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Japanese Market Entry Proposal Ben And Jerrys Marketing Essay

5040 words (20 pages) Essay in Marketing

5/12/16 Marketing Reference this

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Introduction

Ben and Jerry’s is now regarded as a successful ice cream manufacturing brand and business model widespread all across the world. In the year of 1998, Ben & Jerry’s entered in Japanese ice cream market which was known as world’s second largest at the time. It was a major leap in the company’s history and strategic orientation. At the beginning phase, Ben & Jerry’s had several problems and therefore, took planning stage from 1994 to 1996 followed by a test market examination in 1997. One critical problem was searching a business partner who can provide an appropriate distribution channel. Ben & Jerry’s decided to utilize Seven-Eleven Japan co. Ltd., which was a franchised convenience store chain in 2002 of nearly 8,000 stores in Japan. This made possible for Ben & Jerry’s to sell ice-cream to a wide-variety of people without building up their own distribution channel. It also had access of Seven-Eleven who had an enormous database of Japanese customs and behaviors.

The next part will provide background information to set the stage for further analysis. Part 3 will then conduct a detailed market analysis of the Japanese ice cream market. Part 4 will briefly review the failed fast market entry. After that, part 5 will examine the choices for a possible market entry mode. Part 6 suggests localization options, the last part concludes.

Background

Description of the super-premium ice-cream-market

Ben & Jerry’s operates in the highly competitive super-premium ice-cream, frozen yogurt and sorbet business. Generally super-premium ice-cream is characterized by a greater richness and density than other kinds of ice-cream and is therefore sold at a relatively high price. Häagen-Dazs and Dreyer’s Grand Ice-cream Company, which introduced its super-premium ice-cream line in the fall of 1999, are the company’s primary competitors. [1] 

Business description

Ben & Jerry’s Homemade, Inc. manufacturer of super-premium ice-cream, frozen yogurt and sorbet, was founded in 1978 in a gas station in Burlington, Vermont, by Ben Cohen and Jerry Greenfield with a $12,000 investment. The company is now a leading ice-cream manufacturing company known globally for its innovative flavors and all natural ingredients made from fresh Vermont milk and cream [2] with its headquarter still Vermont.

Manufacturing of all Ben & Jerry’s frozen dessert products occurs in the company’s three plants located in Vermont. The company distributes ice-cream, low fat ice cream, frozen yogurt, sorbet and novelty products nationwide as well as in selected foreign countries in supermarkets, grocery stores, convenience stores, franchised Ben & Jerry’s scoop shops, restaurants and other places. Outside of Vermont, the products were distributed primarily through Dreyer’s and later through independent regional ice-cream distributors [3] and today through Unilever’s distribution network. Unilever, a multinational food and personal products company acquired Ben & Jerry’s in spring 2000. The Ben & Jerry’s Board of Directors accepted Unilever’s offer of $43.60 per share for all of the 8.4 million outstanding shares, valuing the transaction at $326 million [4] . Under the terms of the agreement, Ben & Jerry’s will operate separately from Unilever’s current U.S. ice-cream business. There will be an independent Board of Directors, which will focus on providing leadership for Ben & Jerry’s social mission and brand integrity. Both co-founders will continue to be involved with Ben &Jerry’s, and the company will still be based in Vermont [5] .

Mission Statement

Ben & Jerry’s adopted a three-part mission statement formalizing the company’s business philosophy. According to the company’s home page, the mission statement is as follows6 [6] :

Product Mission: to make, distribute and sell the finest quality all natural ice-cream and related products in a wide variety of innovative flavors made from Vermont dairy products.

Social Mission: to operate the company in a way that actively recognizes the central role that business plays in the structure of society by initiating innovative ways to improve the quality of life of a broad community: local, national, and international.

Economic Mission: to operate the company on a sound financial basis of profitable growth, increasing value to our shareholders and creating career opportunities and financial rewards for our employees. Underlying this mission is the determination to seek innovative ways of addressing all three components, while holding a deep respect for employees and the community at large.

