Ben and Jerry's
Ben & Jerry's Homemade, Inc., the Vermont-based manufacturer of super-premium ice cream, frozen yogurt and sorbet, was founded in 1978 in a renovated gas station in Burlington, Vermont, by childhood friends Ben Cohen and Jerry Greenfield with a modest $12,000 investment. The company is now a leading ice cream manufacturing company known worldwide for its innovative flavours and all-natural ingredients made from fresh Vermont milk and cream (Zikmund & Babin, 2007).
This report will:
1. Identify the strategy used by Ben & Jerry's
2. Analyse the methods used by Ben & Jerry's to achieve this strategy
3. Critically evaluate the strategy used by Ben & Jerry's
4. Offer recommendations based on the findings to improve performance for Ben & Jerry's
Business Level Strategy
A business-level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets (Hough, 2006). Business-level strategy indicates the choices the firm has made about how it intends to compete in individual product markets. The choices are important because long-term performance is linked to a firm's strategies (Mankins & Steele, 2005). Given the complexity of successfully competing in the global economy, these choices are often quite difficult to make (Lei & Slocum, 2005).
Business-level Strategy, which encompasses the business's overall competitive theme, the way it positions itself in the marketplace to gain a competitive advantage, and the different positioning strategies that can be used in different industry settings—for example, cost leadership, differentiation, focusing on a particular niche or segment of the industry, or some combination of these (Hill & Jones, 2009). The purpose of a business-level strategy is to create differences between the firm's position and those of its competitors (Porter M. E., Competitive Advantage, 1985). To position itself differently from competitors, a firm must decide whether it intends to perform activities differently or to perform different activities. In fact, choosing to perform activities differently or to perform different activities than rivals is the essence of business-level strategy (Porter M. E., What is Strategy?, 1996). Thus, the firm's business-level strategy is a deliberate choice about how it will perform the value chain's primary and support activities to create unique value. Indeed, in the complex twenty-first–century competitive landscape, successful use of a business-level strategy results only when the firm learns how to integrate the activities it performs in ways that create superior value for customers and thus contribute to competitive advantages (Hitt, Ireland, & Hoskisson, 2009)
A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to try to imitate (Greve, 2009). An organization can be confident that its strategy has resulted in one or more useful competitive advantages only after competitors' efforts to duplicate its strategy have ceased or failed. In addition, firms must understand that no competitive advantage is permanent (Lei & Slocum, 2005). The speed with which competitors are able to acquire the skills needed to duplicate the benefits of a firm's value creating strategy determines how long the competitive advantage will last (Lamberg, Tikkanen, Nokelainen, & Suur-Inkeroinen, 2009).
Ben and Jerry's has used the business level strategy to differentiate itself from the other company within the market (Lerman & Garbarino, 2002). Ben & Jerry's corporate strategy strives to implement the three integrated missions described above: developing a high-quality product, achieving economic growth and profitability, and incorporating social activism. The general corporate strategy can be characterized as a focused or market niche strategy based primarily on product differentiation and quality production (Hill & Jones, 2009). The use of all-natural, high quality ingredients and the innovative flavours of Ben & Jerry's ice cream illustrates the strategic use of product differentiation to gain a competitive advantage in the ice cream market. Quirky flavour names of the ice cream such as Chubby Hubby, Wavy Gravy, Phish Food, and Chunky Monkey also set Ben & Jerry's apart from the traditionally-named ice cream products of rival companies. (Ben and Jerry's, n.d.)
The differentiation strategy is an integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them (Porter, n.d.). While cost leaders serve a typical customer in an industry, differentiators target customers for whom value is created by the manner in which the firm's products differ from those produced and marketed by competitors.
Firms must be able to produce differentiated products at competitive costs to reduce upward pressure on the price that customers pay. When a product's differentiated features are produced at noncompetitive costs, the price for the product can exceed what the firm's target customers are willing to pay. When the firm has a thorough understanding of what its target customers value, the relative importance they attach to the satisfaction of different needs, and for what they are willing to pay a premium, the differentiation strategy can be successful (Hitt, Ireland, & Hoskisson, 2009).
