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Table of Contents
Premium Ice Cream Industry Analysis ...................................................................................... 3 Critical Success Factors of Premium Ice Cream Industry............................................. 3 Porter Five forces Model: .................................................................................................. 3 1. 2. 3. 4. 5. Supplier Power: ................................................................................................................ 4 Buyer Power: .................................................................................................................... 4 Competitive Rivalry: ........................................................................................................ 4 Threat of substitutes: ........................................................................................................ 4 Threat of new entry: ......................................................................................................... 4
Churchill Ice Cream ..................................................................................................................... 5 Company Analysis ..................................................................................................................... 5 Case Details: ........................................................................................................................... 5 Critical Analysis Of The Case ........................................................................................... 6 Strategic Goals ................................................................................................................. 6 Market segmentation ........................................................................................................ 6 Target Market ................................................................................................................... 6 Brand Positioning ............................................................................................................. 6 Off Season(During this season sales decreases) .............................................................. 7 Competitors Analysis ....................................................................................................... 7 Suppliers Analysis ............................................................................................................ 7 Organization Culture ........................................................................................................ 7 SWOT Analysis ......................................................................................................................... 8 Strengths of Churchill ...................................................................................................... 9 Weaknesses of Churchill: ................................................................................................. 9 Opportunities for Churchill: ........................................................................................... 10 Threats to Churchill:....................................................................................................... 10 How Churchill Ice Cream can exploit Opportunities and overcome Threats ...................... 11 Porters Generic Value Chain ................................................................................................. 11
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This model analyzes the industry. Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. These are:
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Case Details: Churchill Ice Cream is a UK based medium sized family owned business making and selling premium ice cream products. In year 2002 John Churchill left his position of chairman and chief executive after recognizing the need of bringing outside management. The new chief executive Richard Smith was formerly the senior executive of major super market. Smith main focus was to make the company more market oriented to meet the challenges of 21st century. Churchill Ice Cream sells its premium ice cream products through its own stores. Through its unique store format of specialist ice cream store it develop Churchill brand. Churchill develops competitive advantage through sourcing its ingredients from local farmers and suppliers. It produces dairy ice cream as opposed to cheap ice cream. It has also developed a range of products with no artificial additives which help Churchill to develop competitive advantage. Churchill manufactures its own products and delivers them directly to their stores but because of lack of any management information system they suffered a lack of detailed and timely information about product and store performance. In year 2004, it became the sponsor of major summer supporting events in London. Churchill is now an established brand and it enjoys 90% customer recognition in London area. In UK ice cream is brought about in two main ways from super markets for take home purpose and from outlets like Churchill for immediate consumption. In year 2004 the purchase from super stores was almost equal to purchase from outlets and the total sales revenue is $ 1.3 billion. The share of premium ice cream is 19% of UK take home market which is 15% in 2003.
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Competitors Analysis
Major competitors
Suppliers Analysis
Major suppliers Local farmers and Suppliers.
Organization Culture Organization culture is weak as contradiction exists between the approaches of owners and management E.g. owners of the company are risk aversive and they are happy with a modest rate of growth and modest return in terms of profits on the other hand management is much more growth orientated and may be happier with the risks that the growth strategy entails. Although the strategic objectives of Churchill ice cream are achievable but this contradiction makes them only ambitious.
