54. 7g | |Sugars |10. 9g |54. 4g | |Sodium |6. 6mg |33mg | | | | | Nutella is a luxury product. The reason is its price was extremely high compare to other substitution product like Lady’s Choice, Skippy and etc. The quality and taste of Nutella spread is as excellent as it uses expensive ingredients like hazelnuts, skim milk and cocoa. The complementary product of Nutella is whole wheat multigrain, bakery breads, bagels, English muffins, waffles, toast, croissants or crepes.
Nutella chocolate spread is best use to these complementary products and gives excellent taste for nutrition breakfast. The substitute product of Nutella is Choko’m Chocolate Spread, Sokolina Chocolaty Hazelnut Spread, Jandu chocolate hazelnut cream. These substitute products contain hazelnut ingredients too in which the taste and quality are just slightly different with Nutella. (Please refer to appendices: figure 2) 1. 4 Characteristic of Monopolistic Competition 1) Product Differentiation – Nutella® has a unique taste.
The blend of simple and wholesome ingredients – hazelnuts, sugar, skim milk and a hint of cocoa. Nutella® has no artificial colors or preservatives. Nutella can be part of a balanced breakfast when consumed on white high fiber bread + a glass of reduced fat milk + 1 banana and this provides 24% of your daily intake of energy needs. 2) Many sellers and buyers- A lot of sellers in this market are selling Choko’m Chocolate Spread, Sokolina Chocolaty Hazelnut Spread, Jandu chocolate hazelnut cream that is competing with Nutella.
The buyers that support Nutella are European families and visitors have enjoyed Nutella® hazelnut spread as a breakfast staple on bread and toast for more than 40 years. 3) Easy market entry and exit – There are tons of substitute product like Choko’m Chocolate Spread , Sokolina Chocolaty Hazelnut Spread, Jandu chocolate hazelnut cream which all contain chocolate and hazelnut while product like Lady’s choice peanut chocolate and other chocolate spread also able to compete with Nutella. The market is easy entry and exit when there are many substitute products. ) Price makers – The Nutella Company can change the price of Nutella according to their will. This is because their main targets are both female and male schoolchildren at the age group between 5 and 14 years and teenagers and college students, also both female and male. The schoolchildren and teenagers are usually not concerning about the price change. 5) Spend $ in advertisement to convince customers- Nutella spend money in advertisement through mass media like Internet, television and radio. [pic] Part 2: Details of Nutella 2. 1 Comparison of price
As the company produces chocolate bread spread, brand Nutella, have many substitutions and competitors such as Lady’s Choice, Skippy and etc. Nutella focuses in one product which is a spread. Now we have to compare the price of the spread which is Nutella’s Chocolate Spread and Lady’s choice’s Peanut Chocolate Spread. The price of Nutella Chocolate Spread is RM12. 90 compared to Lady’s Choice Peanut Chocolate Spread RM8. 90. The market price of Nutella is higher than Lady’s Choice. These two items has significant differences in both quality and taste to know why the market price is higher. 2. 2 Advertisement
Popularity of the brand Nutella is high as with Lady’s Choice even it is not a product form Malaysia. This is because of they promote their product using certain channels of Malaysia. Besides, the company attracts and increases the confident of consumer to consume the product by using the name of famous chocolate Ferrero Rocher which has the same taste with the Nutella’s Chocolate Spread. The company uses the internet to spread the news of their popular Nutella spread. This is because the power of the huge Nutella company. For Lady’s Choice, they make advertisement from television, radio mostly, because it is a well known product in Malaysia.
Lady’s choice use the affordable price as the advertisement such as buy one free one, and the price is regular. But, nonetheless Nutella Company got many international supports. So the Nutella Company can sell it with higher price. 2. 3 Taste and preference Nutella is best known for the taste and quality of their Chocolate Spread. Nutella Spread, in its earliest form, was created in the 1940s by Mr. Pietro Ferrero, a pastry maker and founder of the Ferrero Company. At the time, there was very little chocolate because cocoa was in short supply due to World War II rationing. So Mr.
