Magnum Ice cream Launch in the US Market - Essay Example

Magnum Ice cream Launch in the US Market Contents Contents 2 Product 3 Market size and growth rate 3 Macro Environment 4 Competitive Analysis 4 Position Map 7 Direct Competitors 7 Indirect Competitors 8 Marketing strategy 8 Conclusion 10 Reference List 11 Appendix 1 12 Appendix 2 12 Product Magnum Ice Cream, the first ice-cream brand that had targeted adult consumers has thought of expanding its market to United States (Cliffs, 2013). Magnum ice-cream enjoys one of the most dominant market positions in the European market. The company now wishes to enter the U.S. market. The company has decided to launch a new flavour called Magnum Deluxe into the U.S. market. This ice-cream is one of a kind, which has been crafted with finest quality silk vanilla bean along with sea salt caramel that has been coated with Belgian milk chocolate. The product has a unique appearance as it is golden in colour, which resembles liquid gold. The value proposition of the company is to provide the ultimate ice-cream experience for adults. The chief competitive advantage of the company is that it is the first ice-cream brand to target its products at adults. It is the biggest brand of Unilever ice-creams. Market size and growth rate Magnum Ice Cream is a part of the Unilever company. Over the past few years, the company has recorded rapid growth in its business. Recently, the company has been trying to emerge as the top player in the U.S. ice-cream industry. The U.S. market produced about 1.53 billion gallons of ice-cream and related frozen desserts in 2011. The revenue from ice-cream sales was above 10 million in 2010 with take home market sales comprising 67.7 % of the total market value. The retail volume sales of ice-cream are expected to decline by 1% in 2013 because of the global economic recession (The Statistics Portal, 2012). The market share of ice-cream in U.S., in 2012, has been shown in the graph in appendix 1. The estimates of research suggest that youth population will decline in the coming years and ice-cream manufacturers would need to come up with new products so as to please the adult population. This provides a huge prospect for Magnum as it primarily produces items for adults. The key statistics are given in appendix 2. According to the reports of Bloomsburg magazine, Unilever is one of the leading ice-cream giants, which has more than $13 billion brand sales globally. It has been observed that Unilever controls one-fifth of the global ice-cream industry, which is valued at $85 billion dollars. It is the largest consumer-goods conglomerate of London and Rotterdam and the combined sales value crosses the $13 billion mark (The Statistics Portal, 2012). Currently, the company operates with its other ice-cream brands in U.S. excluding Magnum. The American market is presently dominated by Switzerland based Nestle, which owns brands like, Häagen-Dazs and Dreyer’s. It is for this particular reason that Unilever has decided to bring Magnum in the U.S. markets, thereby boosting the sales (Boyle, 2012). Macro Environment Political and Legal: The U.S. has very low political risk for any business that wishes to enter into the country. As the company will mainly operate in the food industry, it may be subject to U.S. Food and Drug Administration laws for fair business practices. Economic: The economic situation of the country is at an all time low as U.S. is one of the most developed countries of the world. The country has witnessed one of the most severe recessions, which began in 2007 and continued till 2009. After that, the country has begun to show signs of slow recovery, but the pace is slow. This has led to a slight decline in demand for the U.S. ice-cream market and growth of the same is also expected to shrink marginally. Social: Social factors relate to demographic changes as well as those in the behaviour of consumers, which can affect the business. The U.S. consumers have become quite health conscious; this has enabled products with natural ingredients and less fat and calorie dominate the consumers’ purchases. The consumers have also begun to prefer high quality ingredients in ice-cream. Technological: Technological factors can contribute largely to reduce the cost of manufacturing of the business, thereby making it profitable. Unilever is one of the leading ice-cream manufacturers of the world, which employs the best available technology for producing its products through economies of scale. Competitive Analysis The brand will compete with existing U.S. ice-cream brands that currently dominate the market. Nestle has continued to maintain its market position and “Skinny cow” of Nestle has been largely dominating markets. The other Nestle-based brands have also been quite popular and the competition is stiff. In order to have a better understanding of the competitive analysis of the industry in which a business is supposed to operate, Porter’s five forces proves to provide a useful insight. The five forces model of Porter not only helps in understanding the competition prevalent in the industry, but also helps in analyzing the strategy of competitors (Porter, 1995). The five competitive forces are: Rivalry of competitors within the industry: Rivalry among existing firms can take various forms like, advertising campaigns, price cutting to attract customers, new product introductions and service improvements. Aggressive rivalry in the industry can adversely affect profitability of the business. The intensity