RUNNING HEAD: CHOCOLATES EL RAY CASE STUDY

CASE STUDY #3: CHOCOLATES EL RAY

John Aguilar (100833499)
Jessica Chan (100888395)
Kitty Cheng (100628795)
Carlos Jimenez (100783927)
George Brown College

Professor Gary Hoyer HOST 4113

February 21st, 2017
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Introduction

Chocolates El Rey is a small chocolate producer in Venezuela. Originally named Zozaya

Tuozzo and Co., Chocolates El Rey was founded in 1929 by Jose Rafael Zozaya and Carmelo

Tuozzo (Deshpand, Herrero, & Cullar, 2010). Their chocolate is sold in four different sectors,

food services, industry, retail, and beverages, and exported mainly to the United States, Europe,

and Japan (Deshpand et al., 2010). In 2006, CEO Jorge Redmond wanted to develop a strategy

for growth, but faced several challenges which are explored in this case study. The analysis in

this paper will explore different issues such as brand recognition, marketing, growth, and

expansion, then provide recommendations to these problems.

Analysis of Chocolates El Rey

1. How can a small company such as El Rey establish brand authenticity? Should El

Rey connect brand to country of origin or distance itself from it?

Chocolates El Rey can establish brand authenticity by developing a robust retail

marketing plan, directed mainly to women, that promotes the quality of their products. This is

because contemporary Americans are willing to pay more to get only the best chocolates and

women are the key to chocolate advertising (Deshpand, Herrero, & Cullar, 2010). The plan

should start small by putting their products on shelves in the U.S. and letting the product gain

market share by word of mouth. The packaging should include a few facts about how the

chocolate was made, where it comes from, and the benefits of consuming the chocolate. Once the
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product has gained traction, marketing through social media would help the product catapult its

popularity. With respect to costs, social media advertising is significantly cheaper than traditional

media advertising. The costs to reach one thousand people (CPM) on social media, billboards,

magazines, and direct mail are $1, $5, $10, and $27 respectively (Verjano, 2016). Finally,

traditional media marketing (e.g. television, periodicals, billboard, etc.) would help the company

become recognized globally. Traditional advertising can be effective when coupled with social

media advertising as part of a comprehensive marketing strategy (Verjano, 2016).

Chocolates El Rey should connect their brand to the county of origin rather than distance

itself from it because of the got de terroir and the chocolate appellation control. The former

deals with the distinct flavour characteristics created by the local soil and climate in which

Venezuela has the ideal conditions (Deshpand et al., 2010). The latter obligates chocolate

producers all over the world to state which type of cocoa beans are used in their chocolate and

Chocolates El Rey uses 100% Venezuelan cocoa beans (Deshpand et al., 2010). Also since their

products are top-quality, aligning with Venezuela and the procurement of their cocoa beans is

important. 90% of the quality of a given chocolate in in the beans: where theyre from, what

variety they are, and how theyre blended (Deshpand et al., 2010).

2. What should the plan of action be for achieving brand recognition both for El Rey

and Venezuelan chocolate?

El Rey produces their own brand of chocolates and is aiming to go global with their

chocolate products. Their cacao is considered to be of top quality, but consumers arent willing to

pay prices they would otherwise pay for well known brands such as Godiva and Lindt.

Consumers are led to believe that great quality chocolate originates from Europe, not South
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America (Deshpand, 2010). This assumption is known as the Provenance Paradox; when a

products country of origin validates its authenticity (Deshpand, 2010). Wine from France or

Italian sports cars are other examples of Provenance Paradox; when consumers affiliate certain

countries with the best products (Deshpand, 2010). Even if the product quality is on par with

more established brands, it is still difficult for companies of developing countries to compete at a

similar pricing level, due to the perception that their products are somehow less authentic

(Deshpand, 2010). The lower prices in turn, generates a consumer perception that the products

are not on par with established brands and the region does not make premium products

(Deshpand, 2010).