General corporate strategies

Ben & Jerry’s corporate strategies attempt to implement the three part of the mission statement described above: developing a high-quality product, achieving economic growth and profitability, and incorporating social activism. The General corporate strategies are focused strategies based primarily on product differentiation (mainly through funky marketing and unique flavors) and a high level of quality in the production process (especially through the use of all natural ingredients). Although focused differentiation strategies target a narrow buyer segment, this strategy helps Ben & Jerry’s to gain a strong competitive advantage as it can offer consumers something they recognize as something different from rival competitors [7] – innovative super-premium ice-cream flavors that taste different and consist of all natural, high quality ingredients.

In addition to product differentiation from other ice-cream competitors, Ben & Jerry’s General corporate strategies differentiate themselves via several other key success factors such as promoting a company image of social activism, creating customer loyalty and developing creative advertising campaigns.

Analysis of the Japanese Market

This part is dedicated to a comprehensive analysis of the Japanese market for premium ice cream. To structure the review, Porter´s Diamond Model will be utilized to systematically assess the Japanese market for premium ice cream. [8] Consequently, this part will closely examine factor and demand conditions, related and supporting sectors as well as the expected competition. With respect to the latter point, a closer examination using the five-forces model after Porter (1981) will be conducted. Potential rivals, the bargaining power of customers as well as suppliers, aspiring entrants and potential substitute offerings will be evaluated from the perspective of Ben&Jerry´s. Since the space of this paper is limited this part will also focus on the most important features of the Japanese market for premium ice cream.

Figure 1: The Diamond Model after Porter (1990)

Demand Conditions

As the second largest market for premium ice cream in the world, Japan is a huge business opportunity for Ben&Jerry´s, the potential revenues could be substantial. The value of the Japanese ice cream market was estimated by Datamonitor (2008) to amount about $2.8 billion. The average per-capita income is also one of the highest in the world, thus providing the necessary customer base. The 2010 World Development Indicators state a Gross National Income per capita (GNIPC) of $37,870. The Japanese preference for high-quality products would furthermore work in favor of Ben&Jerry´s since the quality of their product is one of their biggest assets. The demand for variety in taste again plays out in favor of Ben&Jerry´s. Nevertheless, substantial adjustments were to be made prior to a potential market entry. Besides the usual adjustments to the local taste, the packaging had to me drastically changed since the pint-sized cups usually sold in the US would not be a feasible option for Japan. As Hagen (2000) already states, ice cream persists to be a snack and not a family dessert. Besides advertisement for their own product the prior market entrance of Häagen-Dazs already educated Japanese consumers about the product, so only brand promotion would be necessary.

Factor Conditions

To supply the Japanese market with ice cream certain factor inputs have to be provided for. Dairy Production in Japan is much more costly than in the US, which has to be incorporated into the decision how to enter Japan. The costs of labor and raw materials needed for the production in Japan are considerable. The technical production however would not be a problem; both personnel and technology are locally available. An important point is the Japanese tariffs that have to be considered before making the production choice. According the Japanese Customs (2010) for some necessary ingredients they can amount to 35%.

Related and Supporting Sectors

Japan has always been infamous for its complicated and highly sophisticated retailing system as well as for difficult logistics in general. In any case Ben&Jerry´s would need to cooperate with a local distributor in order to get their product to the customer. However, simple retailing would not be sufficient since the common form of distribution in Japan, the small convenience store, does not offer any promotional opportunities. Furthermore, as Datamonitor (2008) points out, supermarkets and independent retailers are responsible for the largest share of distribution within the ice cream sector.

Strategy, Structure and Rivalry

Since this part is in any case crucial for a potential market entry, a further classification according to the framework mentioned above shall be undertaken. This analysis closely follows the results of Datamonitor (2008), which provide a comprehensive in-depth analysis of the Japanese ice cream market.

