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Porter’s Five Forces Example

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    ‘Take an industry of your choice, perhaps one you would like to work for, and assess it in terms of: (a) concentration (b) Porter’s model of five forces. From this analyze one or more of the major competitors in terms of their chosen competitive strategies’ Introduction Since the nineteenth century, ice cream with its beautiful, cold, happy and sweet feeling has been loved by people all around the world. In 2007, data shows that the ice cream consumption in the world’s largest ice cream consumer the United States is 23kg per person, Australia is17kg, Japan is 11kg, while there is only 1. 7kg per person in China.

    Currently the world’s largest ice cream production is still U. S. , however, due to the gradual warming of the climate and its rapid economic development, China’s ice-cream industry is also developing very fast. The huge potential of the Chinese ice cream market, strongly attract the multinational manufacturer of ice cream to invest in the ice cream market in China. This essay attempts to analyze the unique marketing strategy of Haagen-Dazs in China using an analysis of market concentration and Porter’s five forces. Moreover, it analyzes other major competitors of Haagen-Dazs and their competitive strategies.

    Concentration Market concentration is concerned with the number of firms that account for the total production within a specific industry. In the Chinese ice ream market, the distribution of Haagen-Dazs is mainly through the form of store sales, the other brands using the same sale form are include DQ, Cold tone and Yogen Fruz etc. Although some low-end ice cream brands will not bring large threat to Haagen-Dazs, but still segment large percentage of ice cream market. As a result, Haagen does not control an overwhelming percentage of the market, so its market concentration is very low. Porter’s model of five forces

    In order to analyze the industry and environment of Haagen-Dazs, Porter’s five forces model will be used to assess its competitiveness in the market. Porter’s five forces is a framework for industry analysis and business strategy development formed by Porter in 1979. Five forces analysis concentrates on the bargaining power of customers (buyers), bargaining power of suppliers, threat of new entrants, threat of substitute products or services and intensity of competitive rivalry. Haagen-Dazs, General Mills’ only ice-cream brand, is positioned as a luxury product and claims to use only high-quality natural ingredients (Mintel, 2009a).

    Due to a global demand for the product, Haagen-Dazs quickly spread internationally in over 50 countries and it was first launched into Hong Kong since 1984, but venturing on to the mainland in 1996 introduced a completely different set of challenges (Haagen-Dazs, 2010). The following analysis helps Haagen-Dazs to analyze the strength of competitive threats. First, the bargaining power of buyers. Buyers are people or organizations who create demand in an industry, here the buyer power is moderate because the food retail in Chinese market is fragmented, meaning that Haagen-Dazs can sell its ice-cream to a large number of direct buyers.

    However, most retailers have their own-label ice-cream and a vast number of similar products and the lack of protection for innovation lead to indifference between various domestic products. Customers are able to substitute one brand of ice cream to another or from ice cream to other foods altogether at any point in time, which can pose a threat for Haagen-Dazs. Moreover, ice-cream is just a seasonal product and not a significant part of food retailers’ business, which strengthens the buyer power.

    However, the positive aspect for Haagen-Dazs is the fact that Haagen-Dazs has a high level of demand and the brand is sold to consumers directly through 160 Haagen-Dazs shops in China (Business today, 2012). In addition, because Haagen-Dazs need pure natural raw materials for their manufacture processes, all the products are flown into China from the United States; the boxes of ice cream are printed in France; the ice cream is packaged and then shipped to China, providing a natural taste which Chinese consumers can not resist. All of this can reduce the buyer power. Secondly, the bargaining power of suppliers.

    The main suppliers in ice cream industry comprise suppliers of raw materials or equipment. Haagen-Dazs is dependent on its suppliers for raw materials, such as milk, cream, sugar and eggs. This can have a negative influence on the company’s business because when the supply costs are rising, Haagen-Dazs is forced to increase the ice-cream price. Subsequently, the brand’s sales volume can be affected (Kotler and Armstrong, 2010). Factors affecting the bargaining power of suppliers also include the threat of forward integration and the concentration of suppliers. There exist numerous potential suppliers of ingredients.

    The ingredients provided by each supplier are not unique or greatly differentiated. Furthermore, ice cream manufacturers are able to switch between suppliers quickly and cheaply. Apart from this, the fact that Haagen-Dazs uses 100% all-natural ingredients, no artificial colors, lemon juice instead of citric acid and egg yolks instead of emulsifiers (Haagen-Dazs, 2010) increases supplier power. Thirdly, threat of new entrants. The ice cream industry has considerably low barriers to entry since most equipment can be rented, purchased, or utilized for multiple purposes, while employees need not be highly experienced and trained.

    However, the threat of new entrants into the Chinese ice-cream market is low. The market is dominated by several multinational players and a large group of low-end domestic ice cream brands. Moreover, the existing brands maintain a high level of product development and ongoing promotion, it would be very difficult for new products to differentiate themselves and gain consumer attention (Key Note, 2010). Economies of scale, initial capital requirements and cost disadvantages are also the barriers that need to be considered for the new entrants. Fourthly, threat of substitute products.

