Case Study

| March 31, 2017

Question
Have a paper to write in the following information. The instructions are as follows:

Case Study Analysis -Carvel Ice Cream Instructions

The assigned case is Case Study: Carvel Ice Cream – Developing the Beijing Market,availableunder Learning Module -Week6. To complete this assignment, you should read and analyze the assigned case study, answer the 4 questions listed below, andsubmit your responsesas a Word document attached to an E-mail to the instructor via Blackboardfor scoring.Minimum response –half a double-spaced, typewritten page per question. Be sure to answer the specific questions and support the reasoning for your answer (Why I am answering in this way). Also,number each response to correspond to the specific question you are answering. Use knowledge you have gained previously; knowledge gained during this course; or knowledge available through other sources to assist in answering the question.

1. Carvel’s new Beijing manager, Steven Wang, has not yet formulated his pricing and product policies. What advice would you give him? Should Wang reduce Carvel’s prices, perhaps by reducing product quality?

2. Do you agree with Wang’s deemphasizing sales to Beijing’s expatriate community? Defend your answer.

3. What changes would you make as to how Carvel distributes its products in Beijing? Should it emphasize sales through Carvel retail outlets? Should it shift to bakeries or wholesalers? Defend your answer.

4. Carvel’s advertising budget is extremely limited. Where should Carvel advertise?

The maximum score available for each question is 15 points (60 points total). If you have any questions, please contact me.

SUBMIT AS AN ATTACHMENT

Case Study

Carvel Ice Cream – Developing the Beijing Market

Thomas Carvel founded Carvel Corporation (Carvel) in 1934 in Hartsdale, New York, after he converted his mobile ice cream truck into a permanent roadside location. By the mid-1990s Carvel owned and operated over 300 retail stores and had granted franchise rights to over 600 others. It had also established over 4,500 “wholesale” accounts throughout the United States.

In 1994 Carvel established Carvel Asia Limited to act as a holding company for the ice cream maker’s operational investments in Asia, starting in Beijing. To this end Carvel Asia Limited teamed up with China’s Ministry of Agriculture to create Beijing Carvel Food Company Limited (Beijing Carvel), a joint venture equally owned by both parties. The company had experienced losses every year sinceits inception; however, its financial performance had steadily improved.

The Beijing Market

Steven Wang, a fluently bilingual American-born Chinese, joined Carvel Asia Limited in September 1997 with a mandate to increase Beijing Carvel’s sales, particularly in the ice cream cakes category. In summarizing the task before him, Wangstated:

?The challenge is to develop a complete marketing program?for a product that is relatively new to most Chinese.?Therefore, much of what we need to do involves basic?education – we need to ensure that our customers and?distribution partners understand who we are, what we are?about, and what benefits our products provide. At the same?time, we have been given a very limited advertising and?promotion budget, so whatever actions we take must be cost-?effective. Once we put a proven program together in?Beijing, we will transfer out learning to other parts of?the country.

Wang identified several attributes that needed to be factored into the development of his marketing program. One factor was that China’s consumption of dairy products was among the lowest in the world. Wang attributed this to China’s poor infrastructure, which prevented sanitary and cost-effective distribution, and a high incidence of lactose intolerance among Chinese. There were encouraging signs, however, that dairy products were becoming much more commonplace in China. Wang had learned that, over the previous decade, overall dairy product consumption had tripled in China and that ice cream was the most popular dairy product consumed. In addition,Chinesehealth-care professionals had become more vocal in advocating much greater consumption of dairy products in order to achieve improved health.

Wang concluded that there were three customer segments that held the greatest promise for increased sales, namely middle and upper class Chinese professionals, an emerging generation of so-called “little emperors,” and expatriate residents.Wang noted:

?In Beijing our most important customer segment so far has?been middle and upper income working professionals who?provide us with about 70 percent of our cake sales. But?there is still some conservatism within this segment which?prevents them from making purchases that are viewed as?risky. I think that is one of the reasons why our 8-inch?Classic cake is our best seller. Another reason is that?the Classic cakes allow our customers to customize their?messages on top of the cake – this is something that is?very culture driven in China.

Wang believed another lucrative segment was children and young teenagers. He reasoned:

?Back in 1980 the government imposed the “one-child policy”?as a means of curtailing the country’s exploding?population. As a consequence, an entire generation of so-?called Little Emperors emerged. Since most of these?children have no brothers or sisters, they are continuously?spoiled by their parents and two sets of grandparents.?These Little Emperors are used to getting almost anything?they want. Beijing alone has 1.5 million children between?the ages of five and 12.

Wang’s task was to get them and their parents more interested in Carvel ice cream cakes.

