Ben and Jerry’s BY tmh01854 Ben & Jerrys corporate strategy is to be a force for social change through its presence in the frozen desert market. With a commitment to promoting social awareness and “caring capitalism”, Ben & Jerry established itself as a leader with a unique image in the superpremium ice cream market by priding themselves with an “anti-business” style, both externally and internally. Theyre the largest corporate supporter of community and environmental issues (committing 7. % of pre-tax profits). They tand behind a casual working environment with a 5:1 salary ratio structure, which means the highest paid employee can only earn a maximum of 5 times the lowest paid employee. Ben & Jerrys business strategy is differentiation, in that they offer a wide variety of products. While the company continues to pull slow moving products, they replace them with new flavors and selections that contribute to the company’s growth.
Using Porter’s 5-Force analysis, threats of new entrants and supplier power is low, but intense rivalry, threats of substitutes, and threat of buyers are high, giving he industry as a whole an overall rating of 2 stars. Threats of new entrants are relatively low, as there are high barriers to industry entry. These include the initial capital investment to purchase equipment, as well as establish distribution channels and marketing/advertising campaigns. There is a high threat of substitutes in the ice cream industry, as many products are available to satisfy the same needs.
Buyer power is high, as both consumers and retailers drive the price and choices of ice cream. Since shelf space is limited, ice cream can easily be replaced. Supplier power is low as there are multiple sources to buy the ingredients to make the product. A company can get the raw materials Just about anywhere, but when venturing into the superpremium market, this product line uses brand candies from other companies. Rivalry is high since many compete to have better flavors and shelf space in stores. We do believe that the culture and values of create a sustainable advantage.
B’s values include “caring capitalism”, funding community projects, free employee assistance programs, day-care, comprehensive benefits ackages, and their important 5:1 salary ratio rule. Ben & Jerrys certainly possess a unique brand as it relates to culture. The company’s social mission and its promotional awareness events generate interest in the company. By targeting social causes, the Ben & Jerrys brand extends beyond the ice cream products where consumers may believe that through the purchase of Ben & Jerrys ice cream, they are also contributing towards the social initiatives of the company.
Further, the culture and values differentiate the company from its competitors. As a strategy, the social involvement dives awareness of the companys brand and product leading to fiscal growth. This benefitted Ben & Jerrys during its growth period and formed a strong identity among consumers. From a sustainability standpoint, Ben & Jerrys drove social responsibility issues before it became fashionable within the business sector. That said, culture and values contribute towards a competitive advantage, but is not a means to an end on its own.
The company must still practice fundamental perational discipline and manage its cost structure to survive long term. Under Cohen’s leadership, cost and profit management was an afterthought to the social improving their position to cover short liabilities. Their gross profit margin has held steady over the last 6 years (averaging 28. 3%) after dropping from a high in 1981 (49. 76%). This is an indication of successfully adjusting their price point due to changes in their operation. However, their net profit margin fell over time as more expenses resulted from investments in non-production costs.
While not robust, B&J increased both their net working capital and asset turnover from 1985 – 1989. They brought their long term debt ratio down to 31. 5% in 1986. However, since then, B&J’s additional financing came from debt (back up 70% in 1989) becoming a “highly’ leveraged company. Two challenges that confronted Ben & Jerrys by the end of the case include compensation at market rates for senior management as well as the friction between Ben Cohen’s ideology of the company and Chico Lager’s desire to lead Ben & Jerrys into a growing, businesslike environment.
The 5:1 compensation plan limited the company’s ability to recruit top talent within the management ranks leading to lengthy executive searches and vacant management positions. The latter point stemmed from the business crossroad that faced the company. While Cohen sought to preserve the identity and values deeply rooted into the company’s DNA, the challenges facing a growing company became a reality. Business practices such as managing profits, instilling operational discipline, and hiring and retaining top talent created stress within Ben & Jerrys.