Wrigley’s:
Innovation in China’s Confectionary Market

Student: Natalie Dianne Turner (s3113000)
Subject: Product Innovation (MKTG 1311)
Due Date: COB 14th August 2012
Word Count: 1848
Contents

The Role of Product Innovation for Wrigley’s in the Asian Market | 3 | | | Analysis of Wrigley’s Products and Innovations | 4 | | | Analysis of Wrigley’s Innovation Strategy in China | 6 | | | Opportunities and Challenges Faced by Wrigley | 7 | | | Innovation Strategy for Next 5-10 Years | 8 | | | New Product Development – Wrigley’s Bubble Doublemint | 10 | | |

The Role of Product Innovation for Wrigley’s in the Asian Market
Product innovation has been the key driver for Wrigley’s success, and China has been no exception. Given the large population (four times that of the US1) and the comparatively low consumption numbers (10-15 servings per person annually versus 90-100), growth in China showed the greatest potential for further success. Wrigley gave their Chinese consumers a reason to chew by recognising cultural facets (traditional Chinese flavours and medicines) and trends in health benefits (obesity and oral health), and then innovatively developed product lines in ways which would appeal to a wide variety of segments.

Going forward from 2008, the decision to join forces with Mars, further reiterated the importance Wrigley’s placed on product innovation and the potential that Mars global president Paul Michaels must have recognised. He stated that both Mars and Wrigley’s share a commitment to innovation and would continue on the path of growth by jointly developing these values even further.

Wrigley’s commitment to innovation was further exemplified by their decision to invest in a Global Innovation Centre which could aid the company in continued significant advancements. In addition, The Wrigley Science Institute has funded significant independent research to explore new benefits of chewing gum – including weight management, increased alertness and concentration and stress reduction. With this research, Wrigley’s are giving consumers new reasons to chew Wrigley gum, and are subsequently building category consumption.

Overall, Wrigley’s continue to accelerate their pursuit of new, proprietary avenues of innovation in terms of ingredients, packaging, technologies and health benefits.

Analysis of Wrigley’s Products and Innovations
Whether it be radical or incremental, product innovation is critical to a firm’s success.
Radical innovation involves breakthrough innovations which dramatically change social or business practices, create new markets, and lead to rapid growth.
Alternatively, firms can choose to take the incremental path of innovation, which involves lower order innovations which seek to repair or improve existing products. This approach keeps large companies competitive in the short-term; however there is a danger of being caught unaware by newcomers.

Wrigley’s Product Timeline

As can be seen by the Product Timeline (above), Wrigley’s largely undertook incremental innovations from 1993-2001 in order to maintain its competitive advantage and presence in the existing market space. This strategy was largely risk controlled, with some examples being the addition of new flavours to both the Extra Sugar-Free and Doublemint product lines. These simple innovations allowed the products to maintain a fresh image.

Wrigley’s were perhaps too conservative in their approach to innovation, as demonstrated by being beaten to the mark by Lotte’s radical Xylitol gum innovation. Wrigley’s were able to regain traction in this innovative space by rapidly rolling out their version - Extra Xylitol - within the same year (2004). Later, in 2006, Wrigley’s further extended this product line with the release of a Herbal Series which embraced Chinese culture by infusing the gum with herbal flowers and fruit flavours.

As demonstrated by the timeline, from 2004 onwards Wrigley’s approach to innovation took a more radical direction. Perhaps drawing from the success of the herbal range, in 2007, Wrigley’s took the opportunity to venture into uncontested market space with the release of a completely unique product - Langyi Sugar-Free gum. Langyi was a complete game-changer, as it symbolised Wrigley’s openness to embracing the challenge of new cultures, in this case the wisdom of traditional Chinese medicine1. This newness to both market and newness to the company as a whole allowed Wrigley to captivate new consumers and broaden total market share.

