Twice in the past year M&M Mars, the giant of the U.S. candy industry, has shocked the market with out-of-step pricing moves that left analysts confused and competitors outraged.

M&M Mars spends an estimated $50 million a year to advertise its popular confections such as Snickers and M&Ms, but as a privately held company that shuns publicity it gave out little information about the pricing decisions that baffled the industry.

Seen from Howard L. Walker's sparsely furnished cubicle at M&M Mars headquarters here, however, the decisions make sense as part of an ambitious long-range strategy. Walker, president of M&M Mars, said that the company, not content with leading the candy business, is seeking nothing less than a dominant position in the country's vast snack-food market.

M&M Mars, producer of Milky Way, 3 Musketeers, and Starburst Fruit Chews as well as M&Ms, is the candy-making division of the mysterious multibillion-dollar Mars family food empire based in McLean, Va.

Mars Inc., the family corporation, has traditionally revealed as little as possible about its operations. However, Walker, president of the division, made clear in an interview--one of the few ever granted by any Mars executive--that the company has developed a well-researched strategy to increase the sales of Mars products at the expense of ice cream, fruit, cookies and other snacks.

The plan includes stepped-up advertising, promotions stressing the nutritional value of candy, the development of snacks other than candy, and, most visibly in the past year, manipulation of bar size and price to attract and hold a growing share of the market.

The company's tactics, including a recent price increase, have caused a furor in the candy industry.

Hershey Foods, Mars' chief competitor, charged that the increase was unjustified. At least two major retail chains, K Mart and Lucky Stores, have stopped carrying individual bars of Mars candies. Forbes magazine said the "brazen" price increase was the action of a "greedy monopolist."

But M&M Mars, buoyed by a spectacular coup--its first sale of M&Ms to China--has not been deterred from its determined campaign of expansion.

M&M Mars, which has made the Mars family as rich as it is reclusive, describes itself as "proud to be different," and there is no doubt that it is an unusual company in many respects.

Wholly owned by the Mars family interests, it publishes no sales or profit figures, discourages labor unions and boasts of its idiosyncratic organizational structure that "avoids unnecessary links in the chain of command."

At headquarters here, the employes--who are known as "associates"--work side by side, regardless of rank, in a single room without walls or separate offices. Even the executives have only shoulder-high partitions around them, and the conference area is an open table in the middle of the work floor. All employes, including Walker, punch the same time clock, and all eat together in the same company dining room.

Potted plants provide the decor. Computers monitor the worldwide prices of the commodities most important to the company: sugar, cocoa and foreign currency. All around the room are tables where samples of M&M Mars products are laid out for tasting.

Walker said workers are encouraged to eat them--"that's our quality control"--but it is evidently considered crude to consume an entire bar, because each table has a little knife and cutting board for taking slices.

According to industry analysts, M&M Mars already has at least a 40 percent share of the U.S. candy market, which registered nearly $5 billion in wholesale sales last year. But Walker said the total potential market for what the company calls "Now Foods" is "$45 to $50 billion. We define our competition as not only candy but all sweet snacks, pies, cakes, ice cream, the whole savory snack market."

The objective, he said, is "incremental sales," by which M&M Mars expands at the expense of other snack foods.

"We are in the food business," Walker said. Following the theme of the company's promotional literature, he said that the candy products contain such nutritious ingredients as peanuts and milk and are "a legitimate part of a balanced diet. We don't claim you can live on Snickers, but you can't live on apples or bananas either."

A year ago, when Hershey and other candymakers were contemplating an increase in candy bar prices, M&M Mars threw the industry into confusion by increasing the size of its candies without raising the price.

The result, Walker said, was that "consumers came over. We knew that if we improved our value for money, people would buy more of our products. For the consumer, portion size is an important criterion."

Then in September, having reportedly gained a substantial increase in its market share, M&M Mars raised its prices, sending the retail price of Mars Bars, Snickers and its other products up from a quarter to 30 cents. Hershey ran advertisements saying the increase was unjustified and promising to hold the price line.

But most retailers, who charge a uniform price for all candy bars, simply raised all their prices to the same level, so that Mars in effect imposed an industrywide price increase that produced additional income for itself and none for Hershey, Nabisco and other manufacturers.

K Mart, with more than 2,000 stores, and Lucky, with more than 600 food stores including the Memco chain, decided instead to stop selling single Mars products, but according to a major candy wholesaler, M&M Mars is "so big, an outlet like K Mart is just a spit in the ocean."

M&M Mars can afford to buck K Mart and Lucky because it has more than a million retail outlets, Walker said. "We understand what K Mart did, but the real boss is the ultimate purchaser and eater of the product. That's who we have to satisfy."

He said that packaging costs had risen 25 percent in the past year, peanut prices had doubled and labor costs for the 5,000 workers at M&M Mars' six U.S. plants had risen, so the choice was "to either decrease portion size or increase price. We felt that the overriding concern with the consumer was portion size."

Despite the company's long-standing aversion to communication with the press, Walker felt constrained to respond to the critical article in Forbes. He sent a message to the magazine's editor saying that "Our products are still among the best buys available in the market today," even after the price increase.