Established Rivals

Figure 2: Degree of Rivalry in the Japanese market, Datamonitor (2008).

Ben & Jerry´s enter the Japanese market as a latecomer, their main competitor Häagen-Dazs is already well established. Competition will in any case be fierce since the products of both companies share many features such as distinct flavors, richness and quality of the ice cream as well as price and volume. In addition to that, Häagen-Dazs possesses furthermore already an established cluster of scoop shops that secure public presence of the brand in Japan. Competition is going to be fierce, as pointed out by Datamonitor (2008).

Customers

Figure 3: Strength of buyer power in the Japanese market, Datamonitor (2008).

The Japanese customers have significant bargaining power concerning the price; switching costs for them are low and opportunities available. The preference for quality and the established margins of Häagen-Dazs effectively set a price corridor for Ben&Jerry´s. However, a major source of power comes from the retailers, as pointed out above. Their large share within the distribution gives them a large say in the price definition.

Suppliers

Figure 4: Strength of supplier power in the Japanese market, Datamonitor (2008).

The bargaining power of the suppliers is weaker, but still considerable since Ben&Jerry´s are provided with many choices in the US. Upon producing locally in Japan that situation would change significantly, both for dairy producers as well as intermediate manufacturers. The bargaining power of the Japanese suppliers is still considerable.

Potential entrants

Figure 5: Likelihood of new entrants in the Japanese market, Datamonitor (2008).

The threat of potential competitors advancing in the premium segment is existent, but rather small. Due to the established position of Ben&Jerry´s in the US, their brand image and long-term experience they might face fewer obstacles then other companies.

Substitute offerings

Figure 6: Substitute offerings in the Japanese market, Datamonitor (2008).

Customers face many alternatives and switching is easy. There are numerous products in the snack category and Ben&Jerry´s face a serious challenge to remain ahead of them.

Summary of the Japanese ice cream market

Figure 7: Summary: Intensity of competition in the Japanese market, Datamonitor (2008).

As pointed out above, the Japanese ice cream market is characterized by considerable competition. However, Ben&Jerry´s possess unique advantages to make a successful appearance in Japan.

Review of Key Mistakes during the First Entry

Throughout the History of Ben&Jerry´s there were quite lot of failed international ventures. Hagen (2000) provides an overview over the ventures that Ben&Jerry´s undertook in Canada, Russia, France and the UK. All of them were characterized by a rather astonishing lack of strategy and experience. As for Japan the indicators seemed to be quite different. In 1997, according to the company´s home page, the new CEO Perry Odak provided the company with much needed professional managerial know-how and replaced his predecessor Bob Holland after internal conflicts. Prior to the Japanese market entry Odak carefully considered the possible entry modes and two final options remained. The first one consisted of the cooperation with the Japanese businessman Ken Yamada, who would take full control over sales and promotion of Ben&Jerry´s in Japan. Ben&Jerry´s had to give up the control of a potentially major market, but in contrast they would instantly access Yamadas knowledge who had successfully built up a pizza chain in Japan. The second option was cooperation with 7-Eleven Japan, where the ice-cream would then be sold in over 7000 convenience stores in Japan. This option required Ben&Jerry´s to adapt to the Japanese retail system, because they had to produce the smaller cups as well as realize just-in-time delivery. Furthermore, 7-Eleven demanded their own product design without a picture of Ben Cohen and Jerry Greenfield on it, but instead a more elegant wrapping and conventional descriptive names.