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SWOT Analysis
SWOT analysis is a method for analyzing a business, its resources, and its environment. SWOT is commonly used as part of strategic planning and looks at:
Internal strengths Internal weaknesses Opportunities in the external environment Threats in the external environment
What the business does better than the competition What competitors do better than the business Whether the business is making the most of the opportunities available How a business should respond to changes in its external environment
The result of the analysis is a matrix of positive and negative factors for management to address:
The key point to remember about SWOT is that: Strengths and weaknesses
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Are external to the business Relate to changes in the environment which will impact the business
Strengths of Churchill: Sourcing ingredients from local farmers Control over the ingredients A strong brand image Throughout its history it has followed a strategy of in-house manufacture, retailing largely through the companys own shops and, to a lesser extent, through franchising. This vertically integrated strategy gives more control, which is particularly important given its use of fresh ingredients and emphasis on premium product quality Different products for different segments Uses real dairy products instead of artificial additives 90% customer recognition in London area
Weaknesses of Churchill: Delay in intrdoucing Management Information System resulted in shortages during peak summer months Churchill is exposed to the twin problem of both manufacturingand retailing a product which is highly seasonal in demand and equally vulnerable to the vagaries of the British summer. In fact, there is a close correlation between the average summer temperature and the volume of ice cream consumed. The case, therefore, provides us with an opportunity to develop an understanding of the implications of a companys pattern of vertical integration for competitive advantage and the strategic development of the company. Clearly, if key activities and capabilitiesare kept inside the company, this makes imitation far more costly and complex One of the problems of being both a manufacturer and retailer is where you decide to place the emphasis commitment of resources to one area almost inevitably leads to resources being constrained in the other. There is evidence in the case to suggest that Churchill Ice Cream with its newly-built factory is tending to favour the manufacturing side of the
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Threats to Churchill: Take home market is dominated by global manufacturers with global brands Four major supermarkets give a high competition to Churchill. 41% of the sales of ince cream in UK are through supermarkets
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How Churchill Ice Cream can exploit Opportunities and overcome Threats
Target new and emerging market opportunities Predict future growth areas in premium ice cream industry Benchmark leading executives opinions on the future of premium ice cream industry. Assess the key trends in premium ice cream for example you don't have any idea that what types of flavors are going to be in vogue next month or next season unless you keep your eyes wide open and investigate where the flavor trends are heading overall. By taking full advantage of peak season and converting special occasions (e.g. Christmas Day, Valentine's day, Mother's Day, Father's Day etc) into extraordinary events that clients will remember forever. Market research is a useful tool for assessing the attitudes and behavior of potential consumers so Churchill Ice Cream should focus on it in order to exploit Opportunities and overcome Threats.
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This includes the receiving, warehousing and inventory control of input materials. Churchill Ice cream sources its ingredients from local farmers and suppliers to gain a competitive advantage. They have full control over the recipes used in their ice creams product range. Churchill uses real chocolate and dairy products as they mention in their policy saying. The highest cost they incur is for the ingredients and packaging. According to the Table 2 of the case study, ingredients are almost 45% of the total cost. Churchill uses fresh cream, butter and milk instead of vegetables oil to mix the flavorings and has also developed a product range without any artificial additives to differentiate itself from the competition.
Operations:
These are the processes that transform inputs into the final product. After the raw materials are delivered to the new purpose built factory, Churchill produces the different product ranges it offers. All the operations including packaging are carried out at this purpose built factory.
Outbound Logistics:
These are the activities that required getting the finished product to the customer, including warehousing, ordering fulfillment, etc. After the production of the Churchill product ranges at the purpose built factory, the final products are supplied quickly and directly to the ice cream stores and other retail outlets including the Franchises.
Marketing & Sales:
These are the activities associated with getting buyers to purchase the product including advertising. Churchill ice cream stores have a unique store format which has established the Churchill brand. Churchill also became the sponsor and a sole supplier to a number of high profile summer sporting events held in London. Churchill is also a supplier of eight million
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The activities support and enhance the products value through customer support. There is no information regarding the after sales service or the feedback from customers. Churchill can identify the most preferred flavor and the complaints regarding the brand and its services. This will help them better understand and adapt according to the market. Support Activities The Primary activities are facilitated by the Support activities as follows:
Procurement:
Procurement includes purchasing the raw materials and other inputs used in the value creation. The procurement process is different from the competitors since the Unique Selling Proposition of Churchill is to have full control over the ingredients by purchasing them through local farmers. This vertical integration helps Churchill build a different image for its premium ice creams.
Technology development:
These include research, process automation and other technology development. Due to the delay in introduction of a Management Information System, detailed and timely information regarding the product and Churchill stores have suffered. This delay in introduction leaded to stores facing product shortages during peak summer months.
Human Resource development:
Activities associated with recruiting, development and compensation of employees. Labor costs are almost 28% of the total costs, according to Table 2 in the case study. Other than this there is not much detail about the human resource in this case.
Firm Infrastructure:
These include the activities such as finance, legal, quality management, etc.