To combat this, Rohit Deshpand suggests various strategies in dealing with the

Provenance Paradox. The two strategies most suitable for El Rey is to either flaunt or downplay

their country of origin. Colombian coffee is a great example of flaunting a products country of

origin. The industry utilized various advertising methods to change cultural perceptions of their

country. These methods included creating a recognizable fictional image of a Colombian coffee

bean farmer Juan Valdez, as well as labeling their products with 100% Columbian Coffee. By

doing this, they have transformed the consumers negative perception of the country to a positive

one (Deshpand, 2010). This strategy can be risky as it requires well-executed brand

management. To follow this approach, El Rey can market their products as 100% pure

Venezuelan chocolate or chocolate made from 100% Venezuelan cacao. Educating their buyers

and foreign chocolatiers on the authenticity and premium quality of the Venezuelan cacao bean

will help increase the success of this strategy. If exposure is managed appropriately, they may be

able to achieve brand recognition and expand their home branded chocolates to the global

market.
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Another suitable strategy for El Rey to achieve brand recognition is to downplay the

country of origin (if they choose not to). This strategy can be carried out by focusing on branding

and positioning the product based on features of the product unrelated to its country of origin

(Deshpand, 2010). Corona is a company that utilizes this method by positioning the brand as a

lifestyle beer. The company fought hard to dispute rumours of the work ethics of their brewery

employees and instead, directed attention to their brand image of fun in the sun (Deshpand,

2010). Chocolates El Rey can follow this strategy by positioning themselves as a quality crafted

chocolate brand, with key words focusing on luxury, quality, rich, flavour and taste in their

advertising efforts. This strategy may encounter the risk of appearing to be unauthentic to

consumers. Due to this risk, the company may start off by applying the strategy of downplaying

its country of origin and focus on advertising and educating on their product quality. When the

brand image is stabilized and consumers perception is changing, associating the products back

to its country of origin will lead to global recognition of both the brand and the countrys

positioning in the respective industry. Changing perceptions and repositioning may lead to an

acceptance of a higher price level, thus, placing them on a competitive level with other global

players.

3. What are the differences between selling and public relations for brand

marketing? Where are El Reys best opportunities for international expansion?

Describe a strategy and plan of action for marketing to each of El Reys business

segments?

Differences in selling and public relations for brand marketing

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In general, public relations are associated with communication activities. These activities

focus on constructing and preserving an organizations image and its relationship with the public.

Over the past decade, public relations in brand marketing have grown and blurred the lines

between public relations, advertising, and marketing communications activities. This merging

resulted as a response to a changing business environment characterized by a decrease in

shareholder value and diminishing customer confidence and support. It can also be attributed to

corporate belt tightening due to the economic recession. Some companies believe that with

shrinking advertising budgets, public relations can help maximize the funding still made

available. In addition to this, there has be exponential growth in social media due to consumer

demand. In a study conducted by Text 100 Global Public Relations, it was discovered that public

relations may be more important than advertising to brand value. It could be said that public

relations give credibility and life to a brands attitude and their promise to consumers by

providing support for the truth of a brands advertisement. Its most important purpose is

representing the organization, its goals, and its self-understanding. As social-consciousness

amongst consumers continue to increase, more emphasis is placed on what an organization is

about rather than what the organization can produce in terms of services or product (Mikov &

Gavlakov, 2014).

Unlike public relations, selling in brand marketing tends to be tangible in nature. Sales

are measurable as they generate an exact dollar value for the business. In contrast, public

relations focused on the publics perception and achievements of the organization. Results are

only tangible in the form of poll and survey results when measuring the organizations

favourability in the publics eyes. Unlike public relations, sales involve an exchange of either a

good or service for monetary compensation (Joseph, 2016). What they have in common is
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relationships. A sales transaction does not occur without first forming some form of a

relationship between the business and a buyer. In public relations, the relationship is formed

between the business and a public entity. Some examples of this include the media and other

businesses. Cultivating these relationships can help fulfill objectives, like positive publicity

(Johnson, 2015).

International Expansion

With a decrease in consumption of chocolate in Venezuela due to a deteriorating

economic and political situation, El Rey must look to international expansion to continue its

growth. The companys best opportunities for international expansion can be found in the US.

Their chocolate market represented $14.9 billion in sales in 2005 and 1.6 million tons in

shipments. One of the major challenges faced by the US market is the lack of high-quality raw

materials, a void that El Rey can fill. In addition to this, the average US chocolate consumer has

developed more sophisticated tastes recently. Their taste buds crave more complex and refined

chocolates. If El Rey chooses to expand further into the US market, priority should be given to

targeting the female consumer, as they are more likely to consume chocolate and they are the

gatekeepers to the remainder of the family. They are also more likely to reach for a high-quality

brand when they indulge in chocolate (Dominguez & Cirigliano, 1997).

