1. Outline the incentive deals a firm might offer in order to achieve retail distribution for its products.
To reduce distribution costs a firm could supply in larger quantities to retailers in order to achieve economies of scale. The retailer will also benefit from lower costs by buying in bulk. However, only larger retail chains are in a position to do this. Ciro’s larger rivals could offer incentive deals such as these as they had the finance to do so, which would make retail distribution a lot easier, but Ciro’s sales slipped back.
Haagen Dazs was to be sold at a high price due to the high cost of ingredients and small-scale production used. To achieve retail distribution Reuben Mattus visited shops personally and gave staff a taste of his product. He promised to buy back any product that did not sell. By removing the financial risk of the outlet selling the product, gaining distribution became much more easier. This meant that Haagen Dazs could spread to New York grocers, then supermarkets and to national store chains.
2. Comment on the marketing mix used by Haagen Dazs.
The marketing mix falls under 4 categories: Promotion, Product, Price and Place.
The product was not promoted in the early stages of its lifecycle due to lack of desire to do so and little finance available. Mattus believed that promotion was inessential and relied mostly on word on mouth to generate consumer demand and increase awareness of the product, which was effective as by the mid-1970s the ice creams popularity soared. Mattus used below-the-line promotion by removing shops financial risk in order to gain distribution for his product.
The product itself was differentiated from others on the market. Fresh cream and all natural ingredients were used and with less air blown into the mix, the ice cream had a finer flavour and texture than that of competitors. To distinguish itself further from competitors, the product was given a Scandinavian sounding name – Haagen Dazs – and packaged differently – into pint pots instead of 2 litre packs. The different packaging stressed the distinctiveness of the product and therefore created a certain image for the products in the eyes of consumers. This would be vital in building up brand loyalty and enabling it to be sold at a higher price in the future. This unique selling proposition (USP) would give Haagen Dazs a distinctive market position from competitors’ products.
As the product gained in popularity through the 70s, the remaining Ciro ice cream products were phased out to turn production capacity over to Haagen Dazs. In order to keep staff satisfied and well-trained Mattus developed the theme ‘Dedicated To Perfection’ which also covered production control and materials purchasing. Despite the fact that the company was growing, Mattus did not want this to be at the expense of product quality. A diversified product range was developed with a new range called ‘Extraas’ created, partly due to an increase in competition in the US. A ‘dipping store’ was also created to widen their product portfolio. In 1984, Haagen Dazs began to be manufactured in Japan and eventually became the country’s best selling super-premium ice cream.
The price of the product was high due to the high ingredients cost and small-scale production and in order to increase profitability. This may have been due to the intermediaries involved in getting the product from the factory to the consumer. The degree of competition in the industry may also have been a factor. Cost-plus pricing was used in order to arrive at the selling price of the product.
The channel of distribution used to get the product from the factory to the consumer was at first New York grocers. Mattus decided to extend distribution from grocers to supermarkets and later to national store chains as he realised that rising affluence plus freezer ownership encouraged consumers to buy ice cream all year round. He eliminated the use of intermediaries and dealt with retailers personally. This would speed up the distribution process. He visited shops and gave staff a taste of his product. He promised to buy back any product that did not sell. By removing the financial risk of the outlet selling the product, gaining retail distribution became much more easier. They could not offer incentive deals like those of their competitors due to a lack of finance.
250 Haagen Dazs stores were developed in the US, each offering an opportunity for people to sample the products they could then buy from supermarkets.
3. a) Sketch a fully labelled product life cycle diagram to show the stages in the development of Haagen Dazs in America, using the dates provided.
b) What may have prevented the product from growing more rapidly in America?
The main reason for the lack of growth from the product in the American market was pressure from strong competitors in the industry. Ben and Jerry’s produced high quality ice cream at high prices, similarly to Haagen Dazs, but was differentiated from Haagen Dazs by their product containing bigger chunks of chocolate, almonds or toffee. It also projected a much livelier image, which Haagen Dazs could not match, epitomised by one of its products names, ‘Cherry Garcia.’ The lack of promotion and subsequent lack of consumer awareness may also have been a problem coupled with the high selling price.
Barriers to entry would also exist in the market, as customers would already have built up brand loyalty with other companies.
The fact that the company did not have a traditional product, with its different ingredients and Scandinavian name may also have alienated the product from consumers who could not identify with its values on any level.
Haagen Dazs did respond to the increase the success of its competitors by developing and introducing comparable products within a new range called ‘Extraas’, which did revitalise their sales.
4. Discuss whether Mattus was too production orientated in his development of Haagen Dazs.
I believe Mattus was too production orientated in his development of Haagen Dazs. From his initial creation of the ice cream he focussed solely on the product, creating one with different ingredients to produce a finer flavour and texture. He also decided not to promote the product due to a lack of desire and relied on word of mouth, which was a risky venture, though this was partly due to a lack of funds. The ‘Dedicated To Perfection’ theme was also product orientated, as it focussed on staff and production control.
The approach did have its benefits, as the product did sell reasonably well. Mattus’ determination that growth would not be at the expense of product quality meant that he neglected advertising the product effectively. Even when the company was sold to ‘Pillsbury Company’ in 1983 with the intention of developing Haagen Dazs internationally, it was only on the condition that they company’s quality standards would be maintained. The product itself was modified further under the pressure of competitors – a new range called ‘Extraas’ was developed.
Due to the increase in competition they should have taken consumers needs into account by conducting market research and segmenting the market in order to identify their target area for advertising. This would have made them better equipped to identify, anticipate and meet the needs and demands of the market in which they operate. This would surely have increased sales in the US as well as internationally.
Had the company been more market orientated they would have been in a stronger position to meet the challenge of new competition entering the market, like ‘Ben & Jerry’s’ and be more confident that the launch of a new product like ‘Extrï¿½as’ would be a success.