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Here we market our existing products to our existing customers. However, the product is not altered and we do not seek any new customers. This is a low risk strategy because there is already a lot of knowledge in the area which you can work with. Churchill Ice Cream can use following strategies for penetrating the market 4 Ps :Use pricing strategies, advertising, sales promotion and increasing outlets to maintain or grow share Drive out competitors: This requires an aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors. Increase sales to existing customers: Through loyalty schemes Repositioning the brand
Market Development
Here we market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. This is much more risky than Market Penetration because you wont be as familiar with the market and may require market research before embarking on this strategy. In case of Churchill Ice Cream there can be many possible ways of approaching this strategy, including:
New geographical markets; for example exporting the product to a new country
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Ensuring compliance with local standards while marketing a product in a new region New distribution channels (e.g. moving from selling via retail to selling using e-commerce and mail order)
Different pricing policies :to attract different customers or create new market segments
Product Development
This is a new product to be marketed to our existing customers. Here we develop and innovate new product offerings to replace existing ones. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers. A strategy of product development is particularly suitable for a business where the product needs to be differentiated in order to remain competitive E.g. Premium Ice Cream Business. In case of Churchill Ice Cream product development strategy can be achieved through
Research & development and innovation Detailed insights into customer needs (and how they change) Being first to market
Thing to remember
Growing product range can be a problem E.g. modifying/ introducing entirely new product can cannibalize the sale of existing products, so manage the product range
Diversification
This is by far the riskiest marketing strategy in which we market completely new products to new customers. . In order to achieve the 3 strategic goals Churchill Ice Cream need to focus on
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only related diversification . Related diversification means that we remain in a market or industry with which we are familiar. In case of Churchill Ice Cream Diversification can be achieved through Attracting new segments with new product line Joint ventures Strategic Alliances
Business-Level Strategies
Differentiation Strategy: Differentiation does not allow a firm to ignore costs; it makes a firm's products less susceptible to cost pressures from competitors because customers see the product as unique and are willing to pay extra to have the product with the desirable features. Churchill Ice Cream differentiates its product from those of competitors as its products are of high quality with no artificial additives but advertising is required to promote such unique differences so that customers could perceive its products different and unique as compared to competitors.
Focus Strategy: Through this strategy (also called niche or segmentation strategy) Churchill Ice Cream can concentrate on only meeting the specialized needs of its customers within London area which will help Churchill Ice Cream in designing products to meet the needs of those customers. Moreover this strategy will make Churchill Ice Cream better able to tailor advertising and promotional efforts to that particular market niche.
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Promotion Strategy Churchill Ice Cream can select following Promotion strategies to increase its sales Pull - Spending to build brand awareness via so consumers will ask for it by name especially during peak season e.g. There should be regular and sustained marketing through fliers distribution, FM Radio and TV for making strong brand equity. It is very effective strategy for Churchill Ice Cream to enter in supermarkets with its own brand. Push - Spending on promotions and discounts to push products especially during off season.
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For example Internet sales and development of customer databases Using softwares just like Electronic data interchange (EDI)
R&D Strategies
New Products development Churchill Ice Cream should develop new products to maintain and improve its market position.
New products can include: New varieties and flavors - these are called line extensions where different varieties or flavors of the same product are produced. Quality improvement of an existing product, either functional or nutritional. Developing a new, innovative product resulting from new ingredients
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Strategies related to technology Technology can help Churchill Ice Cream to create or extend a competitive advantage by generating hard-to-imitate products. Having competitive advantages through technology will help in decreasing costs and increasing profits. The real goal here is to find some way to make these advantages sustainable, and technology can help Churchill Ice Cream in finding ways to do that. For Example Improving processing methods involving low temperature freezing and product blending.
Other Strategies
Supplier and Customer Relationships
Customer Relationship Management
On average, it costs over 10 TIMES more to acquire a new customer versus retain an existing one A 5% gain in customer retention can result in an 80% gain in profits.
Churchill Ice Cream should consolidate its customers into a single database and record all their
holdings and history there, so that sales partners always have this information to hand. Moreover Keeping Good Records about its e.g. what they bought, when they bought, and if they bought through a sale or special promotion. Through this database Churchill Ice Cream can segment its customers and send them customized offers via E-mail. Moreover customers will appreciate knowing that company is thinking about them "after the sale." They will be more likely to purchase again because of your customized offers and communications.
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Traditional loyal customers have made repeat purchases from you at regular prices. Instead of offering them a sale price, you need to treat them special. Brand customers may have only purchased from you once, but demonstrate potential to become loyal customers. You should pursue them with promotions that further develop their positive perception of your brand.
acceptable lead time and without multiple changes. If every order requires emergency handling, the relationship will never work. To overcome such problems and to maintain a good suppliers relationship Churchill Ice Cream should use Electronic data interchange (EDI) ,a software that helps manufacturers, suppliers and retailers improve production planning, reduce inventory, improve inventory turnover and improve stock availability. Moreover using this software will also help Churchill Ice Cream sharing quicker and more effectual Information and to reduce cost.
Churchill Ice Cream can further improve Suppliers Relationships via making partnership
agreements with key suppliers and reducing number of suppliers as a specific cost is associated with making good relationship with each supplier.
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