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Carvel China – Case Analysis

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    The Beijing ice cream industry was made up of standard and premium products. The premium products consisted of 2% that was approximately 700 tonnes and rest was standard products manufactured by low cost producers at lower costs. The standard market was made of single serve and juice products. Earlier, local ice cream producers did not try to build brand awareness. Later foreign firms entered the market via joint ventures. They had a strong devotion toward building brand names. These foreign joint ventures were able to secure 80% of the standard ice cream market over a few years.

    The foreign joint ventures were able to capture the majority of the market share by using freezer loan programs. The residential freezer owners accounted for 15% of the households. The joint venture firms would loan freezers to retailers to store the ice cream in return retailers were supposed to stock only the products of the joint venture firms. The photos of company’s products, design and company’s logo displayed the brand awareness. The fact that city had a high literacy rate, it was getting aware of importance of brand value.

    The rise in income over few years would enable people to spend for these brands. Beijing had a good economic growth in past few years thus leading to increase the buying habits. The premium ice cream market was made up of hard ice cream and ice cream cakes. The premium ice cream market did not develop until Baskin robins entered Beijing in 1992. Later Carvel and Hagen- dazs entered the premium market to compete with Baskin robins. Consumer Analysis (Peter Wei) There are three important customer segments in Beijing that hold the greatest promise for increased sales.

    First, “Middle and Upper Class Chinese Professionals”, 70 per cent of the cake sales come from these yuppies. Thanks to the fast growing economy, more and more people who made to a high-income level. The group of these young professionals aged 25 to 45 and seeking for novel products and experiences. Second segment is so called “Little Emperors”, and about 20 per cent of the cake sales contributed by these children. In the 80’s the Chinese government started a program called “one child policy” in order to counteract the rapidly growing population.

    The sense of this program was that every family should only have one child. As a result of this policy, there grew up a generation of pretty spoiled children and young teenagers, who have no brothers or sisters. Parents spent up to 60 per cent of their disposable income on their children who are getting everything they want. The third segment of the ice cream market sales is “Expatriate residents”, which responsible for 10 per cent of Carvel’s sales. The third groups of potential customers are the expatriate residents who consist mainly of foreign business and embassy employees and their families.

    There are around 100. 000 people, which are easy to reach, because of their English skills. There are currently 1. 5 million children in Beijing between the age of five and 12, and their family welling to spend average 60 per cent of their disposable income on the child. As a matter of fact, generating the interest to make these “Little Emperors” interested in the ice cream cake product become the crucial problem, in other words, Steven Wang has to attract the parents’ potential needs in buying the ice cream cake for their little emperors. Competition Analysis

    The main competitors for Carvel in the Beijing premium ice cream market were Baskin Robbins and Hagen-Dazs. It also had stiff competition from Wall’s, Bud’s and Nestle’s. Baskin- Robbins was the first to the Beijing market in 1992. Between the years 1992 and 1998, it has established 12 full service retail stores in the city of Beijing. Baskin-Robbins strength in Beijing was hard ice cream followed by the ice cream cakes. Customers could place custom cake order that needed 24- 28-hour notice to be produced. Baskin Robbins estimated annual sales were $845,000 to $1,002,650.

    Hagen-dazs entered Beijing market in 1998 after establishing two stores in Hong-Kong. Hagen-Dazs only store in Beijing was located in a popular shopping district next to posh international hotel. The store was located very close to Baskin Robbins flagship store. Wang believed Hagen-dazs positioned its store as upscale, full service life style serving westernized yuppies of Beijing. Hagen-dazs products include ice- cream, ice cream bars, fancy deserts and cakes. Most of the cakes were made to fill specific customer order.

    Hagen-dazs had deep pockets to market its products in Beijing spending 2,000,000 Rmb to promote grand opening of store in Beijing. It had dignitaries and celebrities at the grand opening of the store. Product Analysis With the introduction of Carvel to China, Steven Wang had to make crucial decisions on how he was going to sell to a counter-culture where cold foods were frowned upon. These decisions would more than likely have much more to do with what product they were selling rather than what price they were selling it at because Carvel already had significantly cheaper products than its competitors.

    Through consumer analysis, it was obvious that Carvel would have to cater towards the 90% of buyers of ice cream cakes both male and female, aged between 25-45 (This includes both the 70% of middle and upper income working professionals as well as 20% who are buying the cakes for their Little Emperors. ) Therefore, a low-cost, small ice cream cake that was able to be sampled first and give the consumer a general idea of what they would be buying would be crucial.

    Taking this into account, both the Little Love, and Piece of Cake products seemed like great ideas to gain entrance into a market that was unfamiliar with the ice cream cake concept. Using ACCORD analysis, we can identify the enormous strengths of these two product offerings in the China market. In regards to advantages, both the Little Love and Piece of Cake allow the consumer a low-cost way to sample an unfamiliar product, therefore avoiding the significant “purchase risk” felt by Chinese consumers.