In the End, the 7-Eleven option seemed more promising and was adopted, although 7-Eleven made no concessions to conduct any form of promotion. According to Gomi (2010), this turned out to be crucial and one of the major factors for their failure in Japan. Japanese convenience stores offer only a very limited range of products without any specific promotion. Furthermore, the products are chosen based on their sales because the space inside the tiny stores is extremely limited and valuable. For Ben&Jerry´s, those two factors fabricated the disastrous outcome of their Japan venture. As Hagen (2000) states, at the time when Ben&Jerry´s was entering Japan they did not have a considerable budget for a large advertisement campaign. Furthermore, the mission of the company based on the ideals of its founders Cohen and Greenfield was not to merely make profits, an explanation that has been given for the failures in the past as well. However, the absence of promotion and high turnover of products within the 7-Eleven shops drove Ben&Jerry´s back within months. As mentioned by Gomi (2010), their products „did not stand out”in the 7-Eleven shelves and since there was no additional promotion the incentive to buy was marginal compared to their direct competitor Häagen-Dazs, who was well known and established at that time.

Entry Mode

In general Ben & Jerry´s or any other company can choose from 3 different types of entry modes exporting, licensing, or wholly owned subsidiary. To derive the best entry mode pros and cons of each mode should be analyzed. Also to suggest entry mode for Japanese market the possible scenarios specifically for Ben & Jerry´s are used in this paper.

Employ convenience store (other than seven eleven) as a distribution channel and simultaneously promote aggressively to increase brand awareness. (export)

Find appropriate franchisee in Japan to initiate the licensing business in Japan (licensing)

Open an U.S. style scoop shop in the urban area (ex. Tokyo) and increase the number of stores in time (wholly owned subsidiary)

The advantages of choosing export as an entry mode are the low cost of initial investment and stability of payment. By employing a convenience store chain other than seven eleven as a distribution channel Ben & Jerry´s could take advantage of existing infrastructure which in other way could be hard to achieve. Seven eleven was excluded in the consideration set, since they have failed to successfully promote its product in the past. This affected the relationship between the two companies and relationship/trust between two companies is important in Japan. Furthermore the presence of the product can be maximized by using convenience stores, this can be critical in terms of increasing the brand awareness of a product if there is low or no brand awareness. On the other hand, it also includes potential risks such as low control over their product, inventory (have to meet the just in time system requirements of Japanese convenience stores), and marketing problems. Specifically in Japan inventory levels are kept low due to the lack of store space. And because of that, logistic systems such as JIT are well developed. To meet the required demand in time additional investment in production plant would be required. Also to overcome the past failure, marketing to increase brand awareness should be done, yet promoting its product as a premium product and selling it in convenience store could be contradicting to Japanese customers [9] . Also convenience storesthemselves have their own ice cream products therefore promotion through convenience store is limited.

“Licensing tends to apply to situations in which a firm is transferring some of its technology to another firm through a contractual agreement.” [10] Therefore finding appropriate franchisee to launch franchise in Japan could reduce cost of marketing, distribution, etc. However the process of licensing itself could be difficult to come to an agreement, furthermore the potential risk of losing huge market should not be overlooked. Also finding the right franchisee is tough in reality. In potentially lucrative market such as Japanese market it would be too risky to apply licensing.

Lastly, wholly owned subsidiary would lead to several advantages such as full control, easiness to reflect the consumers’ needs, convey the premium image to the customer and could generate similar marketing effect as in the states. By launching a store in an urban area they could take track of customer behavior or purchasing behavior and reflect this information in selling the product. Also to convey their premium brand image to the customer opening up a store first rather than distributing through retailers would make sense in Asian countries including Japan. Lastly, promotion of Ben & Jerry´s in the states are done by the appearance of store itself. Placing an appealing store in a central area would likely catch the attention of the customers. Also western customers who reside in Tokyo would likely drop by and purchase and this could lead to attracting Japanese customer in the store like La duree in Japan, Kinja (La duree only have 3 stores over the world, one located in Japan it is known because of this uniqueness foreigners visited the shop in the initially. Later Japanese who noticed the foreigners’ visiting rate purchased the goods from that shop. Recently, Japanese customer line up in front of the store to make a purchase.) Disadvantages also exist; unlike the other two options a wholly owned subsidiary is an equity mode of entry, which means that it entails higher financial risk. Also further research on consumers, governmental regulations, political andeconomic environment-, as well as tax norms are needed.

