Arun Ice Cream Case Analysis

Diamond Model Analysis

Prepared by:

Submitted to:

Dr. Abrar Ali Saiyed

Arun Ice Cream Case analysis:

Competition:        

Pros:

If the company opts to remain in the competition the following are the advantages of the company

• Increase in sales and profitability.

Chandramogan followed single distribution strategy unlike other leading brand that were following two-tier and three-tier distribution strategy that reduced company’s overall cost of distribution increasing the company’s profitability and by continuing the same strategy will help them to increase their franchisees network as this cost advantage is pass on to them by providing them good margins than competitors and will lead to expansion of their business.

• Bring more varieties in the ice creams.

Being in the market for so long now they can understand the customer choices and preferences about the flavors and this will give them an idea of the new flavors they can bring in the market and increase their consumer base.

• No huge investment in working capital and deep freezers has made its liquidity unimpaired and this will give the company freedom to invest in brand building..

Cons:

The cons of remaining in the competition:-

• Price War

If Chandramogan decide to stay in competition, there can be situation of price war. Competitors can provide the ice cream at low prices.

• Big pockets of competitors

Big pockets of the competitors such as HLL can give the irrational margins to franchises to tab them. The announcement of the government in Feb, 1997 about the de-reservation of ice cream manufacture from the list of products earmarked for exclusively development in the SSI sector, the large companies like HLL restructure the supply configuration of the business by setting up world class ice-cream manufacturing facilities with Unilever’s technology support, which may pose a big threat to local player Arun Ice cream.

• Loose customer base

It can lose the customer base if competitor launches new products like other dairy products.

Product Diversification:

If we look at the company’s position, it has gained its brand image in the top four states of south India and has shown strong financial performance over the years with the sales of Rs184 million and net worth of Rs 100 million which shows its ability to go for the product diversification.

Pros:

• Increase customer base
• Catering different needs

It will help to increase customer base company and  increase its market share which is at present estimated to be 60% in Tamil Nadu and 36% in four South Indian States as with the diversification of product like ghee, cheese, butter, milk, milk products will expand their consumer base. This diversification will help to serve the different needs of the customer at one place and lessen the risk of competitors  

• Leveraging distribution channel

It will also be able to leverage the cost plus approach of its distribution strategy if it uses the same channel for the different product distribution.

• Strengthening Suppliers relationship

It will strengthen the relationship with farmers as they can use the supplies of milk during the off season also by opting product diversification of the other milk products. This will increase the loyalty of farmers with the company.

• Leveraging existing resources

Cons:

• Increasing cost

If Arun Ice cream go for product diversification then the financial resources that it intend to invest in improving its flavor of ice cream, marketing and in acquisitions to compete with major market player, may not be able to do so efficiently because the diversification will require more financial resources.  

• Product failure

If the company opts for the product diversification and its new product fails to compete with the already existing player will lead to the company’s declining sales and will affect its average returns.

• Market failure
• Product cannibalization(lose focus)

In diversifying its product Arun has to be very careful as the dislike or non-acceptability of one product may impact the image of other product (product cannibalization) which is doing well in market. Eg: if Arun bring cold-flavored milk and if it would not be liked by majority of people and the one who are trying it for the first time may develop a thinking that the ice cream of Arun is also not good without trying it, which may affect the market share of ice cream.  

Leave:

If the company opts to leave then it will have one time profit but will have to forgo its market share,already existing brand image, brand equity, supplier’s trust, and loyal relationship with franchisees.

*From the above discussion it seems that the company should go for the product diversification and also it is becoming as a kind of compulsion for them as the suppliers of milk are facing the problem during the off season and to maintain healthy relations with them they need to be their customers for the whole year.

Arun Ice cream should think of entering Tamil Nadu, as the company will be able to take the advantage of its geographical location Salem Plant which is in the milk belt region of Tamil Nadu plus having the benefit of its already existing brand image.

Diamond Model Analysis:  Tamil Nadu

Demand:

Growth rate- The growth rate in dairy industry during 1991-2001 was 4.11% which was growing in comparison to previous years that was 1.15% during 1970s and hence entering into milk products can prove to be profitable for Arun Icecream.