Key Problems Identification
External
Increasing competition
In 1990s, the competition in the frozen desserts industry was on the rise. As soon as the market preference changed to healthier food habits, there was a rush to introduce the lower fat products and the ice cream market got fragmented increasing indirect competition manifold. The demand for such low fat frozen desserts continued to expand with an overall shift in preference towards the lower fat products as late as 1995. Especially the market share of the super-premium segment was being lost to the premium segment in Ben and Jerry hardly had any penetration.
The increasing competition forced the cream companies to increase the advertising budget. In fact Ben and Jerry’s which hardly spent on advertising was also forced to spend considerably on advertising to launch new products in the premium segment .
The competition especially the direct competitor Haagen Daasz proactively began attacking the Ben and jerry for a greater market share by aggressive advertising as well as discounting. The huge size of the latter and greater overall market share allowed the latter to do so. It also developed new versions of the mix in ice creams which had so far been the strength area of Ben and Jerry’s. Also, Haagen Daasz introduced new frozen yogurt line, which was becoming increasingly popular, while Ben and Jerry’s was still far away from any such products both in terms of its brand image as well as in terms of actual operations or products. Although it introduced the frozen yogurt line very late it gained a high market share in a small span of time by 1992 with minimal advertising. However, the competitor established a strong presence in the overseas markets as well .
Other companies were also gaining the share of the rapidly expanding overall market. Ben and Jerry’s produced only 60% of its ice cream while 40% was produced by Breyer’s. Breyer’s had over the years also grown in size and was now a formidable competitor in many segments. Thus Ben and Jerry’s in fact were contributing to the growth of its own competition. Moreover, big companies like Pillsbury and Uniliver were consolidating the competition by acquiring small and mid-sized brands and further increasing the competitive pressures .
Changing market preferences and declining sales
Growth in the Super premium segment was beginning to decline during the time. Overall sales growth was also slowing down towards the end 1994 in all the market segments. In 1990s a trend towards healthy living was beginning to hurt the ice cream market in general and the super -premium market in particular. Although the mix of products from 1980s to 1990s had changed significantly, the per capita consumption of frozen desserts had in fact increased forcing the companies to change their marketing and operations approaches .
Internal
Out dated/Impractical marketing and business policies/decisions
The company had hardly ever relied till now on market research to plan its marketing and operations strategy, it had just kept on innovating and developing newer variants, retaining the fast moving ones and dropping the slower moving ones. This contributed to an inability to forecast market demand properly and an inability to plan operations accordingly and maintain efficiency in production. They traditionally followed PR exercises for promotions and launches. However, slowing sales growth forced the company to spend more on advertising and also offer in store discounts. The Foray of Ben and Jerry’s into international markets was limited and marked with impediments as compared to Haagen Daasz. Despite success of own retail stores, the sales through such stores contributed to only 3% of the sales. There were only 100 stores by 1994. Above all, Ben and Jerry’s were not managerially equipped to handle decentralization and huge expansion .
Unfavourable distribution costs
The Distribution costs were an important competitive factor in the ice cream industry and Ben and Jerry was dependent on other companies for distribution thus had little chance to minimize them .
High production costs
The ice cream market was segmented according to the butterfat content and the super-premium market which was the mainstay of Ben and Jerry’s was on top with as high as 17% fat content, which later became an unfavourable proposition. Additionally the super-premium ice creams were the most costly to produce. Even among the Super premium segment, there were the mix in and smooth sub segments. The former was costlier than the latter by at least as much as 30%. Ben and Jerry’s specialised in the costlier sub segment and the nearest competitor which was also much larger and older adversary Haagen Dasz dominated the less costlier sub-segment. Besides, the production cost for the 40% production from Breyers was significantly higher than that would have been had it been produced in house. Also, it made Ben and Jerry’s especially vulnerable to Breyer’s own expansion plans .
In order to bring much of the production in house, the company invested a significant $40 million in a new third factory in St. Albans Vermont, however owing to inappropriate expert advice, much of the automated equipment bought for the same was abandoned which resulted in $6.8 million write down on the balance sheet. Ben and Jerry’s used only natural and costly ingredients in its products and tried to stick this approach as far as possible which also contributed to high production costs especially with the new segments in which it tried to enter .
Wasteful and inefficient production processes
The company faced challenges typical of manufacturing ice cream in large chunks which had thus far not been its stronghold. Lack of forecasting had been a cause of wasteful production leading to over production at times which had to be thrown away and under production at other which led to defaults on delivery schedules .
Socialist approach to compensation structure
The company followed a more socialist approach to hiring and retaining talent and tried to maintain parity in the pay structure which was initially popular but with growing competitive pressure became unrealistic as the company was not able to attract or retain the quality staff especially for crucial positions .