Even with these advantages and disadvantages it is hard to derive the optimal entry mode. Therefore a decision framework and checklist method are implemented to obtain the entry mode for Ben & Jerry. In the decision framework 3 variables strategic, environmental and transaction variables are used. In case of Ben & Jerry strategic variable turn towards wholly owned subsidiary because domestic market are saturated and to drive incremental revenue it needs to expand into foreign country (This would need explicit control over their operation). Environmental variable leads to low resource commitments since the country distance and barrier towards it are high. Transaction variable tacit component and firm specific know how are unique compared to other ice cream company and therefore requires higher control over foreign expenditure. [11] 

Major factor of successful entry into Japan in the past was marketing (promotion) therefore this factor was considered to be included in the list survival was included since reflecting past experience of Ben & Jerry probability to staying in the market was low. Opportunity of the market was also included because without attractiveness entering into this market wouldn’t make sense. The checklist directs to use wholly owned subsidiary. [12] 

Ben & Jerry therefore should apply wholly owned subsidiary to penetrate into Japanese market. It would look too risky however, past experience underlines that exporting strategy doesn’t work for this specific company. Hence to become part sharer in the Japanese market it would make sense to do what they have done in domestic market start as small but premium ice cream provider, and expand from that point to one of the market leader.

Localization

Localizing business for different regions around the world is more important than ever, and extreme caution must be undertaken when reaching out to foreign markets; after all, words and phrases can take on dangerously different connotations from culture to culture. Product localization is to modify foreign-made products and services to offer them suitable for the highly sophisticated Japanese market and consumer. It will be an essential part of success in the Japanese market.

A wide range of flavors: Ben & Jerry’s is famous for good product differentiation with innovative flavors all over the world. They try to develop diverse flavors to satisfy customers such as healthful green tea, soybean and grain. If they can modify their products adapted to the unique cultural tastes, it could easily attract local customers due to friendly products. Such as Wasabi flavors or Mentaiko flavors could be used to implement this. When we visit Japanese restaurant or food stores and look at menu board, it isn’t hard to find special menu such as recommendation menu, monthly flavors even today dining [13] . This is one of the marketing strategies, to give various flavors to their customers who are characteristic for quickly changing their taste.

Size: Japanese have a tendency to prefer small size in terms of everything compared to western countries. Japan has a population of about half of the United States with a land area about 90% of the state of California. Therefore, roads, parks, houses, etc. are designed in miniature size. This environment influences largely their lives. They tend to pay attention to precise details rather than the big picture Ben & Jerry’s need to provide smaller cups for the Japanese market. McDonalds also made small size cups for beverages when they entered Asia including Japan.

The appearance of package: Ben & Jerry’s might have to make a special size cup for only Japanese. When they make package, they should have to consider making use of recyclable packaging with environment friendly function that is recently widely liked issue in Japan. There seem to be a clear tendency to value products which convey values such as ethic, charity and green product for example. Being health- and environment-conscious Japan has always been perceived as one of the world’s healthiest societies, thanks to a combination of lifestyle, diet, and genetics and Japanese consumers are increasingly conscious of their health. [14] A September 2009 My Voice Internet survey suggests that spending on health, sports, and recreation, for example, has held up better than virtually any other retail category. One effect of the greater interest of the Japanese in directing their own health care has been the growing popularity of drugstores, which have been Japan’s fastest-growing retail channel since 2000: store numbers have increased by 4 percent and sales by 8 percent. Environmental consciousness has been emerging for some time. A McKinsey survey(2009) found that 51 percent of Japanese consumers are more focused on the environment than they were a year ago; only 7 percent were less focused and 84 percent of the respondents preferred to buy environmentally friendly everyday consumer products. It is also possible to change their original logo, color, font lettering and language and so on. For example, it might be good way to better understand that they only named the ice-cream in English and the flavor description, nutrition facts and other explanations were given Japanese.