    Because they are not customizable, these cakes look exactly the same as other cakes, allowing a significant way to increase brand awareness because consumers will be able to recognize them. Not only this, but both of these products are also highly advantageous to our target consumer. Both the Little Love and Piece of Cake are small enough to offer in a business professional setting whether it is for an individual birthday or monthly birthday party, or catering to the Little Emperors at home. The compatibility of these two ice cream cakes is also advantageous because Carvel simply made these products to be “everyday cakes. This means that from the beginning these cakes were manufactured in such a way that they were highly compatible and easy to make changes to toppings, frosting, etc. Complexity of the product is also fairly low key, allowing Carvel to easily make changes to the product should the consumer want a different type of frosting, icing, etc. on the top of their cake. Both of these products are significantly less complex than the highly customizable other Character Cakes and Classic Cakes Carvel offered. Observability offered by these two products is by far their most significant advantage.

    With such an enormous hurdle to overcome in both a market where the company has negligible market share as well as a significant counter culture to our product, both of these products offer a way to increase Observability. Because these cakes only offer certain ways to customize the ice cream cake, consumers can easily recognize the ice cream cake and where it originated from. This is an easy and low-cost way to increase brand awareness. Riskiness is almost non-existent for both the consumer and producer. For the consumer, the products offer a low-cost way to overcome “purchase risk. For the producer, both of these easily replicated products offer a low-cost way to increase market share as well as observability. Price Analysis The challenge that Carvel Beijing is facing is whether they should price, and therefore position, their ice cream and cakes at a high, premium price, to demonstrate to their customers the value and quality of the product. Or, if they should price their product to compete with other ice cream companies already in Beijing who sell their product at a lower price, and therefore potentially attract more customers who may not be able to afford a remium-priced product. Beijing Carvel should control the level of “over-run” from 80-90 per cent to 45-50 percent in order to lower the cost of goods sold. Not only this saves the cost from the manufacturing process, there might also be a possibility that at this early stage of ice cream industry, Chinese consumers prefer ice cream products with the low-end taste. And because recent Beijing Carvel already had 10 to 20 per cent price reduction and to maintain Carvel’s imagine, it isn’t a cleaver move to lower the product price.

    Savings from “over-run” process leads to lower the breakeven point of a product, which allows the Beijing Carvel doing more promotions such as free samples or advertisement discounts. Distribution Analysis Distribution also posed a problem for Steven Wang. Not only did he have to worry about the growth or exiting of specific channels, but he also had to worry about the quality of these channels as well. The problem with the quality of the channels relied upon eight sales reps that were compensated by the number of accounts they developed, not by the quality of the accounts.

    Therefore, Wang should probably have made sure that these sales reps would further be compensated based on the quality of the investment – more than likely looking at the return on the investment rather than quantity. Moving on, the various distribution channels available to Carvel in China offered a variety of options in steps they could take forward. These distribution channels included high-end supermarkets, local supermarkets, bakeries, restaurants and bars, and karaoke bars. High-end supermarkets and local supermarkets were by far the least appealing of the options for Carvel to focus on.

    Out of all of them, these options had to be finalized by purchasing a freezer, a high-capital investment which was more often than not used to store items other than Carvel’s. Not only this, but supermarkets mainly catered to the expatriate community, a measly 10% of our target consumer, and generally was out of reach for most Chinese. Another distribution channel which did not offer high hopes was bakeries. Although it would seem like a logical choice for an ice cream cake company to sell through this channel, bakeries often times sold flour-based cakes, and for 15 to 30 per cent cheaper.

    Not only would this directly conflict with Carvel’s necessity for attaining observability through shelf space because bakeries were not obligated to sell Carvel cakes, but it would also directly conflict with the consumer’s rationale for going to a bakery in the first place. Considering only 15% of the Chinese population owned freezers, many were interested in going to bakeries to receive a cake or treat that would not require cool environments. Instead, they would go for flour-based cakes that could be stored at room temperature.

    On the other hand, karaoke bars, as well as bars and restaurants offered high hopes for Carvel. Both of these distribution channels catered highly to their target consumer, the 25 to 45 year old middle to upper income working professional. These professionals would mainly seek a way of socializing with friends and co-workers outside of the home as well as conducting business in a social atmosphere in order to entertain potential or existing customers. Because the focus of both of these distribution channels was mainly on eating and drinking, they are both clearly a great choice for Carvel to focus on.

    Advertising/Promotion Analysis With a constrained budget of 165,000 RMB for the upcoming year, Wang had to make a series of decisions about how to advertise his products – through a weekly consumer newspaper and/or information leaflets and/or an entertainment association coupon book. With their target consumer being middle to upper income working professionals, it was easy to determine that the Beijing Shoppers Guide, a weekly consumer newspaper, would be a sound idea.

