Just Ferrero

Introduction to the Ferrero Company

Ferrero is a famous snack company from Italy. Meanwhile, the great leader of the Ferrero Group’s development is Michele Ferrero. His invention of the new product with state-of-the-art ideas has revolutionized the food habit of millions of consumers successfully. He was also known as the first Italian manufacturer after World War II to open production sites and office abroad in the confectionary sector which turned the company into a truly international group. During the time back in the ‘40s, Michele’s parents Piera and Pietro modified a pastry shop into a factory. These first decision steps to move forward were thankfully because of the products “invented” by Pietro Ferrero and the very young Michele. Besides that, Michele’s parents Piera and Pietro modify a pastry shop into a factory. The effectiveness of the sales organized by Giovanni was another successful key as well. Sadly, Pietro’s brother unfortunately passed away in year 1949. Ferrero is currently generating by the third generation, Pietro and Giovanni Ferrero, the sons of Michele and Maria Franca who worked together on the top of the group as Managing Directors for more than ten years. In April 2011, Pietro Ferrero passed away while working on the humanitarian mission that were inspired and operated by him that aimed to re-launch the Ferrero Social Enterprises. Not only have that, Giovanni run Ferrero successfully until today. In fact, more goals were aimed by him to increase his achievement and also ensuring that the company inventiveness and provocation that were strongly shared with his parents and brother. Ferrero Foundation’s motto is “Work, Create, and Give” (The Story of a Family, 2009).

Determinants of demand for Ferrero’s Chocolate

Whenever there is Demand, it means that someone wants the goods or services, able to afford it and planned to buy it. However human wants are unlimited but resources are limited. The law of demand stated giving that all factors remain constant, whenever there is an increase in price the demand will fall vice versa. Considering Ferrero’s flagship product the Ferrero Rocher is a normal good, these are the few factors that changes its demand

1) Substitute product

Substitute product means that when the price of Ferrero Rocher increase, the demand of it substitution such as Cadbury’s Chocolate will increase.

2) Expected future price

If the price of Ferrero Rocher expected to increase in the future, current demand of Ferrero Rocher will increase and the demand curve shifts rightwards.

3) Income

Whenever the income increases, people tend to buy more goods to satisfy themselves as their purchasing power increases. Normal goods like Ferrero Rocher the demand will increase as income increases. For example, project manager, information technology in Malaysia is RM105, 820 annually, however in Singapore is S$79, 534 annually, this shows that consumer in Singapore has higher purchasing power (Average Salary, 2012).

4) Expected future income and credit

When people expected their income or credit will be higher or easy to obtain in the future, the demand of Ferrero Rocher will increase as well. When credit card is easy to obtain, people tend to spend more.

5) Population

When the population of a place is greater, the demand of Ferrero Rocher at that place will be higher. Population in America is 313.9 million and in Malaysia is 29.24 million, so the demand at America is higher than Malaysia.

6) Preferences

Preferences mean that when people have the same amount of income but there is a change of demand. Some people maybe prefer Cadbury’s Chocolate last time but they prefer Ferrero Rocher now, so the demand of Ferrero Rocher will increase.

When price increases, the quantity demand decreases. Below is the graph show that the price increases and demand decreases, point A change to point B and D is the demand curve.

Determinants of supply for Ferrero’s Chocolate

When a firm supplies goods or services, the firm has the resources and technology to produce it and also they can make profit from the good or services. The firm planned to produce the good or services and sells it. Law of supply stated that when price of goods increase, the quantity of goods increase as well.

Supply Curve

1) Prices of Factors of Production

The cost of the goods or services increases when the price of the factors production increases. The prices of the goods or services have to be raised by the producers to cover the cost they used to produce those products. The increase of the cost enables the supplier to choose to produce lesser.

2) Price of related goods produce

A firm can choose to produce different kind of product by using the same resources. For example, instead of Ferrero producing Ferrero Rocher, Ferrero can choose to produce different product such as Kinder Chocolate because Ferrero Rocher and Kinder Chocolate are same made from Choco.

3) Expected future prices

   When producer expected the price of Ferrero Rocher will increase in the future, they can choose to produce lesser Ferrero now, therefore the supply curve shift leftward.

4) The number of suppliers

Whenever there is new suppliers enter the market, the number of suppliers will increase and the markets have to go larger. For example, if there is a new company producing chocolate and enter the market, the chocolate’s market will grow bigger.