of rivalry is high if competitors are several and most of them are roughly of equal size, growth of the industry is slow, exit barriers are high or firms fail to recognize each other’s approaches. It has been already discussed that the brand would face tough competition as Nestle still dominates the market share. However, Unilever also provides an intense competition as four of its major brands are among the top ten brands of U.S. ice-cream market. Threat of new entrants into an industry: This threat is related to share of the market when new firms enter the industry. New firms can create pressure on the prices by entering the market. It has been observed that when new entrants are diversifying products, then they can leverage existing capabilities and cash flows to make the competition more aggressive. As the U.S. market is currently dominated by two of the global giants, threat of new entrants does not pose much of a threat to Unilever. When Magnum will be launched in the U.S. market, it will be provided with all kinds of financial and non-financial support in order to ensure a successful beginning. It is difficult for smaller companies to match such high levels of investment. Threat of Substitutes: If threat of substitutes in an industry is very high, then this will directly impact profitability of that industry. Substitutes mainly limit the prices that can be charged by the company. The threat of substitutes will be high if the substitute provides an attractive price-performance trade-off or the buyer is able to switch to the substitute without much effort. The threat of substitutes for Magnum is less as the brand is introducing a new product that has no current rival in the market. Threat of Suppliers: The power of suppliers and the industry for which it supplies is a function of the relative fragmentation. This implies that if the industry is characterized by a large number of small sellers and few large buyers, then bargaining power of the supplier is weak. The situation is just the opposite if the converse holds. It has been observed that if inputs of the industry are in the form of commodity and there are several substitutes available coupled with high switching costs; then the bargaining power of the suppliers is limited. Threat of Buyers: The power of the buyers is formidable when buyers can force down the prices and demand better quality of product. The bargaining power of the buyers is high if a small number of sellers sell to buyers who purchase in large volumes. If the buyers believe that they can find a similar product, then they can manipulate vendors to raise their profitability. The switching costs also greatly dictate the power of buyers. It has been found that in case of commodity products particularly, the switching costs are considerably lower. The differentiation of products in this case plays a major role in reducing the bargaining power of buyers. The critical success factors which can boost the launch of the company include the following: Brand equity, marketing and R&D Sales and distribution Experienced management team As Magnum is a world renowned ice-cream brand of Europe, it has high brand equity. The support from Unilever provides a competitive advantage for the company. The company is widely known among the U.S. mass and this will add to the strength of the same. The use of sales and distribution channels becomes essential in a successful launch as the product must be visible as much as possible in order to improve sales. Effective management is required to oversee every step of the market launch strategy and to ensure its success. Position Map Figure 1: Position Map (Source: Author’s creation) The right hand of the x-axis represents high quality and left-hand represents low quality. The y-axis top represents higher price; whereas, the y-axis down represents lower price. The product to be launched by Magnum is a premium product, so the company is charging higher price from the customers in exchange of supreme quality products. Direct Competitors The direct competitor of the company is the Nestle brand, Haagen Dazs. This product also offers high quality at premium pricing. The competition is stiff because both products have to rely on similar distribution channels and pricing techniques. The only way to differentiate is to adopt different promotional techniques. Indirect Competitors Indirect competitors are indirect in the sense that they target the same market segment, but with a different pricing technique. As these competitors offer inferior products, they also charge lower prices for the same. Among the various brands, the ones that can compete with Magnum, owing to their market shares, are Cornetto and Magnolia. Drumstick also provides an indirect competition to the company. Marketing strategy The study of the existing literature shows that there are diverse perspectives regarding the marketing techniques adopted by firms. The highly discussed 4Ps (product, price, promotion and place) have been defined as marketing tactics in some sources and marketing strategy in others. The parameters such as, target market selection and market positioning, are treated as marketing strategy; whereas, marketing behaviour pertaining to 4Ps are treated as marketing techniques. The article by Cunningham and Robertson (1983) had pointed out that marketing management is concerned with designing a marketing program and targeting selected market. While on the other hand, marketing strategy refers to gaining a long-run advantage at a firm or