Ben and Jerry's Differentiation Strategy
Ben & Jerry's corporate strategy strives to implement the three integrated missions described above: developing a high-quality product, achieving economic growth and profitability, and incorporating social activism. The general corporate strategy can be characterized as a focused or market niche strategy based primarily on product differentiation and quality production. (Arthur A. Thompson & Strickland, 1998)
A brand is a label, designating ownership by a firm, which we experience, evaluate, have feeling towards, and build associations with to perceive value (Brakus, Schmitt, & Zarantonello, 2009). In building brand value ‘perception is more important than reality' (Duncan & Moriaty, 1998), and as brands only exist in the minds of customers the management of brands is all about the management of perceptions. The power of brand to influence perceptions can transform the experience of using the product. In order to manage brands strategically we need to understand how perceptions are organized, how they influence behaviour, and how a brand can compete in the battle for ‘mindspace' (Corstjens & Corstjens, 1995).
Ben & Jerry's is a global brand with a three-part mission, and profit is only one of the parts. And then, Ben and Jerry's is making unusually delicious ice cream, and they succeed at this for an unusual reason. Ben & Jerry's has an independent board with the power to veto any proposed changes in the product formula. This means that their multinational owner, Unilever, cannot temporarily boost profits by substituting cheaper, less tasty ingredients (Edmonson, Leonard, & Furman, 2014). Ben and Jerry's has their own strategy such as unique flavour, unique name if flavour, unique packaging, etc. So people will know about their differentiation from other ice cream company.
Small-Scale Growth and franchising
The economic mission of the company (to achieve profitability, increase value to shareholders and create career opportunities) is implemented through Ben & Jerry's strategy for small-scale business growth. Ben & Jerry's has maximized profitability by initially starting small and slowly building an ice-cream business over time (Spolsky, 2000). Ultimately, the success at the small-scale required the company to shift its corporate strategy toward the establishment of several franchised “scoop shops” throughout the nation and Europe. As of 1999, there were approximately 164 scoop shops in North America (Securities and Exchange Commission Annual Report for Ben & Jerry's Homemade, Inc. , 1999). These scoop shops serve as a major employment resource and a source of revenue for non-profit groups. In addition, Ben & Jerry's gains a competitive advantage through franchising by expanding market share, increasing revenue and publicizing the company's brand name using minimal amounts of start-up capital.
According to the Securities Exchange Commission (SEC) annual report, Ben & Jerry's use of natural ingredients, high product quality, periodic introduction of new flavours, focus on grass-roots community involvement and the “down home” local image are essential elements of the company's marketing strategy. The company's Waterbury ice cream factory is the single most popular tourist attraction in Vermont. In addition, the company is well known for its creative television advertising and public relations campaigns. The use of innovative online marketing and web-based promotions with Yahoo have further emphasized this image and strengthened brand name recognition (Securities and Exchange Commission Annual Report for Ben & Jerry's Homemade, Inc. , 1999)
Brand loyalty, in marketing, consist of a consumer's commitment to repurchase or otherwise continue using the brand and can be demonstrated by repeated buying of a product or service or other positive behaviors such as mouth of advocacy (Dick, Alan, & Kunal, 1994). Brand loyalty is more than simple repurchasing. However, customers may repurchase a brand due to situational constraints (such as vendor lock-in), a lack of viable alternatives, or out of convenience (Jones, Michael, Mothersbaugh, & Beatty, 2002). Brand loyalty exists when consumers have a preference for the products of established companies. A company can create brand loyalty through continuous advertising of its brand-name products and company name, patent protection of products, product innovation achieved through company research and development programs, an emphasis on high product quality, and good after-sales service. Significant brand loyalty makes it difficult for new entrants to take market share away from established companies. Thus, it reduces the threat of entry by potential competitors, since they may see the task of breaking down well-established customer preferences as too costly (Hill & Jones, 2009).
Developing brand loyalty is another strategic move to strengthen competitive advantage. Ben & Jerry's has made substantial efforts to gain a favourable reputation and image with buyers through its frequent promotional campaigns (i.e., Free Cone Day), donations to social causes (i.e., Ben & Jerry Foundation), and the use of eco-friendly products, as discussed below under Environmental Strategy.
Ability to Charge High Price
McWilliams and Siegel (2001) argue that corporate social responsibility (CSR) can be used by firms as a differentiation strategy in an increasingly competitive landscape (McWilliams & Siegel, 2001). They demonstrate that business such as Ben and Jerry's ice cream and organic farmers can charge premium prices from consumers willing to pay more for socially responsible goods. More recently, Porter and Kramer (2006) argued that companies should move away from reactive CSR seen in positioning strategies to proactive CSR, which can be developed more capability (Porter & Kramer, 2006).
