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Five Forces Model of Competition of Ben and Jerry’s Ice cream company
    Uploaded by butter ball on Jun 14,

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In order to identify and assess the strength of external competitive forces on the ice cream industry we utilized a common analytical tool, Porter’s Five Forces Model of Competition, which is based on the following five factors: rivalry among competing sellers, bargaining power of buyers, bargaining power of suppliers of key inputs, substitute products and potential new entrants to the market (Thomas and Strickland, 1995). Figure 3 summarizes the competitive strength of these forces on the ice cream industry.
Rivalry Among Competing Sellers
The principal competitors in the super-premium ice cream industry are large, diversified companies with significantly greater resources than Ben & Jerry’s; the primary competitors include Dreyers and Haagen-Dazs. Rivalry can be characterized as intense, given that numerous competitors exist, the cost of switching to rival brands is low, and the sales-increasing tactics employed by Dreyers and other rivals threatens to boosts rivals’ unit volume of production (SEC Report, 1999).
Buyers
The power of buyers is relatively high because buyers are large, consisting of individual customers, grocery stores, convenience stores, and restaurants nationwide and globally. Since retailers purchase ice cream products in large quantities, this gives buyers substantial leverage over price. In addition, there are many ice cream products to choose from, so the buyers’ cost of switching to competing brands is relatively low. In order to defend against this competitive force, a company’s strategy must include strong product differentiation so that buyers are less able to switch over without incurring large costs.
Suppliers
The suppliers to the ice cream industry include dairy farmers, paper container manufacturers, and suppliers of various flavorings. Such suppliers are a moderate competitive force, given that the ice cream industry they are supplying is a major customer, there are multiple suppliers throughout the nation to choose from, and many of the suppliers’ viability is tied to the well-being of large, established companies such as Dreyers and Haagen-Dazs. Therefore, the ice cream suppliers have moderate leverage to bargain over price.
Substitute Products
Many substitutes products are available within the dessert and frozen food industry (cookies, pies, Popsicles, cake). The ease with which buyers can switch to substitute products is an indicator of the strength of this competitive force. Since substitute products are readily available and attractively priced compared to the relatively higher priced super-premium ice cream products, the competitive pressures posed by substitute products are intense. Companies that enter the super-premium market, therefore, must adopt defensive strategies that convince buyers their higher priced product has better features (i.e., quality, taste, innovative flavors) that more than make up for the difference in price.
Potential New Entrants
The barriers to entry within the ice cream industry are moderate due to the brand preferences and customer loyalty toward the larger and more established rival companies. Other obstacles to new entrants include strong brand loyalty to established firms and economic factors, such as the requirement for large sources of capital, specialized mixing facilities and manufacturing plants. In addition, the accessibility of distribution channels can be difficult for an unknown firm with little or no brand recognition. Although Ben Cohen and Jerry Greenfield successfully launched their ice cream business from a gas station with modest funding and staff, they had to initially rely on a rival company’s distribution channels (and later on independent distributors) in order to gain a stronger foothold in the market.
As discussed above, several competitive forces on the ice cream industry are relatively strong, suggesting that it is a difficult industry to be competitive in. However, Ben & Jerry’s implementation of a differentiation strategy has helped the company effectively defend against these forces and gain a competitive advantage. The use of higher quality ingredients and eco-friendly packaging has created a unique brand image that helps develop brand loyalty and beat rival competitors to the market. The company’s social activism toward the community and use of innovative flavors also help insulate the firm from the strong bargaining power of buyers since rival firms and/or products are relatively less attractive. Similarly, Ben & Jerry’s product differentiation strategy also allows the company to fend off threats of substitute products that don’t have comparable features. The company’s differentiation strategy also mitigates the threat of potential entrants due to high buyer loyalty for a superior product. The moderate threat posed by suppliers is tackled by two other facets of the company’s strategy: ensuring the viability of suppliers by paying premium prices for raw materials, and redesigning the distribution network to gain more control and reduce reliance on rival distribution channels.
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BIBLIOGRAPHY
Securities and Exchange Commission Annual Report for Ben & Jerry’s Homemade, Inc.
Form 10-K, 1999.

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