Promoting: There are alreadymany established competitors in Japan. We can see many cases that companies in Japan. In the highly competitive superpremium icecream industry, the key factor of success is unique advertising. Ben & Jerry’s must make an effort to invest capital to promotion and advertising through paper advertisement such as magazines. Since more than 200 new books are published daily in Japan, and the total market of books and magazines surpasses ¥2 trillion [15] by using paper advertisement Ben&Jerry’s can achieve high exposure as well as frequency. For example there is the most famous coupon book “Hotpepper”. In Japan, there are many people who use frequently coupon book when they purchase particularly fast-food. [16] Socially responsible company such as Ben & Jerry’s has confirmed the importance of social responsibility in marketing. Reputation building is seen as an important component of strategy building, and, increasingly, reputation rests on social responsibility attributes. This promoting could be effective method through sponsorship such as baseball. Baseball is Japan’s most popular spectator sport and it’s most expensive but with the noise makers everywhere, umbrellas after home runs, big flags everywhere, fight songs [17] .First thing they have to do in order to penetrate is to increase brand recognition in foreign market. Ben & Jerry’s can promote by application because rate of iPhone users is quite high in Japan. For example, when the iPhone camera sees the markers, markers on carton lids launch 3D images. Consumers can view different virtual dioramas that display scenes from small family farms where ingredients for Ben & Jerry’s products originate. And using rate of public transportation in Tokyo is also higher than other region. So it also good method to advertising through public transportations such as subway, trams and so on.

Price: When Japanese people buy something, it is either for practical use or for status. The merchandise they buy is at the lowest or the highest ends of the price range, and intermediate-priced merchandise is not acceptable. Currently, this trend is expanding. The reason that Yanase, the exclusive importers of General Motors and Mercedes recently dropped Buick from their list seems to be that it is not a prestige car. On the other hand, One Hundred Yen shops recently appeared as a new and successful retailer concept and they are growing in size, quantity and popularity. Currently, this phenomenon is expanding to create new concept of “Two extreme price market segmentation”.

Customer monitoring system: with fast changes in consumer preferences in Japan, it would be difficult to distribute new tastes in a reasonable period of time without losing significant market-share. In these days, it is considered more importantly to serve services as well as good products. Most companies might have problem to know how dose customers feel or think about their product and service offered. Moreover, services are intangible and subjective which means each person doesn’t feel same way in spite of same services. Ben & Jerry’s will be able to seize what kinds of favors they want to eat, what they want to hope to Ben & Jerry’s through customer monitoring system. Japanese customers tend to be more delicate to observe than other countries customers. It will be not only very useful way to understand foreign culture, custom and trends but helpful company make respond quickly to the changing tastes.

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FIG

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FIG rate of coupon user

FIG chart 1

Conclusion

The paper suggested the international ice-cream company Ben & Jerry’s as the promising new business that would succeed in Japanese market. Although Ben & Jerry’s had a record of failure in its history of Japanese market expansion, the studies have found that this market failure was caused by its way of distribution which lacked in marketing. Thus the paper introduces better options for Ben & Jerry’s in re-entering the market.

By using Diamond model, we could analyze the Japanese market under four categories; demand conditions, factor conditions, strategy structure rivalry, and related & supporting factors. Moreover, following five-forces analysis also examinedthe opportunities and threats that lies around the company. From these two types of analysis we found the Japanese ice-cream market to be huge in size yet high in competition. However, considering the Ben & Jerry’s highly differentiated product and its other unique advantages, the company still has a strong potential. The third part of this paper reviews the problems in its past experience in Japanese market. Although Ben & Jerry’s is strong in its product and brand image, the passive marketing led to failure in other international market including Japan.

With the close observation above, we decided to choose more direct entry mode; opening the scoop-shop. Though FDI bears higher financia

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