The price of Ben & Jerry's, a popular premium ice cream, has moved from £3.99 per 500g pot, to £4.18 on average over the last month in the main four supermarkets. Other premium brands, including Häagen-Dazs are expected to follow the move. Unilever, the food giant that owns the brand, said the increase was essential to pass on the rising costs of ingredients, including chocolate and sugar, which last week hit a 30-year high. Pete Harbour, the ice cream category manager at Unilever, told The Grocer magazine: "We have worked hard to take on as many of these costs as possible through being more efficient but had to pass limited costs on to our fans." (Lei & Slocum, 2005). It is the latest example of food prices climbing more rapidly after a period of stability. The British Retail Consortium said last week that food inflation, at 4.4 per cent in October, was running at the highest level for well over a year, while the Organisation for Economic Co-operation and Development said food prices were rising quicker in Britain in any other country in mainland Europe (Edmonson, Leonard, & Furman, 2014).
Perception of No Substitute
A product differentiation strategy that focuses on the quality and design of the product may create the perception that there's no substitute available on the market. Although competitors may have a similar product, the differentiation strategy focuses on the quality or design differences that other products don't have. The business gains an advantage in the market, as customers view the product as unique (Kelchner, n.d.). Differentiation strategy targets a narrow segment of buyers. However, this strategy helped Ben & Jerry's to build a strong competitive advantage as it can offer consumers something they think is appealingly different from rival competitorsinnovative ice cream flavours super-premium that taste better and is composed of all natural and also high quality ingredients. This provide them with a competitive advantage (Eggert & Ulaga, 2002).
Competitors may imitate Ben & Jerry's differentiation strategy, like other company will create a unique flavour but in the same brand. According to Diana Adams, the company itself had to come out and make an official statement to consumers last summer that the “All of the Bacon & Eggs You Have” flavour isn't a real flavour since it got so much hype online. If competitors or new rivals begin to use differentiation strategy as Ben & Jerry's used, there is a risk that the company might lose their competitive advantage (Dennis, Neck, & Goldsby, 1998). The market that Ben & Jerry's are in allows for common interest from rivals. Other companies are curious of the strategies of Ben & Jerry's because Ben and Jerry's has their own strategy or uniqueness of management to develop their business. Therefore, Ben & Jerry's is at risk of competitors imitating their business strategy and might eliminate their competitive advantage. Ben & Jerry's will no longer have their advantage over their competitors and might lose a lot of profit and market share.
Over time, customer needs will continue to change, and the company can simply ignore this at their own risk. Companies must continue to create new things or to develop and update what they have, to be able to attract the loyalty of the customers, but product differentiation requires a lot of resources to carry out market research to determine the needs of customers, launch new products, product development, advertising and monitoring about the product that has been spread (Smith, 1986). Ben and Jerry's will lose some customers because of high price of the product. In the end, customers bear the brunt of these costs to purchase the product at a higher cost. Ben & Jerry's should be able to understand the changing needs and wants of their customers, even though the cost is higher if presented well with high quality services.
Ben and Jerry's has gained competitive advantage through using a differentiation strategy. By creating a unique product service alongside the promotion of the brand, Ben and Jerry's is able to sell their product at the same price as their competitors while making a higher profit.
The advantage Ben and Jerry's reaps from using a differentiation strategy are:
1. Brand loyalty; the benefits are long term and have a low sensitivity to price.
2. Ability to charge high price; Ben and Jerry's ice cream and organic farmers can charge premium prices from consumers willing to pay more for socially responsible goods.
3. Perception of No Substitute; Differentiation strategy targets a narrow segment of buyers. However, this strategy helped Ben & Jerry's to build a strong competitive advantage as it can offer consumers something they think is appealingly different from rival competitorsinnovative ice cream flavours super-premium that taste better and is composed of all natural and also high quality ingredients.
However, there are significant disadvantage for Ben and Jerry's in using a differentiation strategy:
1. Competitors may copy or imitate Ben & Jerry's strategy.
2. Ben and Jerry's will lose some customers because of high price of the product. In the end, customers bear the brunt of these costs to purchase the product at a higher cost. Ben & Jerry's should be able to understand the changing needs and wants of their customers, even though the cost is higher if presented well with high quality services.
Keep continue to differentiate their product in all areas and sustain the competitive advantage and also the customer loyalty.
Reduce the price in order to add more customers but improve the quality of the product.
Ensure that their staff remain fully trained and has high knowledge of their brand to maintain the high standard of services.
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