Every marketplace is unique, and Wrigley’s have demonstrated that by combining their global strength with a strategic, customised approach to individual geographies, learning’s can be transformed into effective and competitive “go-to-market” tactics. Wrigley’s product timeline includes examples of both radical and incremental innovations, and reveals how the firm has been both adaptable and intuitive to changing market and competitive conditions.

Analysis of Wrigley’s Innovation Strategy in China
Wrigley’s success within China is evident upon examination of the case study data. Wrigley’s net sales by region data reveal a US$242,051 billion increase in Asia from 2005 to 2007. Upon viewing the product timeline, it is immediately apparent that Wrigley amped up their innovation significantly during this period, and it paid off.

Between 2006 and 2007 – a year which saw a myriad of innovations across many products - Wrigley’s saw the greatest change in net earnings (19%) since 1998 (12%) when Wrigley expanded the bounds of their customer base with the introduction of Extra Sugar-Free. This product level innovation was so successful that it subsequently drove market level innovation across many competitors (including non-competitors in categories other than chewing gum) that began to replicate sugar-free products as part of their ranges. According to Sawhney’s Innovation Radar3, this business innovation lies on the ‘offerings’ dimension of the radar.

Furthermore, in 2004, the chewing gum market saw a discontinuous leap in the benefits offered by gum, when competitor company Lotte released the first ever gum containing the ingredient Xylitol. Despite being the second brand to release a gum containing Xylitol, Wrigley’s still saw its greatest increase in net sales (19%) compared to the previous year, proving that being quick to react can still produce record profitability results.

Wrigley’s innovations have been so successful that the company has firmly cemented itself with accredited brand equity, by becoming the first chewing gum brand to earn the Seal of Acceptance from the American Dental Association. This seal, appearing on the pack of Wrigley’s Extra, Eclipse and Orbit, is highly influential in driving purchase intent among consumers.2 Wrigley’s has consistently upheld a strategy whereby they seek to maintain top-of-mind relevance amongst consumers, by continuously rolling out new products. This strategy reflects the early wisdom of founder Wm. Wrigley J. – “Tell ‘em quick and tell ‘em often” 1.

Opportunities and Challenges Faced by Wrigley

Opportunities | Challenges | - $27 billion in combined sales following the friendly take-over by Mars- Large pool of associates - combined total of 64,000 worldwide- Multiple resources at fingertips allowing for: * increased access to both R&D, and * financial backing- Further penetrate the products with health benefits market by moving into confectionary markets (e.g. sugar confectionary and chocolates)- Leverage the popular Doublemint brand | - Both Mars & Wrigley’s are lacking in their presence within the sugar confectionary market. Even with their combined resources, there are several competitors leading the sector.- Maintain momentum in the growing health-benefit product market and not lose sight of the competition (as happened with Lotte Xylitol).- Increased and/or new competition (Nestle, Cadbury, Perfetti & Hahtamaki) - Discounting and other competitive actions- Slowing growth rates in the bubble gum market |

In addition to these opportunities and challenges, there are also a number of external factors that could affect the success of future Wrigley’s strategies:

Natural Environment Factors | Socio-Cultural Factors | - Availability of raw materials | - Changes in demographics- Changes in consumer preferences | Economic Factors | Political Factors | - Changes in foreign currency- Changes in marketplace conditions | - Government and industry regulations |

Innovation Strategy for the Next 5-10 Years
Incremental development across all Wrigley’s products will continue to be a central factor going forward, however, as smaller confectionary companies in developing regions catch up over the next 5-10 years, it will become increasingly important for Wrigley’s to also push forward in innovative leaps and bounds. I would suggest that Wrigley implement a simultaneous strategy approach, whereby they maintain a fresh image by releasing new flavours and packaging every year (represented by the circles below) whilst simultaneously utilising their significant research and development resources to produce dramatic innovations (represented by the stars below) which they can bring to the market every 3 years.