strategic business level (Cunningham and Robertson, 1983). According to the views of Webster, there are three different levels of business, which are corporate level, business level and strategic business level. Weber (1992) had identified that 4Ps of marketing are a part of the strategic business unit decision of the organization (Webster, 1992). In this regard, the article by Crawford and Di Benedetto (2008) is very useful. This recent article has shown two ways in which a firm should think about product commercialization, namely the strategic launch decision and tactical launch decision. The former relates to the strategic platform decisions and strategic action decisions. The first parameter relates to overall directions of the business and the second one relates to ways in which goods are to be sold and to whom. The 4Ps of marketing should be considered within tactical product decisions (Goi, 2009). These include communication and distribution strategies as well as pricing decisions of the company. The argument continues as a concrete conclusion has not been reached. The 4Ps concept was initially developed by McCarthy (1964). Since then, the concept has undergone various modifications. The table given below shows the various developments that has taken place with respect to development of marketing literature (Goi, 2009). Figure 2: Evolution of marketing strategy (Source: Little and Marandi, 2003) Further contemporary works on marketing mix has shown that organizations will use that particular marketing mix, which they regard as appropriate. This will depend on marketing conditions, resources and changing needs of the client. This theory has been criticized heavily, but owing to its simplicity, the concept is still in use. Product: The product strategy of Magnum is to enter new markets. This is called the market development strategy. It is introducing a new product in a new market. Price: The company has opted for premium pricing so that products can be charged at a higher price for the superior quality. Place: Magnum is targeting all the supermarkets and departmental stores to make sure that products have highest visibility in the market as well as is easily accessible to the target market. Promotion: Using advertisement through both print media and audio visual media is a good promotional technique. This will increase product visibility as much as possible. Conclusion New product launch can create significant challenges for the company. The analysis of the U.S. market has revealed that competition that Magnum can face in the U.S. market is quite high and in order to have a successful launch, the company should strongly focus on brand equity (Walfried, Mittal and Sharma, 1995). Successful communication about the new product launch is also important as customers must be fully aware of the new product that is to be introduced (Low and Tan, 1995). The role of the management is also crucial as successful implementation of each step will be decisive for the plan’s execution. The research and development department of the company must conduct exhaustive research on market conditions of U.S. to understand the prevailing situations. Finally, the analysis has reflected that even though the 4Ps concept has been criticized, yet it can act as an effective tool for managing product launch. Reference List Barrette, S., 2014. Ice Cream Parlors. [online] Available at: http://www.sbdcnet.org/small-business-research-reports/ice-cream-parlors [Accessed 4 February 2014]. Boyle, M., 2012. Unilever Wants to Be Americas Ice Cream King. [online] Available at: [Accessed 4 February 2014]. Cliffs, E., 2013. Magnum ice cream: U.S. launch. [pdf] Magnum Ice Cream. Available at: [Accessed 4 February 2014]. Cunningham, W. H. and Robertson, T. S., 1983. From the editor. Journal of Marketing, 47, pp. 5–6. Goi, L. C., 2009. A Review of Marketing Mix: 4Ps or More? International Journal of Marketing Studies, 1(1), pp. 2-4. Little, E. and Marandi, E., 2003. Relationship marketing management. Connecticut: Cengage Learning EMEA. Low, S. P. and Tan, M. C. S., 1995. A Convergence of Western Marketing Mix Concepts and Oriental Strategic Thinking. Marketing Intelligence & Planning, 13(2), pp. 42-45. Porter, M. E., 1995. What Is Strategy? [pdf] Harvard Business Review. Available at: < http://ieg-sites.s3.amazonaws.com/sites/4e8476903723a8512b000181/contents/content_instance/4f15bab63723a81f24000182/files/HBR_on_Strategy.pdf#page=25> [Accessed 4 February 2014]. The Statistics Portal, 2012. The leading 10 ice cream brands of the United States in 2012, based on sales (in million U.S. dollars). [online] Available at: [Accessed 4 February 2014]. Walfried, L., Mittal, B. and Sharma, A. 1995. Measuring customer-based brand equity. Journal of Consumer Marketing, 12, pp. 12-15. Webster, F. E., 1992. The changing role of marketing in the corporation. Journal of Marketing, 56, pp. 1–17. Appendix 1 (Source: The Statistics Portal, 2012) Appendix 2 Key Statistics (Source: Barrette, 2014): Ice cream consumption of household with children: 34% Household consumption of ice cream without children: 20% Age group with premium ice cream consumption in parlours: 18-34 years Demographic group features: African Americans consume most of the ice creams. Children consume most of the ice creams, but the percentage of children population is 20% Children mainly consume the artisanal ice cream. Adults consume mainly take home ice cream. Gender differentiation: Females eat approximately 15% more ice cream than males. Read More