Introduction
Ben & Jerry’s is a leading producer and seller of packed ice cream and dessert products. The company was founded in 1978 in Burlington, Vermont (Ben & Jerry’s). In 2000, Unilever acquired the company and maintained its rapid growth.
By 2012, the company’s products were sold in the United States and 34 other countries in various parts of the world (Ben & Jerry’s).
Ben & Jerry’s attributes its success to its three part mission statement that focuses on production of high quality products, financial growth, and protection of the environment.
This paper will analyze the internal environment of Ben & Jerry’s using the resource based view framework.
In this regard, the analysis will highlight the company’s ability to create a sustainable competitive advantage by using its resources to reduce threats and to take advantage of the opportunities in its industry.
The Resource-Based View of the Firm (RVB)
The RVB states that firms have unique resources that enable them to achieve competitive advantage and long-term superior performance.
In this context, a firm can only achieve a sustainable competitive advantage if its resources are rare and valuable. Evaluating a company’s performance using the RVB framework involves analyzing its internal, external, and competitive environment.
The External Environment
The political environment in the ice cream industry is characterized with high regulation. In the US, Ben & Jerry’s is subject to regulation by the U.S.A Food and Drug Administration (FDA), as well as, the Vermont Department of Agriculture.
FDA has imposed stringent product labeling requirements in order to ensure that products meet health and quality standards (Ben & Jerry’s). In Europe and Asia, ice cream companies are required to use only organic ingredients to manufacture their products.
These requirements may limit the ability of ice cream companies to produce new products due to the high cost of compliance. Additionally, the use of packaging materials is highly regulated, thereby increasing production costs (Ben & Jerry’s).
At the international level, Ben & Jerry’s exports from the US are subject to import duties, which reduce their competitiveness by increasing their retail prices.
The performance of Ben & Jerry’s is highly influence by the economic environment of its key markets. The economic crisis in markets such has the Euro-zone negatively affected the company’s financial performance in 2012 because demand for ice cream and dessert products reduced.
Exchange rate variations is also an important determinate of the company’s financial performance since it exports its products from the US to other markets. In this regard, an appreciation of the US dollar against other currencies makes Ben & Jerry’s products more expensive in overseas markets.
This results into a reduction in the demand for the company’s products (Ben & Jerry’s). Conversely, a depreciation of the US dollar against other currencies improves the competitiveness of Ben & Jerry’s products by making them less expensive in overseas markets.
The social environment is characterized with frequent changes in tastes and preferences among customers. This change is attributed to the rising concern among consumers about the health consequences of consuming ice cream and dessert products.
In particular, costumers avoid sugary foodstuffs such as ice cream in order to prevent health conditions such as obesity. Moreover, the consumption of ice cream and dessert products is influenced by social activities such as picnics.
Thus, demand for ice cream usually declines during cold seasons when outdoor activities are minimal. This, problem is exacerbated by the decreasing family size in major markets such as the US and Europe, because children are the major consumers of ice cream (Ben & Jerry’s).
The natural environment also determines the performance of ice cream companies. Most ice cream and dessert products are made from agricultural produce such as cocoa, milk, and bananas.
The production of these products is subject to the vulgarities of the weather and pathogens or pests that endanger the survival of crops.
Adverse climatic changes force farmers to use advanced farming techniques, which increase their production costs. The resulting increase in the price of ingredients such as milk increases the production costs of ice cream firms.
Competitive Environment
The competitive rivalry in the ice cream industry is intense due to several reasons. First, there are very many competitors in the industry. The dominant firms include Dreyers and Haage-Dazs.
These large companies have enormous financial resources to implement marketing strategies that benefit them at the expense of their competitors. In the US, Haage-Dazs has the largest market share of 18.2% followed by Ben & Jerry’s whose market share is 16% (Ben & Jerry’s).
Second, most of the competitors in the industry have focused on product differentiation, thereby increasing competition.
Finally, the cost of switching to other brands is very low, thereby reducing the level of customer loyalty. The high competition in the market is likely to reduce the profits and market share of firms that are not able to improve their competitiveness.