According to that message, only Baby Ruth bars, at 13.2 cents per ounce, and Clark bars, at 14.3 cents, are cheaper than Mars' 3 Musketeers, at 14.6 cents per ounce, or Milky Way, at 15.7 cents. Hershey chocolate bars, it said, cost the consumer 23.8 cents per ounce. (A Hershey chocolate bar of 1.05 ounces costs 25 cents at retail, or 23.8 cents per ounce. A 2.05 ounce 3 Musketeers bar, at 30 cents, costs 14.63 cents per ounce.)

Recent estimates by industry analysts have put M&M Mars' share of the candy market at up to 45 percent, with Hershey, which reported 1980 candy sales of $929.8 million, well behind at about 26 percent. With the candy-sales gap between itself and No. 2 Hershey apparently widening rapidly, M&M Mars is turning its attention to other segments of the snack food industry.

The "Now Foods" campaign is aimed not only at ice cream and cake eaters but also at consumers who, in Walker's words, "think that if something tastes good it can't be good for you." A new brochure says that "since snacking is now integral to our eating habits, snack foods should be nutritionally sound as well as fun to eat . . . snack foods containing chocolate, milk, nuts and sugar provide some of these essential nutrients."

To counter critics who say candy is fattening and causes tooth decay and acne, the company has adopted nutritional labeling on its candy bars in an effort to show that candy has substantial food value. Wrappers on the candies report nutrient value as if the contents were breakfast cereal.

M&M Mars chairman George Conklin summarized the company's pitch in a speech last year to the Association of Candy Technologists.

"If we're to eat a balanced diet on a continuing basis," he said, "that diet must be both physiologically satisfying and psychologically pleasing. I would not recommend a steady diet of nothing but Snickers Bars, nor would I recommend a steady diet of nothing but sirloin steak, but I would recommend the occasional consumption of either or both as components of a pleasurable, balanced diet pattern."

The company is again promoting the frozen Milky Way bar as an alternative to ice cream, and is developing products other than candy to expand its share of the snack market. Summit and Twix bars are essentially chocolate covered cookies. Combos, still in the test-marketing stage, are bite-sized pretzels filled with "real cheese."

M&M Mars has done little export business because the parent Mars Inc. set up separate companies to make its candy products in Europe. The sale of M&Ms to China thus opens a new and potentially vast market, and Walker said he hoped China would become a steady customer. "That first sale is always the hardest one to get," he said.

M&M Mars has always had a reputation in the industry for cleanliness in its manufacturing plants, and the company prides itself on its quality control. Breaking a long-standing company rule against tours of its plants by outsiders, Walker conducted a brief visit of the M&Ms facility here to show how it earned its reputation.

The plant operates 24 hours a day during the work week, but it is kept clean by teams of gray-clad workers who are constantly sweeping, wiping and mopping. The assembly-line workers all wear white smocks that are laundered daily, and they cover their heads with white hard hats.

Letters of complaint from consumers are posted on a bulletin board. One writer bought a bag labeled M&Ms plain and found it contained M&Ms peanut candies. Another said that her bag of M&Ms split open at both ends, spilling the contents on the sidewalk, the first time that had happened in all the years she has been buying the candy.

"I don't think we're secretive," Walker said. "We have good communication with our consumers."

There is clearly more to M&M Mars' success than quality control, however.

The company spends heavily on market research before putting out new products. Walker said that in his 12 years with the company, the only failure was an attempt to revive the Forever Yours bar. Many American consumers do not like dark chocolate, Walker said, and the company had to pull the dark chocolate Forever Yours from its product line because it did not sell quickly enough to stay fresh.

M&M Mars backs its products with a heavy schedule of television advertising. According to Advertising Age magazine, the company spent more than $20 million last year just to advertise its two largest sellers, Snickers and M&Ms, and about $50 million overall.

In addition, the company uses occasional promotional gimmicks to enhance candy sales. The current one offers buyers of the candy bars rebates up to $5 for saving and turning in the wrappers. An earlier promotion resulted in a suit against M&M Mars by singer Linda Ronstadt and television actor Shaun Cassidy--one of the few times M&M Mars or the parent Mars Inc. has been involved in litigation.

According to papers filed in U.S. District Court in Los Angeles, Mars, on the advice of a Chicago consultant, offered posters of Ronstadt, Cassidy or actress Cheryl Ladd in exchange for ten Starburst Fruit Chews wrappers. Ronstadt and Cassidy sued, claiming that the promotion amounted to an unauthorized use of their names and likenesses and implied that they endorsed the product.

John J. Langdon, brands director for M&M Mars, said in an affidavit "at no time did I or anyone else to my knowledge, intend to create any impression in the minds of consumers that any of the stars liked, endorsed, used or in any way sponsored any product of Mars. In fact, Mars' advertising philosophy for many years has been to avoid using any spokesperson for its products and to my knowledge the M&M Mars division does not currently advertise any endorsement of any of its products by any famous personality."

Mars avoided a trial by paying Ronstadt $32,000 and Cassidy $10,000, according to court papers.

None of the candy division's U.S. plants is unionized, and union officials admit they have given up trying to organize M&M Mars because wages and working conditions are so good the workers don't need unions.

A company promotional film says it is "not easy working for M&M Mars" but says salaries are probably the best in the industry and the "associates" are "all partners in the pressures, challenges and rewards" of the business.