Simultaneous Strategy
2012
2013
2014
2015
2016
2017
R&D Stage
R&D Stage

Based on the opportunities and challenges outlined earlier, there are two major product innovation strategies that Wrigley could develop during the R&D stages exemplified above to help sustain its growth momentum in the confectionary market.

Continue to leverage products with health benefits
Following on from the friendly-takeover, Wrigley and Mars have the opportunity to leverage the following: (1) the growing need for products with health benefits, (2) their combined research and development strengths and resources, and (3) a gap in the market - protein enriched products. By leveraging these three key factors, Mars and Wrigley have an opportunity to create a line of protein-enriched chocolate products, which would help increase their presence within the chocolate confectionary market, and be the first company to combine both a new health-benefit with a new product.

Wrigley’s could also further explore the current benefits of chewing gum (increased alertness and concentration), and introduce new health ingredients such as Taurine and Caffeine, and market the energy benefits of chewing gum.

Revive the slowing sales in the Bubblegum Market
Asia net sales in chewing gum for 2007 were $748,222, an increase of $125,369 or 20% from 2006. Volume growth increased net sales 15%, primarily led by China, where the Extra and Doublemint brands led growth 2.

Global Gum Retail Sales Growth Rates by Segment1 Growth Rates | 2006 vs. 2007 (%) | Sugarized Gum | (0.7) | Sugar-Free Gum | 8.5 | Functional Gum | 5.2 | Bubble Gum | 1.3 |

Global gum retail sales growth rates data reveals that sugar-free gum and functional gum have shown the greatest growth rates (8.5% and 5.2% respectively) between 2006 and 2007. Comparatively, the bubble gum segment has shown only a minor growth rate of 1.3% which suggests it still has potential but requires some attention and innovation. As evident by the ADA approval, Extra experienced success through promoting its health-benefits as a sugar-free gum that aids in preventing tooth-decay. The leading gum brand in China however, is not Extra, it is Wrigley’s Doublemint.

Upon considering this data, there appears to be a gap in the market for a functional, sugar-free bubble gum within the Doublemint product line. Given that Wrigley’s already has substantial knowledge in the sugar-free market, it would seem logical to further utilise its research and development facilities and apply any learned knowledge to this gap in the market.

New Product Development – Wrigley’s Bubble Doublemint
Bubble gum is primarily targeted towards the younger generations, and perhaps less frequently the young at heart adult. We have seen that a growing concern for health (tooth decay and weight management), and the one-child policy in China, have encouraged consumers to seek out products which emphasis health benefits.
I believe that there is potential here to develop an incremental innovation within the bubble gum space, and potentially penetrate two market segments—the young and the young at heart.

The Young
Wrigley’s already have an established school-based education program in place which I believe could be further leveraged for the introduction of a new sugar-free bubble gum. This innovative product would be popular amongst the school-aged children, and gain immediate exposure and momentum through the program. In addition, Chinese parents (under the one-child policy) would appreciate the concern Wrigley’s places on their children’s oral health whilst still giving kids the option to enjoy novelty chewing gums.

The Young at Heart
Wrigley’s 2007 Annual Report states that the leading gum brand in China is Wrigley’s Doublemint. Over the years it has continued to resonate with consumers and expand consumption with new favours and packaging innovations. Given that this product is already well established within the vast majority of the market, I believe that Wrigley’s could successfully combine both the popularity of Doublemint and the fun of bubble gum, to create a line extension within the already successful Doublemint range – “Bubble-Doublemint”.

References

1. Farhoomand, A 2009, ‘WM Wrigley Jr. Company: Innovation in China’s Confectionary Market, Asia Case Research Centre, The University of Hong Kong 2. WM. Wrigley Jr. Company 2007, Annual Report 2007 3. Sawhney, Mohanbir, Robert C. Wolcott, and Inigo Arroniz. 2006. The 12 Different Ways for Companies to Innovate. MIT Sloan Management Review 47: 75-81