    A threat of substitutes exist when the demand for a product declines due to either lower prices of a better performing substitute product, low brand loyalty or new current trends. Being a super-premium brand, Haagen-Dazs can be substituted anytime by cheaper alternatives, as Mo stated: “Haagen-Dazs is not only competing in the ice cream category in China, it is competing in the category of status symbols. (Mo, K. , 2012)”Furthermore, another considerable threat for Haagen-Dazs is the fact that there are at least four other super-premium competitors that use the same high quality ingredients.

    Furthermore, it should be realized that a superior market exists that encompasses not just ice creams but frozen, dairy, confectionaries and snacks. And this means that the ice cream industry competes directly with other indulgent treats, such as chocolate confectionery, chilled desserts, and smoothies and fruit yogurts. Fifthly, intensity of competitive rivalry. Rivalry within the ice-cream market is strong; some main competitors for Haagen-Dazs are included DQ, Cold Stone, Yogen Fruz and Nestle etc. Haagen-Dazs is also face competition from the “homemade” ice-cream market. In March 2010, the French brand Alsa launched the “homemade” fruit-flavored ice-creams, preferred by families) (Key Note, 2010). In addition, there is of course the threat of own-label ranges, preferred by consumers with a low income. Some local supermarket offer better value for the money. Competitors Kumar used to say that Haagen-Dazs has created an amazing feat, positioning itself as an experience luxury brand, rather than as a food product or ice cream brand (Kumar, N. , 2012). The power of this creative strategy leads some Chinese rural households to save a month’s salary and trek to the city for a treat at Haagen-Dazs.

    However, there are more and more competitors of Haagen-Dazs in the Chinese market like DQ, Cold tone and Yogen Fruz. Compared with Haagen-Dazs, they all have their own attractive marketing strategies. Like Dairy Queen, same origin as Haagen-Dazs, opened its first Chinese chain store in 1991. Unlike Haagen-Dazs’s high price strategy, DQ’s consumer base is located between 20 to 35 -year-old ordinary people, this is a group of people who are more likely to be able to afford and many of them know how to enjoy life, relax timely and pursuit the quality of life. DQ’s aim is to let everyone can afford low price but high quality ice-cream.

    Although DQ’s production costs is not as high as Haagen-Dazs, but their products are also competitive. Fat content is only 2%, is one sixth of the general ice cream. In terms of flavor, Haagen-Dazs started out with only three flavors: vanilla, chocolate and coffee, while DQ allow customers according to their own love, adding other ingredient, manufacturing of their own, make the different taste. In summary, the core competitive power of DQ is the quality of its product and innovation. Conclusion Today, Haagen-Dazs has approximately 700 chain stores in 55 countries in the world .

    The Associated Press reports that the Haagen-Dazs expansion will bring the number of Chinese stores to 255(Business Journal2012), all the figures show can that Haagen-Dazs has become the world’s most popular top ice cream brand. “Love her, let her eat Haagen-Dazs”(Haagen-Dazs, 2010) this classic sensational advertisement also attracts more numerous Haagen-Dazs lovers to become regulars. To sum up, this essay showed that although the products are performing very well, there are still a few threats that can affect Haagen-Dazs’s future, such as: competitors, healthier substitutes, or occasional buyers.

    The most important point is the fact that most of these threats can not be controlled; however, with the help of innovation and product development, which are part of the company’s foundation, they can easily be faced. It was noted that Haagen-Dazs has a strong competitive advantage which enables the brand to differentiate itself from its rivals and offer the most indulgent treats in Chinese market and even world market. References Alonso,M. D. , K. Brown, J. Julmy, P. Mirels and S. Winkler(2012)LBS Case Study:”Cold-calling China”, Business Today.

    Haagen-Dazs(2010)”International” [online]. Available at: http://www. haagendazs. com/company/international. aspx(Accessed:01December2010). Key Note (2010)“Ice Creams & Frozen Desserts”[online]. Available at: http://www. keynote. co. uk/market-intelligence/view/product/2380/ice-creams-%26-frozen-desserts? highlight=ice+cream&utm_source=kn. reports. search (Accessed: 04 December 2010). Kotler, P. , and Armstrong, G. (2010) “Principles of marketing”, 13th edition, Upper Saddle River, N. J. , Prentice Hall. Kumar,N. Professor of Marketing and Co-Director of Aditya V. Birla India Centre, London Business School. Mintel(2009a)“Ice Cream – UK” [online]. September. Available at: http://academic. mintel. com/sinatra/oxygen_academic//display/&id=394613(Accessed: 29 November 2010). Mo,K. ,Vice President, Brand Management, Statoil ASA. Reilly,M. (2012)”More Haagen-Dazs headed for China”, Minneapolis / St. Paul Business Journal[online]. Available at: http://www. bizjournals. com/twincities/morning_roundup/2012/07/more-haagen-dazs-headed-for-china. html (Accessed: 11 July 2012).

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