MEMORANDUM
TO:
LORI TISHER
FROM:
MORGAN BAKER
SUBJECT: ICE-FILI
DATE:
NOVEMBER 3, 2008
The current situation with the Russian based ice cream company Ice-Fili is in need of a
drastic change, so that Ice-Fili can compete effectively with Nestlé and other major ice
cream brands which are entering the Russian ice cream market. Although, Ice-Fili has
successfully competed with other well-known international ice cream companies, it is
necessary for the company to rethink some current strategies. Ice-Fili has the ability to
compete more aggressively with Nestlé by making major adjustments such as
increasing advertisement, increasing brand loyalty and knowledge, and introducing a
new distribution system. Below are my thoughts on Ice-Fili’s current position as well as
suggested actions to consider.
Current Industry Structure
The first step in revamping Ice-Fili’s position is to look at the current business structure.
Here, you will find several opportunities to change.
Medium Bargaining Power for Suppliers
- Ice-Fili uses three to four suppliers for each major ingredient making it difficult for
suppliers to increase prices. If Ice-Fili cannot get an ingredient from one
company they have the opportunity to look at other options.
- Ice-Fili’s ingredients must be all natural which increases supplier bargaining
power because not many companies are all natural.
- There is only one company in New Zealand which has the necessary fat content
in the cream butter.
- Domestic prices fluctuate throughout the year with prices being the highest in
May and the lowest in August.
High Bargaining Power for Buyers
- There are several ice cream options a buyer can purchase.
- The ice cream is not in all parts of Russia so the customer has more options in
different areas.
- Huge price change will make a big difference in purchasing behavior.
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High Threat of Substitute Products
- Other companies have more modern equipment which leads to increased
availability of other products.
- Customers are more knowledgeable of other products because of
advertisements.
- Ice-Fili was not able to register products as trademarks which were related to the
Soviet Regime so other companies were able to make similar products.
Medium Threat of New Entrants
- Russia’s open-market economy encourages free enterprise and competition
through privatization and price liberalization.
- Joint ventures were very popular with large international companies and smaller
domestic companies.
- High operation costs and lack of modern wholesale distribution system makes it
difficult for companies to become established in Russia.
High Rivalry Among Existing Firms
- Huge competition with Nestlé and Baskin-Robbins because of advertising and
global presence.
- Increased rivalries as smaller firms enter the market, which leads to more options
for customers.
Changes to Business Structure
These are my proposals to improve the current business structure. Hopefully these
suggestions will increase the market power of Ice-Fili to the Russian ice cream market.
Decrease Bargaining Power of Suppliers
- Place restrictions on price fluctuations. There should not be huge price changes
throughout the year; this affects the prices of the products which makes it
confusing to consumers. By discussing the fluctuations with government
officials, they will become more aware of the difficulties attained because of the
fluctuations.
- Increase the number of suppliers for ingredients. Although Ice-Fili already has
three to four options of suppliers, by increasing the number, there will be more
competition among the suppliers which will lower manufacturing prices.
- Increase the number of suppliers for equipment. Since most equipment is
purchased from American and Dutch firms, the price can be much more
expensive than if Ice-Fili used domestic companies.
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Decrease Bargaining Power of Buyers
- Increase customer knowledge. If clients were more aware of the products
offered by Ice-Fili there is a good chance their products would be more
appealing.
- Increase Ice-Fili product options; produce more customized products depending
on the region or the season.
- Introduce specials to customers at stores or kiosks, such as buy one get one free
or student day (show a student ID and receive a discount).
Decrease Threat of Substitutes
- Increase advertisements, which will increase product presence.
- Improve equipment so that production will increase and more products are
available.
- Create products that are not easily imitated, so other companies cannot copy
ideas.
- Invest in substitutes for ice cream such as beverages and sweet treats. This will
increase brand name as well because a more demographics will be introduced to
the Ice-Fili brand.
Decrease Threat of New Entrants
- Increase variety of products. Although Ice-Fili currently has a wide selection of
products, other ice cream companies cover more taste preferences rather that
only the traditional Russian ice cream flavors.
- Saturate the market, increase production quota which will make Ice-Fili products
easily available. Other companies will be intimidated by the abundance of Ice-Fili
in Russia.
Decrease Rivalry Among Existing Firms
- Obtain smaller domestic companies to better compete with Nestlé and other
international companies.
- All the above market change suggestions should decrease rivalry as well.
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Strategic Groups
The strategic groups I have selected for Ice-Fili are as follows:
Quality of Ingredients and Flavor
Ingredients and flavor are important considerations of ice cream because it is
necessary to have a good rating in both. Just because an ice cream uses quality
ingredients, it is not guaranteed that the flavor will be good and vice versa.
o Haagen-Dazs and Ice-Fili are examples of ice cream companies which fit
in the high category of both ingredients and flavor.
o Baskin-Robbins, Ben and Jerry’s, Nestlé, and Health Brands are
examples of companies which fit in the medium category.
o Low ratings in both categories are fast food and generic brands.
Availability and Advertisement
For a company to be able to compete aggressively with other firms it is necessary to
be highly available for customers and be a well known company. Without these two
entities it is difficult for a company to remain in high standing in consumer
evaluations.
o Baskin-Robbins, Ben and Jerry’s, Nestlé, and fast food brands are easily
available and new advertisements are constantly being produced.
o Health brands and Ice-Fili are examples of companies which are relatively
available but have very few advertisements.
o Haagen-Dazs is not easily available but has a decent amount of
advertisements.
o Kiosks, local or regional brands, and restaurants are low in both
categories.
