The Emergence of Modern Marketing: A Case Study of Cadbury-Fry

The History of British Confectionery

Studies focusing on the long-term development of marketing and consumer goods have furnished insights into a range of issues, yet general conclusions have proved more elusive.1 The history of British confectionery demonstrates both symptoms. By the close of the nineteenth century, the industry was a mass producer of desired luxuries. Following a decade of significant changes in the nature and scale of marketing activity, cocoa and confectionery in 1929 accounted for 1.7 per cent of total retail expenditure in the United Kingdom, comparable to that other mass semiluxury, tea, though smaller than the sums spent on tobacco or alcoholic beverages.2 In the history of marketing, the confectionery industry constitutes a valuable test case, but there are difficulties with the published research, not least because the policies of the principal manufacturer, Cadbury, and its eventual partner, Fry, have not been adequately examined. This bias arguably distorts our interpretation of the industry, and, indeed, our understanding of consumer products and their origin. Within British business history, Cadbury, Fry, and their unified, successor company were major enterprises. As well as being Britain’s largest producer of confectionery, in terms of sales and profits, Cadbury-Fry was, in 1930, Britain’s 24th most sizeable manufacturing firm as measured by market capitalisation, and 6th amongst makers of packaged or household consumer goods. By 1935, it was the nation’s 29th largest employer.3 In the period before 1939, Cadbury’s marketing capabilities were a primary cause of its commercial expansion, and exercised a formative influence on the nature of the confectionery industry. The origin and character of those capabilities have not been fully understood. There exists an analysis of overseas operations, and a history of Rowntree acknowledges Cadbury’s influence on its rival’s strategic development.4 But there exists no detailed academic study, and – considering its leadership in matters of employment relations, business administration, and production management, as well as marketing – there is a gap in our evaluation of British business more generally.5 George Cadbury’s biography was published in 1923, a history was written by a manager, I.A. Williams, in 1931, and Diaper’s survey of Fry terminates in 1918.6 None of these reveal how Cadbury built the organisational capabilities to establish brands so amenable to mass advertising and popular appeal, and so deeply entrenched in the consciousness of consumers. The company’s combination of corporate strategy, production policies, product development, sales and advertising deserve more precise consideration. Since Cadbury-Fry continued during this period to be dominated by its founding families, its history also ventures into the area of ‘personal capitalism’ and its potential deficiencies.7 Although the company was responsible for a range of successful lines, it was especially associated with Business History, Vol.47, No.4, October 2005, pp.511 – 531 ISSN 0007-6791 print/1743-7938 online DOI: 10.1080/00076790500132977 ª 2005 Taylor & Francis Group Ltd Cadbury’s Dairy Milk, a distinctive chocolate bar, known for its quality, and sold at a price deliberately reduced during the critical decades of market transition. How did Cadbury create an organisation capable of offering and then sustaining this value proposition to consumers? The emergence of so-called ‘modern’ marketing is linked to a number of key factors, although, as we shall see, their application at Cadbury and the circumstances shaping their introduction were to produce a unique mix of competencies. Such a business model bestowed first-mover advantages that were impossible to imitate, and ultimately required other confectionery firms to seek alternative marketing capabilities. Firstly, there were matters of production and management. As leading confectionery companies exploited the advantages of large-scale manufacturing, they implemented associated changes in corporate structure as well as scale. Trends in operations and management, in turn, altered the perception and organisation of marketing within companies. Production techniques fashioned products, their differentiation, price and output, and expanded markets and consumer demand. Alongside factory and managerial systems, marketing developed as a function and as an organisational capability. Cadbury was able to exploit lines that offered, alongside widespread consumer appeal, high degrees of standardisation, operational efficiency and output, and so transformed popular consumption and mass advertising. For the company, the impact of scale on management and then on marketing was particularly efficacious, and, as a result, its view and application of marketing came to differ from competitors. Secondly, with regard to product development and innovation, major modifications in procedure are said to offer valuable insights into the perceived character of marketing. By replacing an extensive, ‘scatter-gun’ approach with intensive, targeted and highly promoted mass sellers, firms can give primacy to the wishes of customers and consumers, as revealed through market research. They may, as a result, gain a competitive advantage. As well as having implications for strategic intent and technological innovation, product development is a critical indicator of managerial goals, shifting them from the ‘production of goods’ to ‘the satisfaction of consumers’. It was Rowntree that adopted the ‘marketing-orientation’ concept during the 1930s, but Cadbury did not follow the example of its revitalised rival. It is important to explain, nonetheless, why its attitude to product development remained strategically sound and viable.8 Thirdly, ‘modern’ marketing has been identified with changes in the scale and nature of advertising and with the linked theme of changes in the attitudes and perceptions of consumers. Product development and differentiation facilitated branding and advertising, which subsequently influenced the perceptions and habits of consumers. The frequency with which individual purchasers could look beyond utility towards the ‘associational’ aspects of goods is significant. Consumer motivations were mirrored in business policies and objectives: the importance of price as opposed to other marketing considerations, such as differentiation and promotion, was central to the determination of corporate strategies. Cadbury did not rely merely on its operational and price advantages, which are better known, and its distribution and advertising policies led the creation of a national mass market for confectionery in the 1920s. It is noteworthy that Cadbury honed its skills in production and in marketing simultaneously. It is the compatibility of the two functions within the company that provided its competitive