The Beijing ice cream industry was divided into two categories: standard and premium products. Approximately 2% of the industry consisted of premium products, which accounted for around 700 tonnes. The remaining majority of the industry was comprised of standard products produced by low-cost manufacturers. This standard market included single serve and juice products. Initially, local ice cream producers did not prioritize establishing brand recognition. However, with the entrance of foreign companies through joint ventures, the market dynamics changed. These foreign joint ventures placed a significant emphasis on building brand names and were able to capture 80% of the standard ice cream market within a few years.
The foreign joint ventures were able to dominate the market by utilizing freezer loan programs. Around 15% of households were residential freezer owners. The joint venture companies provided freezers to retailers for storing ice cream, with the condition that retailers only stocked products from those joint venture companies. The brand awareness was enhanced by displaying photos of the company’s products, logo, and design. The city’s high literacy rate contributed to its growing understanding of the significance of brand value.
The rise in income in recent years has enabled individuals to afford these brands. Beijing has witnessed substantial economic growth in the past few years, leading to a surge in consumer spending habits. The premium ice cream market encompasses both hard ice cream and ice cream cakes. However, it wasn’t until 1992 when Baskin Robbins made its way into Beijing that the premium ice cream market started to develop. Following suit, Carvel and Hagen-dazs also entered the premium market to compete with Baskin Robbins. As per Peter Wei’s Consumer Analysis, there are three customer segments in Beijing that exhibit the greatest potential for increased sales.
The dominant group responsible for cake sales, making up 70%, is the “Middle and Upper Class Chinese Professionals.” This category encompasses young professionals aged between 25 to 45 who are actively seeking novel products and experiences. The surge in cake sales can be linked to the rapid expansion of the economy and an increase in individuals with high incomes. Another noteworthy segment, contributing approximately 20% of cake sales, consists of the “Little Emperors.” These youngsters belong to a generation born during the 80s when the Chinese government enforced the “one child policy” as a means of population control.
The aim of this program was to guarantee that every family has just one child. As a result, a generation of fortunate youngsters and teenagers grew up without any brothers or sisters. Parents dedicated a considerable part, up to 60%, of their expendable income on their children, who obtained all their wishes. The “Expatriate residents” form the third segment of ice cream market sales, accounting for 10% of Carvel’s sales. This group mainly consists of foreign business and embassy workers and their families, making them the third potential customer group.
Steven Wang needs to analyze the competition in order to appeal to the parents’ potential desire to purchase the ice cream cake for their children. Currently, there are 1.5 million children aged five to 12 in Beijing, and their families are willing to spend an average of 60% of their disposable income on them. However, the main challenge lies in getting these “Little Emperors” interested in the ice cream cake product. Therefore, it is important to reach out to about 100,000 English-speaking individuals who can easily be reached.
The main competitors for Carvel in the Beijing premium ice cream market were Baskin Robbins and Hagen-Dazs. It also faced strong competition from Wall’s, Bud’s, and Nestle’s. Baskin-Robbins entered the Beijing market in 1992 and set up 12 full-service retail stores in the city between 1992 and 1998. Baskin-Robbins excelled in selling hard ice cream and ice cream cakes. Customers had the option to place custom cake orders, which required a 24-28 hour notice for production. Baskin Robbins estimated their annual sales to be between $845,000 and $1,002,650.
Hagen-dazs expanded into the Beijing market in 1998, following the opening of two stores in Hong-Kong. The sole Hagen-dazs store in Beijing was conveniently situated in a popular shopping district adjacent to a luxurious international hotel, and in close proximity to Baskin Robbins’ flagship store. Wang believed that Hagen-dazs positioned itself as a high-end establishment catering to Beijing’s westernized yuppies, offering a comprehensive range of products such as ice-cream, ice cream bars, elaborate desserts, and customized cakes to meet individual customer preferences.
Hagen-dazs invested a significant amount of money (2,000,000 Rmb) to promote the opening of its store in Beijing. The event was attended by important figures and celebrities. Regarding product analysis, Steven Wang had to make important choices on how to sell Carvel in a culture that had a negative perception of cold foods. These decisions were likely more focused on the product itself rather than its price, as Carvel’s competitors already offered cheaper options.
Based on consumer analysis, Carvel recognized the need to target the 90% of ice cream cake buyers, regardless of gender, aged between 25-45. This demographic includes both the 70% of middle and upper income working professionals, as well as the 20% who purchase cakes for their children. Consequently, it was essential for Carvel to offer a budget-friendly, compact ice cream cake that could be tasted beforehand, allowing consumers to gain a better understanding of their purchase.