In the food service and industrial segment El Rey could consider selling couvertures to

food processing companies. Couvertures are chocolates that are made with extra cocoa butter in

order to give it a high gloss. They are commonly used for covering sweets and cakes. This could

afford the company cost advantages that would allow El Rey to fix relatively low prices. Both

segments are relatively large and there are high chances of making immediate sales if large
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customer orders were obtained. By specializing in selling couvertures to the food service

industry, El Rey could differentiate itself by focusing on touting Venezuelas top-quality cocoa.

The company could also focus on exporting cocoa beans, butter and powder to U.S processing

companies. This strategy could later on be used to expand into other countries based on the

position achieved in U.S markets. After diversifying based on the lessons learned from the food

processing market, El Rey could look into expanding in the food service retail and beverage

market with their newfound expertise and reputation in the U.S market (Dominguez &

Cirigliano, 1997).

In order to make their expansion plans a success, the company should consider educating

U.S industrial users about El Reys superior couvertures through various promotional campaigns.

An example of this would be invited prominent U.S chefs to taste their products. The chefs could

take a tour through El Reys production plant in Venezuela and discuss the details of the process

of chocolate making with the companys technical staff. This allows them to get a first hand view

of the cocoa plantations, the selection, fermentation, storage processes, and the production

processes that yields the highest quality of standards in chocolate. Another possibility is

participating in annual food industry trade shows. By participating in them, leading chefs could

endorse El Reys couvertures as products that are comparable to the finest in the world. These

strategies could target all four segments of El Reys markets. By gaining credibility in the U.S

food market through chef endorsements, sales in all four segments are likely to increase

(Dominguez & Cirigliano, 1997).

4. Which segment or segments should be targeted and in what priority - consumer,

retail, food service, or beverages?

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One of El Reys available options for growth is to target the industrial segment in the US.

The US is a large country, and in order to pursue this growth option, El Rey would need to adjust

its production costs. Their current products involve the use of high quality Venezuelan cocoa

beans and sugar, and in order to scale their production to match the size of the US market, they

would need to use cheaper alternatives, such as Ecuadorian cocoa beans. Promoting the quality

of Venezuelas cocoa beans is one of El Reys main goals, and this option for growth would force

them several steps back as well as compromise the authenticity of their product (Deshpand et

al., 2010). Because of this, Redmond is hesitant about pursuing this option and is seeking other

alternatives.

The retail segment in the US is a segment that has been demonstrating strong performance

and also another potential channel for growth. Their previous growth in this segment had been

largely due to word-of-mouth publicity, and any more potential growth would require significant

investments into their marketing efforts. As a small company, El Rey does not have the

additional resources or financial capability to readily devote to more extensive marketing efforts

in a larger foreign environment. The investments required to take this route would place

significant financial burdens on the company. Due to the difference in culture between the US

and Venezuela, it would also be difficult to accurately predict how further marketing efforts

would affect their position in the US market (Deshpand et al., 2010).

The industrial and retail markets in the US are two segments that El Rey can choose to

pursue for further growth, even if their current options for growth are sub-optimal. While it

would set their companys mission some steps back, it will be necessary to reconfigure their

approach to establish themselves in the US market. They can choose to reduce their production

costs by using Ecuadorian cocoa beans to help them scale with the size of the US industrial
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market, and at the same time, also offer a limited amount of their pure Venezuelan chocolates as

a premium product. They can also encourage growth in the retail segment by taking advantage of

Americans increasing preference for single-origin dark chocolate by marketing the production

process of their dark chocolate, and emphasize that they pay a premium to Venezuelan farmers

for fair-trade produce.

5. Specify a target market or markets for your preferred international business

segment growth strategy, describe motivations for chocolate purchases, and

partner(s) that El Rey might work with, what types of marketing should they use,

what appropriate story/message they should send, possible media, and any

incentives for partner involvement?