5) Technology

    Advancement of technology create new product and lower the cost of production. Supply increases in a way of advance technology. For example, last time Ferrero produces not much of Ferrero Rocher a day but because of advancement technology, all the machines has improved and become bigger, they can produce larger amount of Ferrero Rocher.

6) The state of nature

All the natural forces as a state of nature influence production such as weather (Supply and Demand, 2013).

Market efficiency of Ferrero Rocher

Value of product is basically referring to what customers are able to obtain from buying the product while price is to pay for the product that customers desire. Value measured of the product is the maximum price that somebody is willing to pay for it; willingness to pay for the product determines the demand. For example, if people are willing to buy Ferrero at the price MYR38 in a box of 16 pieces of Ferrero Rocher inside, means that the value of the box of Ferrero Rocher is acceptable by them. Hence, with MYR38 per box is the maximum price that people are willing to pay for it. Consumer surplus is the willingness of the customer to pay more than the price of the product. For example, if a box of Ferrero Rocher price is MYR38, the customer willing to pay higher than MYR38 like RM39 to buy the product. Ferrero supply product and sell it to customers to make profit means that Ferrero is a firm that in business. Generally, to make profit, Ferrero must sell their product at the price that is higher than their cost. Producer gives up on the cost and price is what the producer receives. Marginal cost is the minimum price that a firm is willing to accept. Producer surplus is a product sold at the price above the cost of producing it. For example if a box of Ferrero Rocher is sold at MYR38 and the cost of producing it is MYR8, it can be considered as producer surplus (Price list of Ferrero Products, 2013).

Market structure of Ferrero Rocher

The market structure of Ferrero Rocher refers to the monopolistic competition because it mainly competes with other brands of chocolate company. Monopolistic competition means that there are many firms selling similar product but different packaging or quality. They have different market target and slight price making power (Introduction to Monopolistic Competition, 2013). Firms that are selling similar good with Ferrero are Cadbury, Hershey, Mars, Nestle, CocoaVia, Droste, Giandor, Guylian, Ibarra, Klik, Mayordomo, Milka, Nugatti, Poiana, Vivani and many more (List of chocolate brand, 2013). Ferrero Rocher is an unresistable combination of rich, creamy, chocolaty filling surrounding a whole hazelnut within a delicate, crisp wafer that are all enveloped in milk chocolate with finely chopped hazelnut. Ferrero Rocher is packed into a box which reusable and suitable to be given as a gift (Ferrero Rocher Packing, 2013). The main targets of Ferrero are people who like and enjoy chocolate taste at the same time while giving importance to their health. In fact, upper middle class and middle class will also be suitable especially with a touch of elegant and urban lifestyle (Ferrero Group, 2013).

References list

1) The Story of a Family [online] (2009). Available from: <http://www.ferrero.com/the-group/a-family-history/a-great-company/> [Accessed 23 October 2013].

2) Economics Basics: Supply and Demand [online] (2013). Available from: <http://www.investopedia.com/university/economics/economics3.asp> [Accessed 23 October 2013].

3) Average salary for Singapore and Malaysia [online] (2012). Available from: <http://www.payscale.com/research/SG/Country=Singapore/Salary>, <http://www.payscale.com/research/MY/Country=Malaysia/Salary> [Accessed 23 October 2013].

4) Price list of Ferrero products [online] (2013). Available from: <http://www.onlylove.com.my/goods-198Ferrero%2BRocher%2BGift%2BBox.html> [Accessed 23 October 2013].

5) Introduction to Monopolistic Competition [online] (2013). Available from: <http://economics.about.com/od/monopolistic-competition/a/Introduction-To-Monopolistic-Competition.htm> [Accessed 23 October 2013].

6) List of chocolate brand [online] (2013). Available from: <http://worldchocolateguide.com/brands/> [Accessed 23 October 2013].

7) Ferrero Rocher Packing [online] (2013).Available from: <http://www.behance.net/gallery/Ferrero-Rocher-Packaging/1706095> [Accessed 23 October 2013].

8) Ferrero Group [online] (2013). Available from: <http://hmmyportfolio.blogspot.com/2011/02/presentation-of-brand-ferrero-rocher.html> [Accessed 23 October 2013].