Ferrero used hazelnuts, which are plentiful in the Piedmont region of Italy (northwest), to extend the chocolate supply. The Nutella brand then spread to other countries as well. Nutella was very new and superb in Malaysia, while Lady’s choice was something that almost every Malaysian tasted before. Lady’s choice’s peanut chocolate spread is different because they use peanut and chocolate as the ingredient which makes the whole taste different, and Nutella did not used any peanuts but using hazelnut. Even Nutella is new in the country, every year their sales for the product rises because of the popularity of the taste of the spread. . 4 Production and cost Nutella Chocolate Spread is produced from the combination of roasted hazelnuts, skim milk and a hint of cocoa and has no artificial color. Ferrero applies the highest standards for raw materials selection, production process and quality control overall. Ferrero employees personally check on suppliers to verify that its high quality standards are respected. So the production cost is high and so as the selling price. For Lady’s Choice Peanut Chocolate Spread, it is produced by peanut, chocolate, combined with some cocoa and milk. They concentrated more in production than quality.
So, the production cost and selling price for Lady’s Choice is lower than Nutella’s. Part 3: Firm and Customer Viewpoint 3. 1 Firm Viewpoint 3. 1. 1 Advantages • Price makers –In monopolistic competition, the price of the product can be change by the firm according to their will. The ability to set higher prices is a primary advantage of monopolistic competition. By doing this, firm in monopolistic competition market can gain profit easily since the price of goods is control by the firm and the firm can also lower the prices without triggering a potentially ruinous price war with competitors. Easy market exit –In monopolistic competition market, firm can decide to exit the market in long run if the firm faces certain problem for example economic loss. If the firm is unable to cover its costs, the firm can leave the market without incurring liquidation costs. • Product Differentiation -The product in monopolistic competition market sharing similarities yet different between each firm. In the market, firm has to show the differences of their product comparing it with their rival. In order to show differences, firm will usually promote their product in advertisement through mass media.
In a result, customer will know what the benefits of the product are and make choice which to spend on. 3. 1. 2 Disadvantages • Spend money on advertisement –As a part of monopolistic competition market, the firm also spend amount of money on advertisement. Advertisement may help the firm to increase the sales and gain profit. However Advertising may also be considered wasteful, though most is informative rather than persuasive and this will waste the money which spend on it. • Easy entry market, many competitor -In monopolistic competition market, there are no significant barriers for company or firm to entry.
In another word, other company or firm can easily entry in this market and become one of the competitors for firm. • Zero profit in Long Run -The firm may experience zero profit in the long run since it a part of the monopolistic competition market according to the economic theory. 3. 2 Customer’s view point 3. 2. 1 Advantages • More firm product and more choices -The advantages of buying monopolistic product is, customer have more choice in buying the product, because there are many substitutes good differentiated from one another as goods but not perfect substitutes ,such as from branding, quality, or location.
Due to free market entry and exit, there are many sellers in this market so there are more choices for them to choose different product. • Quality of Product -For instance, the quality and quantity of Nutella is better than others substitutes good. The price will have a bit lower in comparison to pure monopoly due to substitution effect. Consumer will have more confidence and guarantee on the taste and quality of the product through advertisement promotion. Consumer also will become loyalty to the brand due to advertisement. • Product differentiation The strong advertising and marketing by the firm in monopolistic market due to the reason of trying to differentiate their products with other competitors. Hence, consumers will be informed and aware of the of producer options regarding their products and services. Consumers can understand the unique features and aspects that certain product that compared with other. Therefore, with this comes further competition, as producers can recognize what consumers want and improve to a better degree.