Uneven and unrealistic financial arrangements
The shareholders of the company were mostly Vermont families and institutional investors had little stake in the company. Though this was a popular strategy however it was not very sound from a financial point of view as families could not bring in growth in investments as compared to the institutional investors. Moreover, the founders held a disproportionate percentage of class B privilege shares showing a strongly centralized and controlled management as well as financial position which was limited in strength as the introduction of fresh funds was limited by this foregoing fact.
The emphasis on social aspects at cost of profitability and growth
The founders of the company who held majority share in the company also run highly centralized management of the company, emphasised a lot on the social objectives apart from the business ones. Often these two divergent approaches came at cost of each other and affected the bottom line of the company. In fact lately by 1995, the social initiatives came under public scrutiny and were criticized for being superficial and misleading causing a damage to the brand image of the company .
Huge business challenges to manage for the future
Strategic Approach for Solving the Key Problems
The approach to solving the problems at hand for the company can follow a holistic approach or one focused on specific areas of business and operations. Alternatively Identification of root problems and overall approach to solve the problems can also consist of a step by step focus on the various aspects in predetermined order to achieve efficiency in the execution and efficacy in achievement of results. However, an overall approach followed to strategically solve the problem can start with establishing the current strengths and weaknesses. The weaknesses have been identified as a weak management, overt emphasis on societal aspects of business operations, lack of a well-defined hierarchy and management structure, as well as costly and out dated production and marketing processes. The strengths on the other hand are huge brand loyalty and established market base, a clean and socially inclined image, a decent distribution network and established franchisee system to build upon.
Further, set of solutions based on the strengths and weaknesses and aimed at solving the problems have been devised as discussed in the next section. The solutions pertain to the various areas like marketing, sales, recruitment, procurement as well as operations and finance. The next step in the run up to the solution has been the evaluation of the set of the solutions provided. The solution has been arrived at such that the traditional and current strengths of the company are utilized to minimize the effects of the weaknesses and also to mitigate some the weaknesses entirely. Finally a rationalization of the solution set has been commenced and final recommendations have been proposed in the last section.
Solutions/Hypothesis
Based on the above approach, the following broad solution approaches or hypotheses have been proposed:
Holistic approach
Distribution and network based approach
Improve the retail network and expand the franchisee chain.
Marketing focused approach/solution
Conduct marketing research to forecast demand better and also product research to develop cost efficient yet appealing to the taste buds that meet the health standards in terms of fat content as well.
Develop a professional marketing plan with emphasis on sales target with a well-defined marketing budget
Change packaging such that it reverberate the traditional downtown image of the company with a large market base.
Capitalize on the social image of the company and plan and execute a mass media campaign that promotes the socially vibrant image of the company and projects it as a healthy brand.
Operations and Administrative focused approach
Rationalize the financial structure and bring in more of institutional investors with sound financial background to finance new production capabilities as well as expansion efforts
Evaluation of the Potential Solutions
Based on a careful assessment of the situation, the best approach for the company would be to take a holistic approach as it addresses all the problem areas facing the company currently. However, since the company has been following a management philosophy that is far from the modern management principles, also, since the company does not seem to have the financial strength to undertake huge changes, the holistic approach has to be ruled out at the given point.
The distribution and network based approach shall serve to salvage the company bottom line by reducing the distribution costs and also help improve the overall reach of the product range and add to the revenues. However, it is not enough to fight the competition which is capturing market share fast.
The Marketing focused approach is definitely promising enough to retain the market share and profitably capture additional market share in the new segments such as the plain super premium, the premium and the frozen yogurt segments. However, at the same time, the said marketing efforts shall put additional pressure on the limited resources and thinning bottom line of the company.
The operations and Administrative focused approach shall serve to prepare the company for the formidable challenges posed by the competitors and the marketing efforts that shall require more financial, operational and human resource capabilities. However, focus on this approach alone shall serve to only solve the problem in a limited sense. In order to fully utilize the benefits of this approach, the marketing approach must be a precursor.
As discussed above, none of the above approaches seems feasible in isolation, however a modified form of above the holistic approach can and must be followed to maximize the benefits and minimize the shortcomings of all the above approaches towards the achievement of the goals. The modified version of the holistic approach can start with an initial focus on the distribution network and marketing focused approaches simultaneously and once the marketing and distribution priorities and requirements are well established, the simultaneous focus on the operations and administrative approach as mentioned above to fulfil the requirements posed by the marketing effort.
The overall emphasis has been to maximize the market share through expansions in domestic and overseas markets, the minimization of production costs through more advanced technological production processes and improvement in the profitability by minimizing both production costs and improving market outreach by expanding the distribution network and channels.
Works Cited
Collins, David J. "Ben & Jerry's Homemade Ice Cream Inc.: A Period of Transition." Case Study. Harvard Business School, 19 May 2005.