Considering this, the Little Love and Piece of Cake products are both seen as excellent opportunities to tap into a market that is not yet acquainted with the concept of ice cream cakes. By conducting an ACCORD analysis, we can determine the significant strengths that these two product offerings possess in the Chinese market. In terms of benefits, both the Little Love and Piece of Cake afford consumers a cost-effective means to try a product they are unfamiliar with, thus mitigating the substantial “purchase risk” experienced by Chinese consumers.
These cakes, because they are not customizable, have the same appearance as other cakes, which helps to increase brand awareness as consumers can easily recognize them. Additionally, both the Little Love and Piece of Cake are suitable for our target consumer. They can be used in business professional settings for individual birthdays or monthly birthday parties, as well as for Little Emperors at home. The compatibility of these ice cream cakes is also advantageous, as Carvel designed them to be “everyday cakes.” This means that they are easy to modify with different toppings and frosting. The complexity of these products is low, allowing Carvel to easily accommodate consumer preferences for frosting and icing. These products are less complex compared to Carvel’s other highly customizable Character Cakes and Classic Cakes. The most significant advantage of these two cakes is their observability.
Both of these products offer a way to increase Observability given the significant counter culture and negligible market share the company faces. The ice cream cakes, with their limited customization options, make it easy for consumers to identify and associate them with our brand. This serves as a low-cost method for increasing brand awareness and reducing purchase risk for both consumers and producers. In terms of pricing, Carvel Beijing must decide whether to position their ice cream and cakes at a high premium price to showcase their value and quality, or compete with other ice cream companies in Beijing by offering a lower-priced product. To lower the cost of goods sold, it is advisable for Beijing Carvel to control the level of “over-run” at 45-50 percent instead of 80-90 percent.In addition to saving costs in the manufacturing process, there is a potential for Chinese consumers to prefer ice cream products with a lower-end taste in the early stage of the ice cream industry. Due to a recent 10 to 20 percent price reduction in Beijing Carvel and the need to uphold Carvel’s image, it would not be wise to further decrease the product price.
The Beijing Carvel can offer more promotions, such as free samples or advertisement discounts, thanks to the savings from the “over-run” process. Distribution analysis was also a concern for Steven Wang. He had to consider the growth or closing of certain channels and also ensure their quality. However, the quality of these channels depended on eight sales representatives who were incentivized by the number of accounts they acquired, rather than the quality of those accounts.
Thus, Wang should have ensured that the sales reps would be rewarded based on the investment’s quality, specifically by analyzing the return rather than the quantity. Moreover, Carvel had multiple distribution channels in China with different possibilities for expansion. These channels encompassed high-end supermarkets, local supermarkets, bakeries, restaurants and bars, as well as karaoke bars. Among these alternatives, prioritizing high-end supermarkets and local supermarkets was least desirable for Carvel.
Among all the options available, the final decision was to purchase a freezer, which required a large capital investment. However, this freezer was typically used to store items other than Carvel’s products. Furthermore, supermarkets primarily served the expatriate community, which only made up 10% of our target market, and were generally not accessible to the majority of Chinese consumers. Another distribution channel that did not show much potential was bakeries. Although it may seem like a logical choice for an ice cream cake company, bakeries often sold cakes made with flour at a significantly lower price, ranging from 15 to 30% cheaper.
Carvel’s necessity for attaining observability through shelf space would be directly contradicted by this, as bakeries were not required to sell Carvel cakes. Additionally, this would conflict with the consumer’s reason for visiting a bakery. Due to the fact that only 15% of the Chinese population had freezers, many people sought out bakeries to obtain a cake or treat that did not need to be kept in a chilled environment. Instead, they would choose flour-based cakes that could be stored at room temperature.
On the other hand, Carvel saw great potential in karaoke bars, as well as bars and restaurants. These establishments attracted their target consumer – the 25 to 45 year old middle to upper income working professional. This demographic sought opportunities to socialize with friends and colleagues outside of their homes, as well as conduct business in a more relaxed setting to entertain clients. Given that both distribution channels primarily revolved around dining and drinking experiences, they presented excellent options for Carvel to concentrate its efforts on.
Considering their budget of 165,000 RMB for the upcoming year, Wang needed to decide on advertising strategies. Options included using a weekly consumer newspaper, information leaflets, and an entertainment association coupon book. Since their target audience consists of middle to upper income working professionals, it was apparent that the Beijing Shoppers Guide, a weekly consumer newspaper, would be an effective choice.