Price of Product and Appeal of Package
Customers have a tendency to spend a little more on a product if the packaging is
appealing because quality and appeal are easily comparable. Almost any product
will be priced a little higher if it comes in a package that people will remember rather
than a package that does not catch ones eye.
o Baskin-Robbins, Ben and Jerry’s, Ice-Fili, and Nestlé are low to moderate
price and have an attractive package.
o Fast food, health, and local or regional brands are normally more
expensive and do not focus on packaging.
o Haagen-Dazs is expensive, but has a very attractive packaging technique.
o Restaurant ice cream is expensive and does not have attractive packaging
if any packaging at all.
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Ice-Fili has a decent position in all strategic groups mentioned, which is a reason why it
is a popular company in Russia. At their current position, I believe their sustainability is
not very promising for the next five years. In order to better compete with other major
brands, it is necessary for Ice-Fili to increase advertisement and availability. With the
increase in these two sectors Ice-Fili will have more industry pull. This will make it
much more difficult for Nestlé to become a more popular ice cream company than IceFili in Russia.
Business Level Strategy
Differentiation Strategy: Ice-Fili focuses on product quality as opposed to cost.
The quality is found in ingredients, being all natural, and flavor. They also
introduce around 20 new items each year in order to maintain a relatively high
level of variety of products. These are both ways that Ice-Fili stands out from
other competitors.
Core Competencies
Listed below are Ice-Fili’s core competencies which are valuable, rare, difficult to
imitate, and non-substitutable.
All-Natural Product: Ice-Fili uses all natural ingredients in their ice cream.
Although, this is possible by other ice cream companies, Ice-Fili has made it a
priority to remain consistent with this policy. Other competitors use artificial
preservatives and colorants because it is less expensive, which allows the
products to be cheaper, but not of high quality.
Brand: Customers are known to be loyal to brand names they know and trust.
Many of their products are well known and liked by customers. It should be
important to the company to focus on the brand name because of the long
standing history Ice-Fili has in Russia.
History: Ice-Fili was established in 1937, which makes it the oldest ice cream
producer in Russia (Rukstad). Because of its long history in Russia, Ice-Fili is
able to gather more market information, research, and knowledge of the ice
cream industry over other competitors. No other company can compete with the
Soviet history of Ice-Fili.
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Alternatives
This section focuses on alternatives that Ice-Fili should consider in order to make their
brand more attractive to the average customer.
Distribute More Efficiently: Other companies have not been able to compete in
the ice cream market in Russia because of poor distribution systems. This could
be a problem for Ice-Fili as well. If they revamped their distribution system by
purchasing their own Ice-Fili refrigerated trucks in order to transport the product
as well as increase the use of kiosks and gastronoms it would be possible to get
more products in front of the customers. Although, Nestlé has fewer products, it
is more likely a customer will see a Nestlé product over an Ice-Fili product
(Rukstad).
New Marketing Campaign: It could be beneficial to Ice-Fili to either hiring a
marketing firm or enlarge the marketing department to introduce new ideas for
advertisement. Some advertisements Ice-Fili could invest in could be
advertisements with sports figures and celebrities, commercials during children
programs on television, and specials during peak months at kiosks. An increase
in product knowledge by local events as well as magazine, newspaper, radio,
and television advertisements will accentuate the company’s customer
knowledge of products and spark customer interest. As more people see ads
and local events for Ice-Fili they will become more interested in the company and
want to try the new products that are introduced.
Produce Dry Ice and Substitute Products: Ice-Fili should take advantage of the
opportunity to sell dry ice both domestically and abroad for construction
purposes, medical uses, and the beverage industry. It is also necessary to
produce substitute products such as soft drinks and beer because these two
industries have increased by 25% and 23% respectfully. By doing this, Ice-Fili
will increase their vertical market because they will now be able to better
compete with Nestlé and other companies which sell a variety of different
products. This will increase brand name and funds coming into Ice-Fili which can
then be distributed to other necessities to better compete with other ice cream
companies.
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Recommendations
I recommend that Ice-Fili focus primarily on implementing a new marketing campaign.
This will increase consumer knowledge of products which will eventually increase
interest in the company. It is important to advertise the new products more aggressively
in order to create interest. Within the marketing campaign, Ice-Fili should consider
presenting “specials” to customers. Some specials could be: student discount days,
bring a friend and get a discount, free ice cream day, or a create your own ice cream
competition. These “specials” will draw in other customers that would not normally visit
an Ice-Fili kiosk. After the marketing campaign creates more revenue for Ice-Fili, they
can then begin focusing on increasing availability, changes in distribution, and the
production of dry ice and substitutes.
Ice-Fili should stay away from a couple ideas as well.
Distribute Ice Cream Internationally: Ice-Fili products are created with the
Russian tastes and preferences in mind. It would not be advisable for Ice-Fili to
distribute ice cream to other countries because their ice creams focus on
products with no preservatives and flavor from fat content. The only way this
would be profitable for Ice-Fili is if they changed their ingredients which would
also not be advisable.
Focus on Supermarkets or Minimarkets: Purchase of ice cream in supermarkets
and minimarkets make up less than 10% of sales in Russia (Rukstad). Most ice
cream purchases in Russia take place in permanent and portable kiosks and in
gastronoms. The majority of Russians enjoy ice cream as a treat on the go and
do not normally purchase the product for enjoyment at home.
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Works Cited
Rukstad, Michael et al. “Ice-Fili (Abridged)” Harvard Business School. 2004. October
2, 2007.
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