Willy Wonka! We know of him as the chocolate manufacturer from one of Roald Dahl’s famous children’s books, ‘Charlie and the Chocolate Factory’. What if I say that he was not any regular chocolate manufacturer but a very strategic businessman? In this article, I analyze Willy Wonka’s business using Michael Porter’s 5 forces. Let’s first look at what these forces are and why they are helpful.
Michael E. Porter, a professor at the Harvard Business School developed a framework to analyze the competitiveness of a business. He gave 5 forces that can erode your company’s profitability in the given business environment. Once you understand these forces, you can shape your business strategies to counter them. The forces are as follows:
1. Threat of New Entry: This force talks about how easy it is for a new company to enter your business environment. If more people are entering your environment, they tend to weaken your business.
2. Supplier Power: This force talks about how easy it is for your suppliers to control the price and supplies of what you use. If there are only a few suppliers, you neither have options nor bargaining power, but if there are more suppliers, you can have both.
3. Buyer Power: This talks about how easy it is for the buyers to influence your price and other offerings. If you are dealing with a small number of customers, they exert more power but if you have a large number of them, you have more power.
4. Threat of Substitution: This force talks about how easy it is to find a new way/method of experiencing what you offer. They may not be your direct competitors, in the sense, they don’t offer the same product or service as you, yet they are capable of making your business obsolete.
5. Competitive Rivalry: This determines the number, strength, and quality of your company’s direct competitors. Direct Competitors are those companies that deal with the same product/service as you do. If your suppliers and buyers think that they can get a better deal, they would go elsewhere.
If the strength of these forces is high in any industry, the existing players can protect their profitability. Similarly, this tool is also very helpful in determining the attractiveness of an industry if you want to start a new business.
Now let us talk about Willy Wonka. Mr. Willy Wonka was a chocolate manufacturer who owned the biggest chocolate factory in the world. His chocolates were sought after by people of all ages, all over the world. Now, one needs to understand, that despite fierce competition, Mr. Willy Wonka managed to establish himself as the leader in the chocolate manufacturing industry. So, how did he do that? What were his strategies?
Threat of New Entry:
To exert this force, the existing companies need to come up with barriers to restrict the entry of new companies into the business sector. Mr. Willy Wonka made sure that his business was inimitable. Firstly, with his huge chocolate factory, he managed to achieve large scale economies which is almost impossible to be achieved by a new entrant. Further, the brand image and recognition that Mr. Willy Wonka built over the years brought him a huge and loyal customer base all over the world. Moreover, he invested a lot of time and money in coming up with new technologies and recipes to enhance his range of products. Techniques such as ‘mixing chocolate using a waterfall’ is a unique method employed by Willy Wonka to make his chocolate frothy and creamy. His ‘Inventing Room’ (Research and Development Team) was constantly trying to create new products that were not limited to chocolates, thus expanding his product range. His company also had several patents for products such as ‘color-changing caramel’ and ‘non-melting ice-creams’ whose recipes were a well-guarded secret. His innovative method of nut-cracking using a workforce of trained squirrels made the process very effective and error-free. Rigorous quality control measures were in place to ensure that every bar of chocolate leaving the factory was nothing but the best.
The basic raw material required for the chocolate-making industry is cacao beans. There are various varieties of cacao beans, each with a different flavor and properties, so the uniqueness of the raw material from various suppliers is different. There are no substitute raw materials that exist in the market for cacao beans and the number of suppliers is less compared to buyers. On the other hand, the cost of switching from one supplier to another is not much. These conditions make the supplier power high. Even if the supplier tries forward vertical integration (establishing their chocolate manufacturing company), it would take a lot of time, money, and effort to achieve the same brand recognition as Willy Wonka. So, the ideal strategy to tackle this force is to have multiple suppliers so that the company can function even on losing one supplier. Further, in the long run, attempts need to be made towards backward vertical integration (owning his cacao bean fields). By increasing the barriers for new entrants, Willy Wonka managed to reduce the supplier power.
Willy Wonka’s chocolates had a very huge consumer base with a global market. The buyers were not concentrated in any geographic location. This was very advantageous to him because no single buyer could influence his products. Further, by shipping chocolates directly to the store, Willy Wonka removed major intermediate channels which could potentially increase the prices. Another major threat from the buyers could be backward vertical integration, but for a product like chocolate, achieving the quality offered by Willy Wonka would be tough. The wide product range, the consistent quality helped Willy Wonka differentiate himself from his competitors and has managed to tackle the buyer power.
Threat of Substitution:
There are several possible substitutes for chocolate as a whole. Honey, sugar, ice-cream, caramel could nullify the need for chocolate (no one is foolish enough to do that!). The buyers would not possibly want to switch to these alternatives and not use chocolate at all. The switching cost for doing this is almost zero. Willy Wonka yet again managed to tackle this force. He did not just stick to chocolate. He manufactured other products such as gums, ice cream, and caramel. His wide range of products catered to the needs of everyone’s palette. As part of his R & D efforts, he managed to create a gum that gives the feel of a 3-course meal. This surely is an effective method to tackle substitutes considering the cost, size, and utility of the product. The general love for chocolate by all has almost nullified the effect of this force and has surely helped Willy Wonka’s company tackle the threat of substitution.
As mentioned earlier, the competitive rivalry in this industry is a lot. There are a large number of companies offering the same product. Previously, companies sent people to spy on Willy Wonka’s chocolate factory to obtain some of his secret recipes. They were successful and they managed to imitate some of his products. On realizing this, Willy Wonka shut down his factory for a couple of years. He restarted his business with a new, loyal workforce, the Oompa Loompas. He discovered this midget tribe in Loompaland and decided to employ them as his workforce in the factory. The Oompa Loompas do not interact with normal human beings and are never found outside the factory except for certain occasions. On making this change, Willy Wonka protected his specialist knowledge and technology making it almost impossible for his competitors to imitate his products. Due to his unique techniques, he has effectively differentiated his product from his competitors and built his brand image. All these measures helped Willy Wonka become the leader in the chocolate manufacturing industry despite the high competitive rivalry.
One of the brilliant marketing strategies used by Willy Wonka includes the concept of the ‘5 Golden Tickets’. He started a contest where 5 lucky people, with the Golden Tickets, would win the opportunity of touring his renowned Chocolate Factory. With this single stroke, he managed to increase the sales of his products immensely (indirectly increasing the switching costs). People went crazy and bought boxes of his chocolate just to win the ticket. Further, Willy Wonka also made attempts at forward vertical integration. He talks about the ‘Television Chocolate Room’ where he was working on a technology to reach out to the customers directly. Customers can reach out to their television sets and grab a Willy Wonka’s chocolate bar. This technology would eliminate the need for distribution channels, standard logistics, and revolutionize the home delivery system.
After reading this, one can surely say that Willy Wonka was not just a chocolate manufacturer but also an able strategist who unknowingly analyzed his business using Porter’s 5 forces and came up with a unique business strategy to make profits and become the best in the chocolate manufacturing industry.
PS: Charlie and the Chocolate Factory was published in the year 1964. Michael Porter’s five forces framework was published in 1979.