To date about 10 percent of Beijing Carvel’s annual sales came from Beijing’s 100,000-strong expatriate community. These were mainly foreign business and embassy employees (and their families) who were living and working in Beijing. In targeting this segment, Wang had mixed feelings. Virtually all North Americans and most Europeans living in Beijing had an excellent command of English, which meant that Beijing Carvel could avoid the cost and effort of translating a total marketing program into Chinese. Moreover, this same group was familiar with ice cream products ingeneral and ice cream cakes in particular. Therefore, comparatively little effort needed to be done to adapt a Western-style marketing program to Beijing because many expatriates understood Beijing Carvel’s products and their benefits, and Carvel largely understood the purchasing habitsand criteria of these consumers. However, Wang was concerned that too much effort dedicated to attracting expatriate customers would detract from Beijing Carvel’s ability to reach a much wider audience.

Improving Beijing Carvel’s Performance

As Wang began to develop a marketing program for Beijing Carvel’s ice cream cakes, he realized he had several options to analyze before making his final decisions.

Products and Prices

Several decisions had to be made concerning the types of products to focus on selling and their corresponding prices. One option was to expand the number of products offered. Wang believed two products Carvel had marketed in the United States might also suit the Beijing market. The first was the “Little Love,” a smaller (6-inch round, 600-gram) Classic cake which retailed in the United States for $7.99. Wang believed the Little Loves had a potentially wide appeal because their lower price would reduce the “purchase risk” felt by hesitant customers. The nature of the product might also appeal to mothers who were interested in satisfying the wishes of their Little Emperors.

The other product Wang believed had potential in the Beijing market was the small, single-slice “Piece of Cake.” The rationale underlying their sale was to reduce “purchase risk.” Given the smaller incomesin China, Wang believed a “Piece of Cake” might appeal to Beijingers who were still unfamiliar with the ice cream cake concept. Such a product offering would also distinguish Beijing Carvel from its main competitors because they offered no similar product – one that could be easily consumed in the store. Also, by providing consumers with what is called a “saleable sample,” the company hoped to induce more purchases of its larger cakes.

In terms of current menu itemsWang was unsure whether or not he should adjust Beijing Carvel’s cake prices because of the effect it might have on Carvel’s image relative to its competitors. This was an especially important consideration given that the company’s cake prices were already lower than both Baskin-Robbins and Haagen-Dazs.

One possible pricing option was to extract greater cost reductions from the manufacturing process and pass these savings on to the consumer. This could be done by reducing the quality of the ice cream by whipping more air into it during production. Wang estimated he could lower his variable costs by 5 percent by doing so. He also recognized the possibility that this could compromise Carvel’s image for quality in the market. Therefore, he knew he would require head office approval before proceeding.

Distribution

In exploring his distribution options, Wang needed to determine, first, how he could improve sales in Beijing Carvel’s existing retail and wholesale locations; second, whether or not he could target the growth of specific channels more than others; and third, whether or not he should exit certain locations. The difficulty he faced in making these decisions stemmed from the wide variability in performance among all distribution channel types, wherein no clear pattern of successhad yet been established.

In terms of Beijing Carvel’s retail stores only four were viewed as “full service” because they alone offered all Carvel product lines and each could accommodate 15 to 20 customers. The remaining six stores were scaled-down outlets that served only hard ice cream and cakes and had little or no available seating. Their average monthly sales ranged from about $2,000 to $15,000. In terms of investment the stores’ return on investment ranged from -25 to 60 percent.

In terms of wholesale outlets Beijing Carvel had established sales accounts with various food merchants,which were categorized as follows: 25 in high-end supermarkets, 25 in local supermarkets, 40 in bakeries, and 60 in restaurants and bars. In developing these accounts, Beijing Carvel focused mainly on growing its ice cream cake business, although a limited selection of hard ice cream and novelties was available at certain locations. Eight sales account representatives were responsible for prospecting new accounts and servicing existing accounts.Their duties included educating vendors about the products, as well as demonstrating appropriate placement and presentation. All cakes sold to the wholesalers were priced at a 30 percent discount off Beijing Carvel’s retail prices and were displayed in self-contained freezers leased from Beijing Carvel.

The high-end supermarkets serviced by Beijing Carvel were all joint venture companies involving well-known foreign retailerssuch as Carrefour (from France), Makro (from Holland), and Park ‘n’ Shop (from Hong Kong). These stores offered the widest range of food and specialty cooking items in Beijing and catered mainly to the expatriate community and the growing number of upper-income Chinese. Despite their strong association with discounting in the West, the cost of many imported food items offered at these stores was out of reach for most Chinese. However, several locally owned supermarket chainshad emerged in recent years that catered to the larger (and rapidly growing) middle class in Beijing. Unlike the high-end supermarkets, items in these stores catered to local tastes and were offered at more moderate prices.