advantage, exemplified by the strength of its value proposition to consumers. This degree of unison was not apparent in 512 BUSINESS HISTORY rival firms, where dissimilar price structures, product lines and objectives meant that marketing capabilities evolved differently. In placing events at Cadbury within a broader understanding of marketing history and British industry, we encounter an immediate problem: British historians have been reluctant to frame general explanations of twentieth-century marketing. Caution is justified by the scale of the subject and the complexities of its definition, stretching from the macro-economic and the cultural to the business dimensions of product development, technology, management strategy and corporate change. Despite disagreements over interpretation and evidence, stages in marketing’s development have been noted elsewhere.9 Descriptions of production, product, sales and marketing orientations are a workable heuristic device, revealing changes in corporate emphasis and indicating the evolution of so-called ‘modern’ approaches. From this perspective, entrepreneurs concentrated, firstly, on improving production technology and factory operations, often seeking the twin objectives of better product quality and lower costs; secondly, they became more concerned with selling and distribution; finally, the marketing orientation gave priority to the wishes of consumers, increasingly through the use of market research, and purchasing, product development, production and finance were brought under the direction of the marketing department. Production and product-based approaches indicate, it is said, companies driven by supply-side challenges, perhaps at earlier stages of their growth. They may be the institutional legacy of successful production management or mass output, and these achievements may, as a consequence, become deeply embedded within a corporate culture. Nevertheless, the solution of issues ‘internal’ to the firm may achieve ‘external’ consumer satisfaction through price competitiveness, product quality and availability. In contrast, the marketing-orientated company initially aims to discover consumer wishes, and integrates its activities in a manner best able to satisfy them. For management authorities, like Drucker, a thorough understanding of the consumer would enable goods to sell themselves, and marketing should seek to make the downstream activity of selling superfluous.10 Historians of US marketing have proved themselves more willing than their European counterparts to provide schemata. The period between 1880 and 1920, for instance, attracts a degree of consensus for the arrival of large-scale companies, national markets, mass advertising, branding, department stores and mail order, alongside critical improvements in distribution and storage. Some interpret these developments as the beginnings of ‘modern’ marketing.11 Tedlow notes the relationship between corporate policies, unitary mass markets, high volumes, low margins and large profits, but, after 1920, he detects a further phase, with firms switching to greater market segmentation, more value-based pricing, and the use of emotive, associational advertising.12 The extent to which development models and periodisation assist explanation is problematic in the case of Cadbury. The transition from a production-based to a marketing-orientated approach, involving enhanced branding and unique product appeals, better fits our understanding of Britain’s second largest confectionery firm, Rowntree, and, to a lesser extent, the third, Mackintosh.13 When, after many years of adaptation and experimentation, Cadbury unified its strengths in products, production, management, distribution and advertising, it obtained a dominance of the British confectionery industry. The value that it offered to consumers convincingly emphasised both price and quality, so countering the nostrums of later business theorists.14 The creation of a mass FIRMS, PRODUCTS AND CONSUMPTION 513 market, in which chocolate was a frequent consumable for the bulk of the population, necessitated a viable price, propositions about food content or sustenance, and the appeal of a semi-luxury. Cadbury’s tactics were attuned to the economic uncertainties of the inter-war period and the rising aspirations of consumers. The shift that some competitors were to make from a production to a marketing orientation was a mark of their product weakness, and offered no strategic advantage to Cadbury. The evidence suggests that the power of a value proposition was built on the equality of the production and marketing functions. II The British confectionery industry developed gradually from breakthroughs in the manufacture of pure cocoa essence and its solubility, plus, subsequently, the refinement of eating chocolate and its milk variant. Once living standards, in the last quarter of the nineteenth century, offered greater possibilities for the sale of comparatively expensive products, businessmen responded actively, and used advertising to encourage changes in personal expenditure. Campaigns linked cocoa with medicinal benefits and demands for food purity; temperance themes accelerated the decline in per capita beer consumption; and branding offered a cachet not available to firms selling unlabelled, unpackaged goods.15 Yet the confectionery industry as a whole continued to consist of many small enterprises making a wide variety of goods and frequently serving a local or regional market. One major factor in shaping its structure, especially in cocoa and chocolate, was the rise of three Quaker-owned companies – Cadbury, Fry and Rowntree – which progressively exploited the new technologies, acquired operational scale, and marketed nationwide lines. They became associated with their principal, advertised brands of cocoa essence, and their growth helped to divide the confectionery industry into two broad product categories: goods consisting entirely of chocolate or containing chocolate, and those based instead on sugar.16 By 1907, the three Quaker companies were responsible for approximately 21 per cent of all confectionery employees, a demonstration of their relative success, but the remaining 79 per cent were to be found in a diverse industry of many small-scale producers.17 Cadbury, from its Bournville works, near Birmingham, led innovations in the industry, especially in the more ‘chocolate-y’ alkalised cocoa essence. Fry, which originated in Bristol, demonstrated early signs of managerial and commercial decline. In 1870, Fry’s sales had been greater than Cadbury’s by a factor of over 2.5, and they were nearly 20 times those of York-based Rowntree; by 1900, at £1.3 million and £1.2 million respectively, Cadbury’s sales were comparable to those of Fry, while Rowntree’s were noticeably smaller at £0.46m. John Mackintosh & Sons, located in Halifax, was still an initiate, with a turnover of just £30,000.