Buyers in the industry consist of individuals, restaurants, and large retailers such as supermarket chains that distribute ice cream products. The large distributers have a high bargaining power because they purchase large quantities of ice cream.
Individual consumers also have a high bargaining power due to the large number of ice cream products in the market. The availability of a variety of products reduces the buyers’ switching costs, thereby improving their bargaining power.
The high bargaining power of the buyers increases the level of competition in the industry as companies focus on differentiation in order to retain their customers.
The main suppliers in the industry include dairy farmers, producers of packaging materials, and manufacturers of various flavoring agents (Ben & Jerry’s). The suppliers usually supply undifferentiated products such as raw milk.
Additionally, most of them depend on large ice cream producers as their main customers. However, the suppliers’ products are very important to ice cream producers since they determine the quality of the final products.
Thus, suppliers have a moderate bargaining power, which gives ice cream producers an opportunity to negotiate for better prices for their supplies.
The threat of substitute products is high due to the availability of alternatives to ice cream. These include cookies, cakes, and pies. The substitute products are more attractively priced than high quality ice cream products.
Additionally, they are readily available through various distribution channels such as convenient shops. The high threat of substitutes is likely to cause a loss in market share and profits of companies whose products cannot compete effectively with the substitutes.
The threat of new entrants in the industry is moderate due to three reasons. First, the incumbents have economies of scale in production since they enjoy long-term relationships with suppliers. Additionally, they control most of the main distribution channels such as supermarkets.
Second, the incumbents have strong brands that enjoy loyalty among customers (Ben & Jerry’s).
Finally, the cost of joining the industry is high due to the huge financial capital that is required to establish production plants. The moderate threat of new entrants is an opportunity for the incumbents to increase their production in order to serve every market segment.
Internal Environment: SWOT Analysis
Strength
First, the company has a strong distribution network. In particular, the company uses Unilever’s global distribution network to distribute its products (Ben & Jerry’s). Additionally, the company has long-term franchise and retail distributorship agreements with several firms in various markets.
Second, the company has a strong brand image that is known for quality and environmentalism. The company’s products are sold under quirky flavor names, which include “Chubby Hubby, Wavy Gravy, Phish Food, and Chunky Monkey” (Ben & Jerry’s).
These names improve the company’s brand recognition. Additionally, the company focuses on social marketing by promoting environmental conservation and sustainable production of ice cream.
Third, the company has the second largest market share after Haagan-Dazs.
Fourth, the company has a strong relationship with its suppliers (dairy farmers), which boosts the reliability of its milk supplies. Finally, the company’s presence in the Unilever group enables it to access financial capital to finance its expansion and product development strategies.
Weaknesses
First, the company’s heavy investments in multiple social responsibility programs may negatively affect its financial performance. The company allocates up to 7.5% of its pretax profits to charitable activities (Ben & Jerry’s).
Second, the company is yet to comply fully with the regulatory requirement of using only non-GMO ingredients in the European and Asian markets (Ben & Jerry’s).
Finally, the company’s sales and profits have been declining in recent years. Thus, Ben & Jerry’s should hire experienced managers to improve its sales.
Opportunities
First, the growing health concern among customers is an opportunity for the company to produce high quality fat-free ice cream and frozen yogurt products.
Second, the demand for high quality ice cream and dessert products is rising in emerging markets in Asia and South America. Thus, the company should expand by joining markets in these regions.
Third, change in tastes and preferences is an opportunity for the company to extend its product line by introducing more flavors or new products to serve niche markets.
Finally, the moderate power of the suppliers is an opportunity for the company to negotiate for low prices for its supplies.
Threats
The threats in the industry include the following. First, economic downturn in major markets such as Europe is a threat to the growth of the company’s sales and profits.
Second, increasing health concerns among customers is a threat to the company if it is not able to develop products that meet customers’ health needs.
Third, the high competitive rivalry in the industry will severely reduce Ben & Jerry’s market share and profits if it is not able to maintain or improve its competitiveness.
Fourth, high regulation may force the company to exit some markets if it is not able to comply with all regulatory requirements.
