Ben & Jerrys was experiencing a steady growth within their sales figures from 1990 to 1993. However, In March 1994, Cost of Sales increased approximately $9.6 million or 9.5% over the same period in 1993, and the overall gross profit as a percentage of net sales decreased from 28.6% in 1993 to 26.2% in 1994. This loss might have been a result of several reasons, such as high administration and selling costs, a negative impact of inventory management, and start up costs associated with certain flavours of the new Smooth, No Chunks ice cream line.
Ben & Jerrys selling, general and administrative expenses increased approximately 28% to $36.3 million in 1994 from $28.3 million in 1993 and increased as a percentage of net sales to 24.4% in 1994 from 20.2% in 1993. This increase might reflect the increase in marketing and selling expenses and the increase in the companys administrative infrastructure.
Ben & Jerrys loss was not solely due to their employee orientated approach, but they appeared to have taken out a vast amount of capital lease in their aim to automate their production to keep up with the intense competition.
As reflected in the balance sheet, Ben & Jerrys had reinvested huge amounts of property and equipment in 1994 increasing their long-term debts by almost 45% in 1993.
Alternatives available to the consumer now, and in the foreseeable future
Haagen Dazs is currently the main competitor in the concentrated market place for super premium ice cream. Substitutes are however available. There are other ice creams not in the super premium category. To an extent, these are real competitors. However for the market B&J caters for the up market 25-40s with a high disposable income} their strategies should not have a great impact on B&J. The frozen yogurt lines which B&J now provides, has a number of direct competitors to deal with.
Dealing with other substitutes is not that simple. Expensive (or not) chocolate, cakes, croissants and other post meal consumables are realistic options for the consumer. Ferrara Rocha will assure you that their product is the perfect accompaniment to any meal. B&J need to be wary of this. How he/she makes the choice for ice cream (as opposed to chocolate etc.) and then super premium (as opposed to premium or ordinary) and then B&J (as opposed to Haagen Dazs etc.) is essential. [See section 3.21 Research]
The possibility of a rival ceasing B&Js place as no.1 or no.2 in the marketplace?
Despite after tax losses in 94 both B&J and Haagan had a 42% share in early 95. None at present seem to have the ability or financial backing to challenge this, albeit Edys has Nestle.
The possibility of new entrants in the market place is confined by two major problems. The brand and distribution. Remembering that these are upmarket consumers where by cheap alternatives are not necessarily sought for then the key element is the brand. This brand and the associated image are something currently only Haagan and B&J have. This emotional tie related to B&Js and everything it possesses beyond what it is in itself (i.e. a good tasting ice cream) is something that will be difficult to emulate. It is a question of I wouldnt be seen dead eating another ice cream as opposed to this is cheaper and tastes just like B&Js so Ill buy this from now on.
The other barrier concerns distribution. With ice cream the idea of selling products through the Internet, despite the dried ice, which may accompany it, is not likely to be an option V the consumers will not readily enthuse over the idea. B&Js is a fresh ice cream and by nature difficult to transport. Consequently distribution to stores around the USA and globally will be expensive and require partners such as Dreyers that have an extensive transportation network. It must be noted that this is potentially a concern or risk for B&Js. Having a rival manufacturer distributing their ice cream is likely to cause conflict, and B&J should change this immediately or have an adequate contingency plan.
With both the above barriers the key entrants may be the other ice cream manufacturers in the premium or ordinary market, notably the premium. As it is these that already have the distribution network as well as the know how. It will still take a large investment for these manufacturers to sell their image.
Internal Issues
Due to the baby boom in 1994 the target market of Ben & Jerry has declined vastly. Although Ben & Jerry still hold a large percentage of the small market share, the company needs to decide on whether this target segment is worth sticking with.
At one stage Ben & Jerrys pricing strategy worked really well, however it has become evident that demand over recent years has shifted towards lower priced products leaving pricing strategies being a big issue for the company. Until 1994 all of Ben & Jerrys promotions were gained through the companys socially conscious practices. However price wars with main competitors left the company having to pull funds off advertising campaigns to fund price discounts and store coupons.
Due to the fact that imitations for the product are being developed more rapidly, Ben & Jerry have changed their primary marketing goal to establish products that cannot be imitated but the technological developments of the company have not allowed them to launch the products within a realistic time limit. B&Js mission statement includes the need, quite rightly, for a wide variety of innovative flavours. Five years to find the perfect coffee bean seems unnecessary. Coffee ice cream, in this period, may have become unattractive to the customer. What if after this period the product failed to penetrate the market? This scenario is compounded by, – The quick replication by competitors – The high costs related to manufacturing each different flavour
As a result it is key to cease brands not received well, as well as introducing new flavours quickly. Flavour of the month may be a way of bringing consumers to them on a regular basis.
To identify what the consumer wants and cannot receive elsewhere, what he/she detests and what they would like to improve is important. Although there are some signs of B&J carrying out consumer research it is essential to introduce continual focus groups or panels. It may be the case that a good ice cream is not selling well due to expense, lack of marketing or its just too different to comprehend trying.
Research will be key in identifying the market in any region or country B&J wishes to operate, especially into consumers needs and wants. The way choices are made needs to be understood and the positioning of B&J needs to accommodate this. The decision is based, amongst others, by the mood of the potential consumer at the time of decision, the tastes of the accompanying friends V group decisions are likely to be an integral element, convenience of supply and time available.
Ben & Jerry seem to be proud of the success rate of their relaxed, casual culture and having employees involved in the decision making. However this policy needs to be reviewed as decisions are taking too long to be made due to large staffing numbers but with staff turnover at a low twelve percent, changing the decision making process could be very difficult.
If it is not bad enough that the company is loosing market share, the company putting more funds into promoting their image than to them is irritating shareholders even more. A happy medium will have to be found for Ben & Jerry to gain confidence back from their investors.
The extent of internal rivalry amongst the established firms within the industry.
Ben & Jerry exist in a consolidated market place with just two major players. The other is Haagen-Dazs. There is severe competition between the 2 players.
If this rivalry is weak then companies have an opportunity to raise prices and earn greater profits. However, if rivalry is strong significant price competition including price wars can occur. Price competition limits profitability by reducing the margins that can be earned on sales, which could push the industry profits down in the process.
Ben & Jerrys competitive structure seems to be consolidated. The more commodities like an industrys product the more vicious will be the price war. The nature and intensity of rivalry in their industry is much more difficult to predict. As the companies are interdependent competitive actions of one company will directly effect the profitability of others. Companies sometimes seek to reduce this (price war) by following the price lead set by the dominant company in the industry.
The demand conditions also affect the intensity of internal rivalry between companies. Growing demand tends to reduce rivalry as companies can sell more without taking market share away from other companies, resulting in high profits. Conversely declining demand results in more rivalry as companies fight to maintain revenues and market share. Therefore Ben & Jerry exist in a mature industry where there is declining demand; creating intense rivalry with Haagen Dazs.