3. 2. 2 Disadvantages • Advertisement gate keeping Normally, producer will only promote the benefits of their product in the advertisement, they gate keep all the disadvantages of the product before it publish. Due to that reason, consumers cannot really fully understand about that product but just exposing under the benefits of the product only. Also, producer will look for popular celebrity to promote their product and attract consumers to buy their product not base on the benefits of the product but the impact of the celebrity or maybe sometime the brand name. • Different price In the monopolistic market, producers have the ability to set price for their products. Due to this reason, there will be different prices between similar products. The stronger the brand name of the producer, the more expensive of their product, vise versa.
Some consumer will decide to buy product that produce by famous firm and some will go for cheaper product, these 2 behaviors can be explain that consumer that choose a famous firm is because they want to have product quality guarantee, in contrast, consumers that choose cheaper product is because they simply want to save money. • Allocation inefficient Compared with perfect competition, the firms that there is an element of allocation efficiency as the price is above that of the marginal cost curve, less so in the long run due to more competition. As the demand curve is one which is downward sloping this then implies the price has to be greater than the marginal cost for a monopolistic competitive firm. Hence it is allocate inefficient as not enough of the product gets produce for society to benefit. Consumers want more, but the firms cannot give enough products as they want. Consumers will feel that they cannot get the satisfaction from this firm and disappointed on this firms as well.
Part 4 Conclusion 4. 1. 1 Conclusion In conclusion, Nutella is such a unique, convenient and tasty product that introduced to the world for more than 70years. Nutella is a luxury product that the price is slightly higher comparing with its substitute product such as Lady Choice, Skippy, etc. On the other hand, the complimentary product of Nutella is bread, crepe and toast. Nutella Company belongs to the monopolistic competition market, which has the characteristics of product differentiation, free entry and exit, many sellers and buyers, price making and spend money to advertise.
Nutella Company was created by Mr Pietro Ferrero in the 1940s, the founder of Ferrero Company. Moreover, in the monopolistic competition market, both firm and customer have advantages and disadvantages on selling and buying the product. In the firm viewpoint, firm have the benefits of making their own price for the product, free entry or exit the market and product differentiation, conversely, firm may experience disadvantages too like they have to spend money on advertisement, easy market entry cause new rivals and zero economic profit in the long run.
Nevertheless, from the customer viewpoint, the benefits of buying a product under the monopolistic competition market are having more choice on choosing certain type of products, quality of product can be guarantee and product differentiation. However, the negative effects of buying product under this market are advertisement gate keeping, different price and allocation inefficient. 4. 1. 2 Our opinions In our opinion, we learnt and understood more about microeconomic and macroeconomic that conducted in our both lecture and tutorial especially the chapter of market structure.
We have chosen Nutella as the product in our assignment and we had further research about the product and it’s characteristic. Nutella is a luxury product that its price is slightly higher than substitute product and its company belongs to the monopolistic competition market. During the research, we understand more about the characteristic of the monopolistic competition market as well as other markets too. We found out the differences between all 4 markets and every of them have their own advantages and disadvantages.
Through the research, we found out that Nutella Company actually did all the characteristic of the monopolistic competition market, such as advertise their product, make price of the product and they differentiate their product with their rivals. Although Nutella Company is a success in the monopolistic competition market and Nutella has still owning the hazelnut chocolate spread market for more than 70 years, but we recommend Nutella Company that they should introduce more delicious product to satisfy their customer.
Nutella Company can introduce spread with other flavor such as strawberry, peanut, etc. Lastly, this assignment is very useful for everyone in the group that complete this assignment together, we understood more about Nutella, four market structure and also microeconomic and macroeconomic. Hence, this assignment has given us the opportunity to learn more about economy and has increased our interest in economy. 4. 2 Empirical findings 4. 2. 1 Monopolistic Competition market
Nutella Company belongs to monopolistic competition market. Theory states that in long run, monopolistic competition market will earn zero economic profit. As the demand of Nutella was extremely high and there is no fixed input, we conclude that Nutella market is experiencing long run. But differ from the theory stated, Nutella Company still earning economic profit in the long run as the demand is increasing every year. 4. 2. 2 Law of demand In monopolistic competition market, there are a lot sellers and buyers.