The cost of Carvel’s product was exceptionally low, only costing 1 RMB, which helped promote brand awareness through the newspaper’s substantial reader base of 250,000. Among all the available options, this newspaper provided Carvel with the most cost-effective solution, reaching their target consumers and generating significant interest through coupon issuance. While not as effective as the newspaper, leaflets also offered an advantage to Carvel. These leaflets could be distributed by Carvel employees in specific locations where the company aimed to boost consumption. These locations were typically near Carvel’s own premises or where their target consumers resided, enabling potential customers who may not be aware of the newspaper promotion to learn about Carvel’s nearby locations. The entertainment association coupon book option was deemed the least advantageous among all the options available.
Despite its low price of 4,000 RMB for Carvel, the book did not provide the same benefits as leaflets. Instead of Carvel employees distributing coupons directly to targeted consumers in designated areas, the coupon book would only reach 10,000 local “members.” Although these members were all from the higher income group, there was no assurance that they would browse through the book and select Carvel’s specific coupon. In fact, consumers might overlook it as they face the “purchase risk” associated with an unfamiliar product once again.
Offering leaflets and newspaper advertisements are ways to promote products and encourage customers to try new items. It is not just about providing coupons, but rather about showcasing the product and enticing the consumer to make a purchase. When considering the most cost-effective media option among the three choices, the key factor is evaluating ad costs per view. The cost of advertising can be divided by the potential number of viewers to determine the cost per person, which can then be compared to profits per customer or sales.
By estimating the ratio of Carvel’s spending to its earnings, one can determine the effectiveness of their advertising plan. If the cost of advertising per consumer exceeds the potential income from those consumers, then the advertising strategy is considered inadequate. Currently, Carvel has a budget of 165,000 Rmb, which restricts them to print advertising options. The available choices include the Beijing Shoppers Guide, the Asian Hospitality Association, and a printed Carvel leaflet. Although each option has its appeal, Carvel must select a combination of advertising methods that maximizes the impact of their budget.
The Beijing Shoppers guide will cost 0.04 Rmb per customer per print (10,000Rmb / 250,000 circulation). This publication is printed twice a week and would cost 80,000 Rmb for a one month campaign. The proposed discount of 12% would be increased to 20% and the redeemed coupons will be tracked to determine which ad media works best. Another way to reach out to the unfamiliar Chinese market is by offering a corporate leaflet with products, prices and other information interested customers can take a leaflet from a uniformed Carvel employee.
By distributing leaflets in the vicinity of the Carvel store, it can help generate sales. However, the number of customers that Carvel can reach is limited. If Carvel purchases a batch of 5000 or more, the cost for each leaflet would be 0.30 Rmb. Our recommendation is to print and distribute 10,000 copies, with 1000 copies per location. The leaflet will have a traditional discount of 12% since customers who take the leaflet are already interested in Carvel. A larger discount is not necessary. The approximate cost for this advertising is 3000 Rmb, and there may be additional costs in distributing the leaflets.
Advertising with the AHA is the final option available. The AHA is a member-based organization where consumers pay for membership and the accompanying savings. This sets the AHA option apart from all others. By advertising through this organization, businesses can reach a group of high-quality consumers. These consumers are AHA members who actively use their discounts. As a result, customers who see Carvel’s advertisements in AHA publications are more inclined to give Carvel a try compared to those who come across Carvel through other forms of media. Additionally, the AHA discounts are ongoing, which increases the potential for repeat business.
Ultimately, Carvel has found that connecting with AHA is the most affordable option for advertising. In exchange for coupons to Carvel, AHA will help advertise the business. While the coupons will result in a cost of 2500 Rmb in discounts, Carvel’s actual expenses are minimal. The discounts may slightly decrease profits, but each sale will still be profitable. Therefore, Carvel considers its payment as a form of advertising. Since the coupon does not require any initial expenditure, it is not included in the ad budget. Carvel has decided to proceed with this option and will offer a 12% discount along with it.
Carvel will launch three campaigns, with the majority of advertising dollars going towards a two-month campaign in the Beijing Shoppers Guide. The campaign will consist of 16 issues and will cost 160,000Rmb. This particular campaign offers the lowest cost per consumer and will help establish brand awareness. Leaflets will be produced at a cost of 0.30Rmb each, with a total of 10,000 prints being made for each location. This adds up to a total cost of 3000Rmb (0.30Rmb * 10,000 prints). The remaining advertising budget of 2,000Rmb will be used to cover the distribution costs of the leaflets and monitor the redemption of coupons associated with each option.
The initial campaign will showcase the most effective methods of targeting the Chinese culture. The comprehensive campaign will primarily highlight Carvel’s original characters with the aim of appealing to the indulged “little emperor” segment. The original cakes and blue ribbon cakes are expected to generate the highest sales as the Chinese market tends to prefer personalized products that can incorporate messages or personalization. Hence, Carvel should prioritize its efforts on these products.