One target market in the U.S that El Rey should strongly consider pursuing is the affluent

retail market. This market is composed of customers who have a preference for luxury

confectionary products and enjoy indulging in something exquisite. They have the necessary

disposable income in order to make such purchases with little afterthought and are more likely to

splurge on premium products on a consistent basis. This allows El Rey to maintain their

reputation for high quality products and compete against brands like Lindt and Godiva. These

consumers will appreciate El Reys single-origin products and are more inclined to pay premium

prices for fair-trade products. Typically, they will be between the ages of 25-40 years old with an

already established career path. They could be of either gender, but females are primarily

purchasing for their own consumption while males are purchasing them as gifts. They will have

post-secondary education and are either single or in a relationship/marriage but without children.
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Their annual income will be above $50,000 and often shop in organic or speciality stores. They

frequent farmers markets, purchase health magazines, and consider exploring food trends as one

of their interests. Some of the behavioural aspects of this target market includes a preference for

dark chocolate and views it as a healthy treat that can be indulged in on a regular basis. They

read ingredient lists and look for brands they recognize as well as certifications, awards, and

industry recognition. Their pastimes can include participating in chocolate or other luxury goods

tastings (Rupani, 2007).

Partnership possibilities include world-renowned chefs as well as health conscious

celebrities in pop culture. By receiving endorsements from leading chefs, the brand build

credibility in the U.S market. The affluent target market wants the best quality chocolates and if

celebrity chefs consider El Rey to be of good quality, the target market will follow suit.

Partnerships with health conscious celebrities promotes the image of El Reys chocolate being

good for ones health. This target market is often quite health and weight conscious and by

portraying celebrities with fit physiques indulging in the companys chocolates on a regular

basis, it could lead the consumer into believing that the companys chocolate does not

necessarily negatively affect their waistlines. When partnering with these individuals, there can

be several marketing approaches employed by El Rey. With the chefs, El Rey will gain the most

credibility if the chefs were to praise the chocolates superior quality in trade shows, lifestyle

magazines, and incorporate the products into their restaurants menus. The company can also

consider purchasing visual displays to feature in grocery and speciality food stores to promote

the partnership. As celebrities typically have a large social media presence, it would make the

most sense to endorse El Reys products via those channels. While the millennial generation is
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still the largest segment in social media use, the generation before them, which this target market

falls into, is growing in numbers substantially (Verjano, 2016).

Conclusion

Although Chocolates El Rey is a smaller company in comparison to more established

chocolate companies, our analysis shows there is a great potential for growth. Repositioning the

brand by changing the consumers perception of El Reys position in the industry will help with

their entrance into global markets. Industrial and retail segments in the U.S. show promising

development opportunities for the company. Identifying suitable target markets, choosing

appropriate channels in advertising and educating buyers and consumers on the quality of

Venezuelan cacao beans will be beneficial for El Rey when pursuing growth.
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References

Deshpand, R., Herrero, G., & Cullar, R.G. (2010). Chocolates El Rey. HBS No. 9-508-052.
Boston, MA: Harvard Business School.

Deshpand, R. (2010, December). Why you aren't buying Venezuelan chocolate. Retrieved from
https://hbr.org/2010/12/why-you-arent-buying-venezuelan-chocolate

Dominguez, L. & Cirigliano, M. (1997). Chocolates El Rey: Industrial modernization and export
strategy. Journal Of Business Research, 38(1), 35-45. doi:10.1016/s0148-
2963(96)00116-6

Johnson, K. (2015, April 27). Differences between sales and public Relations. Retrieved from
http://yourbusiness.azcentral.com/differences-between-sales-public-relations-7377.html

Joseph, C. (2016, August 11). Differences between sales and public relations. Retrieved from
http://smallbusiness.chron.com/differences-between-sales-public-relations-24843.html

Mikov, L. & Gavlakov, P. (2014). The role of public relations in branding. Procedia - Social
and Behavioral Sciences, 110, 832-840. doi:10.1016/j.sbspro.2013.12.928

Rupani, S. (2007). The Sweet Business of Gourmet Chocolate. Bloomberg.com. Retrieved 20

February 2017, from https://www.bloomberg.com/news/articles/2007-08-31/the-sweet-
business-of-gourmet-chocolatebusinessweek-business-news-stock-market-and-financial-
advice

Verjano, D. (2016, May 19). How social media marketing stacks up against traditional
advertising. Retrieved from www.socialmediatoday.com/marketing/how-social-media-
marketing-stacks-against-traditional-advertising