There are many sellers enter this market to sell the substitute product such as Choko’m Chocolate Spread, Sokolina Chocolaty Hazelnut Spread, Jandu chocolate hazelnut cream. According to factor that affects law of demand, when the price of substitute product decreases in the market, the goods will be decrease in demand. But even there are so many substitute products in the market are decreasing the price to compete with Nutella, the demand of Nutella still relatively high and are not affected. This is because the products are differentiated in this market. Nutella has a deliciously unique creamy chocolaty taste.
Mixed in that taste is a roasted nut flavor that will delight your taste buds and Nutella can be part of a balanced breakfast when consumed on white high fibre bread + 1 glass reduced fat milk + 1 banana and this provides 24% of your daily intake of energy needs. Besides, the factor such as when the price of complementary product increase, the goods will be decreasing in demand. However, the complementary product of Nutella such as whole wheat multigrain increases, the demand of Nutella is not affected. 4. 2. 3 Law of supply According to law of supply, one of the factors that can affect the supply of product is cost of production.
The cost of production increase, the supply of the goods will decrease. But when the palm oil (ingredient of Nutella) taxes increase 300% by French lawmakers, the supply of Nutella wasn’t even affected though the price increased. Frédéric Thil, who heads the French division of Ferrero, the Italian group that owns Nutella, acknowledged health and environmental concerns linked to the industrial use of palm oil, but vowed that the proposed tax would not affect the spread’s recipe. (Information retrieved from http://www. france24. com/en/20121110-france-food-lawmakers-debate-palm-oil-tax-nutella-health-concerns-saturated-fats) 4. . 4 Price Elasticity of demand Nutella belongs to monopolistic competition market. In this market, the demands of the product are highly elastic. The price increase, the demand of the product will be decrease sharply.
But in the product Nutella, when the price of Nutella is increasing due to palm oil (ingredient of Nutella) taxes increase 300% by French lawmakers, the demand of Nutella didn’t affected and is still high. This is because the consumer believed to the words of Frédéric Thil that the recipe of Nutella will not be changed. They will buy the product as long as the flavor, quality and taste did not change. . 3 Choosing Market Structure In our opinion, if we intent to establish a company, we would choose to enter the monopolistic competition market. Example of monopolistic competition business is Nutella, Microsoft, Apple, Nestle and many others. Above companies successfully developed a well-known brand for their company that everyone around the world knows them and consuming their products and services. Their success in the monopolistic competition market gave us a target to be like them. In the monopolistic competition market, the products from various companies will be similar but not identical.
For instance, like what we did in the research, Nutella chocolate spread VS Lady Choice peanut butter spread, both products are similar and could be substitute but not identical. However, the reasons we choose to enter monopolistic competition market are because several advantages of monopolistic competition market. First and foremost, there is no barrier to enter the monopolistic competition market. We can start up our company easily after entering the market. Monopolistic competition market can have a lot of product that falls under the same category but with various characteristics.
In order to distinguish the characteristic of our product, we can convince and attract customers by advertising the different of our products comparing with rivals. Try to distinguish our product’s best and can advertise in a creatively way. Spend more money to look for creative advertiser to create a advertisement that can catch the spectator’s attention, as well as change the spectator becomes the customers. For instance, advertisement that exaggerates is much easier to let the spectator to remember the product. Therefore, company’s name can be come to light and company reputation can be established through advertising.
Then, in the monopolistic competition market, we can decide the price of our own product. We will list reasonable price for every products that with good quality but also can let our company to earn profit. Unlike perfect competitive market, every product has a fixed price. Hence, price maker is much better than price taker, at least you able to decide the price for your product. In conclusion, our group will enter the monopolistic competition market if we want to establish a company because easy enter of market, product differentiation in the market, able to advertise our product and can decide the price for our product.
