Ben Jerry's Pricing Strategy example essay topic

Ben & Jerry's 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? SS Smooth, No Chunks" ice cream line. Ben & Jerry's 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 company's administrative infrastructure.

Ben & Jerry's 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 & Jerry's 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 25-40's 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&J's 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 Edy's 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&J's 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 wouldn't be seen dead eating another ice cream" as opposed to "this is cheaper and tastes just like B&J's so I'll 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&J's 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 Dreyer's that have an extensive transportation network. It must be noted that this is potentially a concern or risk for B&J's. 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 & Jerry's 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 & Jerry's promotions were gained through the company's 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&J's 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 & Jerry's competitive structure seems to be consolidated.

The more commodities like an industry's 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. Buyers Ben & Jerry's customers have no switching costs. Therefore Ben & Jerry have to be aware of upcoming price wars, to avoid losing customers to their rival. Hence Ben & Jerry's customers have high bargaining power. For example, during economic instability consumers are reluctant to spend their money on luxury products such as super premium ice creams.

How much power can a supplier have? Ben & Jerry's Supplier of milk and cream comes from Vermont Dairy farms which charge a higher price but do not use any genetically engineered drugs (rbh). Their supplier of milk has increased bargaining power as a direct result of Ben & Jerry's principals, which in this case is, Health issues. To protect smaller farms. Most of their suppliers are scattered around the world such as, South African rain forest, which supply Nuts. Passamaquoddy Indians, which supply their Blueberry.

Georgia, which supply their peaches. High costs in transportation and research are inevitable. The coffee beans used in their coffee-flavored ice cream took the company five years to find; therefore one can imagine the high costs involved. Ben & Jerry also put money pack into the suppliers. This in turn establishes strong relations between company and supplier; for example the brownies used in their "Chocolate Fudge Brownie Ice Cream" are purchased from bakeries, which employ under skilled workers. Doing so gives the supplier greater comfort and reassurance with better bargaining power, why?

Because Ben & Jerry prefer to select their suppliers who have greater social morals. What Social and Economic Factors affected B&J? In 1994, sales were flat, profits were down, and the company's stock prices had fallen to half its value. While Ben & Jerry had thrived in the 1980's, the coming of the baby boom in the 1990's meant a middle class society that was more health conscious {the target market which Ben & Jerry gained much success on}. The company realising its fall in sales, quickly responded to the changes in consumer demands and introduced Ben & Jerry Lite.

This line failed miserably. It seems like that Ben & Jerry failed to forecast and acknowledge the changing in consumer tastes, and was faced with increasing competition with Haagen-Dazs, which introduced its "low-fat Ultra Premium ice-cream". Their social commitments to their customer's community and suppliers have contributed to a successful and unique image, Ben & Jerry donated a portion of their sales from their "Rainforest Crunch Ice Cream" back into environmental preservation causes in South America. Ben & Jerry also established the "Ben & Jerry Foundation", which donated 7.5% of its pre-tax profits helping non-profit organisation, such as, An establishment in New York to help drug addicted pregnant women.

Individuals and families affected by the AIDS virus in Brattleboro. Such efforts had contributed to winning over "like-minded" consumers, however its arguable to what extent this will have on winning the hearts of international consumers. The question then arises, to what extent does their social unique image affect their consumer behaviour? Swot Analysis for Ben & Jerry Strengths Ben & Jerry have an established and recognised brand name. They have a relaxed, loyal and casual workforce. Good public and social image due to their principles in social awareness.

Wide variety of flavours in ice cream for customers. Weaknesses Ben & Jerry have a limited target market, as their product is niche. The suppliers and distributors (such as Dryers) have high bargaining power, which allows them to raise their prices when they like. They have concentrated more on donating their money to charities therefore neglecting forthcoming changes in trends. Declining market share. Slow development of new products.

Opportunities Ben & Jerry should seek to global ise their product to compete effectively. Change their current suppliers and distributors, which might enable them to be more cost effective Threats Threat of substitutes Economical changes such as in inflation or consumer spending Social changes within the consumer market such as health conscience attitudes. This report concludes that Ben & Jerry has the potential to prosper so long as they: To be prepared for forthcoming changes in consumer needs and wants To compromise between maintaining their company image and satisfying their investors needs. Try to reduce their supplier and distribution costs by considering other options.

Recommendations This report has identified three main areas of concern that need to be addressed; Overcoming Inertia Introducing an international joint venture Maximising profits through cost efficiency (Economies of Scale) In today's global environment, change rather than stability is necessary. Rapid changes in technology, competition and customers demands have increased the rate at which companies such as Ben & Jerry's needed to alter their strategies and structures to survive in the market place. As discussed earlier, one of the reasons why B&J has lost market share is because they failed to change themselves and adapt to a new competitive environment because of organisational inertia. To overcome this Ben & Jerry need to identify the main barrier to change such as consumer tastes. This can be overcome through the development of a marketing plan, as there seems to be no real evidence that Ben & Jerry have done this. Ben & Jerry's reliance on cause generated marketing has its benefit but it also has its pitfalls.

Cause generated marketing and / or strategy has adaptability, whereas the long-term marketing plan has focus. Therefore a good marketing plan is adaptable. Employee productivity is one of the key determinants of a company's efficiency and cost structure so this needs to be improved upon in order to make the company more competitive. The culture of the organisation is strongly influenced by the founders and changes will be hard to achieve. It is not recommended that the culture of the company be changed but that devising new ways to increase employee productivity through the Human Resource Function enhances it. After looking at many different options it is suggested that the employees be put into self-managing teams.

Each team will be responsible for an entire task and time deadlines should be given. It is also suggested that pay rewards should be given to the teams that complete their task to the highest standard. This option could lead to a more flexible work force, as employees will get to know each other's roles. It can also create a flatter organisational hierarchy, which would make the decision making process a lot quicker even though all employees are still involved. Marketing should make the consumer believe that at a given time, be it on a date or after a meal, that B&J is the perfect conclusion to a perfect lunch or a perfect evening. B&J needs to be aware of group decision especially couples.

The idea of marketing B&J as the perfect accompaniment to a date could be profitable. How about the most romantic couple in USA competition?