Finally, adverse climatic changes may reduce the supply of key ingredients such as milk and cocoa, thereby increasing the company’s production costs.
Analysis of the Company’s Competitive Advantage
Valuable Resources
Companies can only achieve a competitive advantage if they posses valuable resources. A resource is valuable if it can enable a company to formulate and implement strategies that enhance efficiency and effectiveness.
In this regard, Ben & Jerry’s valuable resources include its global distribution network, strong brand image, social marketing strategies, and long-term relationships with dairy farmers.
Using Unilever’s global distribution network enables the company to achieve its market expansion objectives by joining new markets. The company’s strong brand image coupled with its social marketing strategies such as environmental conservation helps it to improve its customer loyalty.
Consequently, the company is able to defend its market share, despite the high competition in the industry.
The long-term relationships between the company and dairy farmers enable it to access reliable supply of high quality milk. For instance, milk supply from the US increased from 92% in 2011 to 109% in 2012 (Ben & Jerry’s).
Rare Resources
Valuable firm resources can only create competitive advantages if they are rare among the firms in the industry. Ben & Jerry’s rare resources include the following.
First, the company’s long-term partnership with dairy farmers is a rare resource since its competitors are not pursing a similar strategy.
Second, the company has the most extensive social marketing campaign and investments in environmental protection. This strategy is not only rare, but also enables the company to reduce its production cost and serve customers who are concerned about their environment.
Third, Ben & Jerry’s distribution network is a rare resource. Unlike its existing and potential competitors who have to establish their own distribution channels, Ben & Jerry’s uses a pre-established global distribution network (Ben & Jerry’s).
Consequently, the company is able to react to the threat of new entrants, as well as, existing competition by joining new markets ahead of its competitors. This enables the company to enjoy first-mover advantages in new markets.
Imitable Resources
Valuable and rare resources create competitive advantages only if they are imitable. Concisely, the difficulty in imitating valuable and rare resources prevents competitors from accessing similar resources to improve their competitiveness.
Ben & Jerry’s resources are imitable due to their unique historical conditions.
For instance, the company began its partnerships with dairy farmers in major milk producing countries such as Denmark over twenty years ago when other ice cream producers did not care about their milk suppliers.
Additionally, the company developed a three-part mission statement in its initial stages of development (Ben & Jerry’s).
The three-part mission statement focuses on sustainable production of high quality ice cream products, improved financial performance of the firm, and improving the welfare of the society.
This mission statement has become part of the company’s organizational culture, thereby enabling it to achieve its performance indicators. The company’s resources are also imitable due to their social complexities.
For instance, the company has established a good reputation among its suppliers since it supports them through high prices and technical assistance.
Similarly, the company has a strong brand loyalty since customers have always associated its products with attributes such as high quality, safe, and reliability.
Moreover, the company has developed an organizational culture that focuses on environmental conservation, thereby enhancing the implementation of its strategy of sustainable production of ice cream and frozen yogurts.
Substitutability
Valuable, rare, and imitable resources can create a sustainable competitive advantage if they lack substitutes. The degree to which Ben & Jerry’s resources can be substituted is limited due to several reasons.
First, though other firms can collaborate with dairy farmers, their partnerships may not be as effective as that of Ben & Jerry’s. For instance, Ben & Jerry’s pays its milk suppliers above industry prices.
This makes it difficult for Ben & Jerry’s suppliers to switch to other ice cream producers in the industry.
Second, it is difficult to develop an organizational culture that is similar to that of Ben & Jerry’s because employees’ values and perspectives towards their employers vary from company to company.
Conclusion
This paper has analyzed the internal environment of Ben & Jerry’s using the resource-based view framework. The company’s strengths include its strong brand image, large market share, global distribution network, and strong relationships with its suppliers.
Its weaknesses include declining profit margins, inability to comply fully with regulatory requirements and huge investments in social responsibility initiatives.
The opportunities in the industry include expected increase in demand for high quality and safe ice cream and dessert products.
However, high competitive rivalry and regulation threaten the performance of the company. Despite the threats in the industry, the company is capable of sustaining its competitive advantage because it has valuable, rare, and imitable resources.
Works Cited
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