    Not only was it extremely low-cost for the consumer, costing only 1 RMB, but it also allowed Carvel to promote enormous brand awareness through the newspaper’s 250,000 reader base. Out of all the options available, this newspaper gave Carvel the best bang for their buck by reaching out to their target consumer as well as generating a significant interest in their product by issuing coupons. Although not as significant as this option, leaflets also offered a certain advantage to Carvel. Leaflets could be anded out by Carvel employees in target locations where the company was seeking to increase consumption. These locations would most likely be in or around the area the Carvel was located, or in a location where the company’s target consumer was located. This would allow possible consumers that otherwise might not have known about Carvel’s promotion in the paper to find out about the company’s locations in the neighborhood. Out of all the options, the entertainment association coupon book offered the least advantageous option.

    Although only costing 4,000 RMB for Carvel, the book did not offer the same advantages that leaflets held. Instead of Carvel employees offering coupons to specific consumers in areas that Carvel had designated, the coupon book would only reach 10,000 local “members. ” Although these members were all in the upper income segment, it in no way guaranteed that the consumer would go through the book and pick out Carvel’s individual coupon. In fact, it would probably be overlooked by consumers who once again would go through “purchase risk” with such an unfamiliar product.

    By offering leaflets, you are offering a product from a Chinese local who encourages you to try a new product, not simply give you a coupon. The same thing happens with the newspaper advertisement, by showing a picture of the product in which the consumer would be buying. Options Available/Recommendation When assessing which of the three potential media choices would be most cost effective the most important component is ad costs per view. By dividing ad cost among the potential amount of viewers a manager can gauge cost per person and weigh that against profits per customer or sales.

    This allows one to estimate how much Carvel is paying for every dollar earned. If advertising costs per consumer are higher than the potential earnings on sales generated from those consumers, the advertising plan is ineffective. The current advertising budget is 165,000 Rmb, this limits Carvel to print advertising. The potential choices for advertising are the Beijing Shoppers Guide, the Asian Hospitality Association and a printed Carvel leaflet. While each of them has a certain appeal Carvel must chose a mix of advertising that makes the most effective use of the advertising budget.

    The Beijing Shoppers guide will cost . 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. A corporate leaflet is also another way to reach out to the unfamiliar Chinese market, by offering a leaflet with products, prices and other information interested customers can take a leaflet from a uniformed Carvel employee.

    This can help generate sales in the vicinity of Carvel store however the amount of customers Carvel will be able to reach is limited. The costs for this leaflet would be 0. 30 Rmb per leaflet if Carvel purchases a batch of 5000 or more. Our recommendation is to print and distribute 10,000 copies (1000 per location). The discount on the leaflet will be the traditional 12% since customers are already interested in Carvel if they have taken the leaflet a larger discount is not necessary. The costs for this advertising are approximately 3000 Rmb (some additional cost may be incurred in distributing leaflets).

    The last option is advertising with the AHA, this organization is member based and consumers pay for the savings associated with membership. This factor differentiates the AHA option from all others. This ad space accesses a set of consumers that are higher quality. Consumers who are AHA members, use their discounts, and therefore customers who see carvel in AHA publications are more likely to try Carvel than those who see Carvel though other media. In addition the AHA discounts are ongoing, which increases the potential for repeat business.

    Finally this option is the most cost effective, through a connection at AHA Carvel could advertise in exchange for coupons to Carvel. The coupon costs are associated with 2500 Rmb in discounts however the actual cost to Carvel is nearly nothing. Discounts of a specific percentage will lower profits however each sale will remain profitable therefore Carvel’s payment itself is advertising as well. This cost does not get figured into the ad budget because the coupon requires no initial capital outlay. Carvel will proceed with this option with an included 12% discount.

    Carvel will launch all three campaigns, the majority of advertising dollars will be spent on a two month campaign in the Beijing Shoppers Guide (16 issues for 160,000Rmb). This offers the lowest cost per consumer and will help set the foundation for brand awareness. The leaflets will be produced for 0. 30Rmb and 1000 will be made for each location for a total cost of 3000Rmb (. 30Rmb * 10,000 prints). The remaining 2,000Rmb of advertising budget will be used to absorb leaflet distribution costs as well as the costs of monitoring redemption of coupons associated with each option.

    The results of this first wave campaign will highlight the best ways to reach the Chinese culture. The broad campaign will focus on Carvel’s original characters in an effort to attract the, often spoiled, little emperor segment. The product category that will entice the most purchasing will be the original cakes and blue ribbon cakes, the Chinese market tends to favor personalization and products that can include messages or personalization should be the focus of Carvel’s efforts.

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    Carvel China – Case Analysis. (2017, Feb 16). Retrieved from https://graduateway.com/carvel-china-case-analysis/

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