Beijing Carvel believed bakeries were a natural pointof distribution for ice cream cakes because many consumers frequented these stores for flour-based cakes and other items. One concern that Wang had about developing bakery accounts was related to the average prices for flour-based cakes, which were often 15 to 30 percent less than Beijing Carvel’s cakes.

Beijing Carvel’s rationale for developing wholesale accounts in bars and restaurants was related to the emergence of Beijing’s middle and upper classesand the corresponding explosion in the number of new eating and drinking establishments throughout the city in recent years. The Chinese tradition of conducting business in a social atmosphere also meant that many of Beijing’s high-income individuals spent a great deal of time entertaining existing and potential business partners.

Wang was not pleased with the “quality” of many of the wholesale accounts that had been recruited prior to his arrival. Wang suggested:

?Much of the problem is related to the fact that the eight?sales reps are compensated by the number of accounts they?develop, not the quality of accounts developed. What we?need now is radical surgery to ensure that the accounts we?haveare worth the time and effort required to supervise?them. This may mean slashing our nonperforming accounts and?reassigning our freezers to other locations.

Advertising

Wang knew that his advertising budget was only $20,000 for the upcoming year. This meant that media such as television and radio were not tenable options. Therefore, Wang needed to rely on various print media to convey what he believed was the most important message he wanted to deliver, specifically “Who we are, what we are about, and the benefits of our products.” Wang identified three feasible print media: a newspaper ad, a flyer, and a coupon book.

?Beijing Shoppers Guide was a twice-weekly consumer newspaper that targeted the city’s emerging upper-middle and upper classes. Each edition had a circulation of 250,000 and cost readers 12 cents. Advertising costs were $1,250 per edition for a 4-square-inch placement. Many companies used this space to introduce and describe their products, as well as offera cutout, returnable coupon. These coupons typically offered a 12 percent discount off the retail price because the number eight was considered lucky in China, and therefore 88 was seen as doubly lucky. Wang believed that if he were to use this print medium, he would need to offer more than the standard 12 percent discount in order to induce purchase.

?The advertising leaflet Wang envisioned would be a dual- language, full-size (about 8.5 inches x 11 inches), double-sided glossy leaflet, which could fold into thirds. One side would present pictures and prices of Beijing Carvel’s main menu items, with an emphasis on cakes. The other side would display a miniature map of Beijing indicating the address and phone numbers of the company’s retail locations, as well as a discount coupon. Initial costs were estimated to be 5 cents per sheet for a minimum of 2,000 prints. If 5,000 or more copies were ordered, the cost would be reduced to 3 cents per sheet. Wang believed the most effective points of distribution would be outside several new shopping centers, which were key destinations for Beijing’s emerging consumer classes. He felt the most appropriate people to distribute the leaflets would be company employees, dressed in full Carvel uniform.

?The Beijing chapter of the Asian Hospitality Association (AHA) offered an entertainment coupon book which profiled about 175 mid- to upscale restaurants, eateries, bars, and recreation establishments. The book was revised annually and sold to about 10,000 local “members,” virtually all of whom were in the upper-income segment, for $16 per copy at the start of each year. Members received an AHA membership card, which they could then use as many times as they wished throughout the year at any of the participating advertisers’establishments. The discount Wang had in mind was to offer AHA members a 12 percent discount off all cake sales. The cost for participating advertisers was $500 for a half-page placement (3 inches high x 4 inches wide). Wang was confident that, because he knew the publication’s manager, he could purchase a standard placement in exchange for $300 worth of Beijing Carvel’s coupons.

The Days Ahead

In looking at the task before him, Steven Wang realized he needed to make a series of sound decisions before his ice cream cake marketing program was complete. This included resolving questions about whom to target, what products to focus on, and what prices to charge for those products. He also needed to resolve what points of distribution would best increase Beijing Carvel’s cake sales and how to support these sales through various print media options. The difficulty of these decisions was compounded by the fact that ice cream cakes were new to most Chinese and were derived from a relatively unpopular food group. Furthermore, the information he had at his disposal to help him make his decisions was, at times, unreliable. “But,” as Wang determined, “this is not an excuse to avoid making these decisions.”

Griffin, Ricky W. and Michael W. Pustay.International Business. 6th ed. Boston: Pearson, 2010. Print. Source for the publisher: Adapted from “Carvel Ice Cream – Developing the Beijing Market” (case 1999-07-17) with permission from the Richard Ivey School of Business, the University of Western Ontario.

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