Chinese market entry strategy for the Turners Ice Cream

University Degree Business and Administrative studies

Chinese market entry strategy for the Turner’s Ice Cream

Introduction

This report sets out to analyse the selected UK ice cream manufacturer – the Turner’s strategy to entry to China’s ice cream market. It uses SWOT analysis approach analyses the company’s strengths, weaknesses, opportunities, and threats. The report has identified a general marketing entry strategy which will help the company developing new market effectively. It contents the introduction of the Turner’s company in brief, the Chinese ice cream market, the SWOT analysis and the suggested marketing entry strategy.

The Turner’s Ice Cream in brief

The Turner’s Ice Cream was founded in 1950. Two years later, “Verona” rang of flavoured ice cream was introduced. By 1960, the company had over 30 outlets along the south coast of England, and by 1988, there were 250 Turners’ shops around the UK. The company has recently launched a franchise option, and there are now 14 franchisees operating near key tourist centres in England, Scotland, and Wales.

Turner’s ice cream has justifiable acquired a high quality, upmarket image, and the company has continued to emphasise traditional values, traditional products, and traditional ingredients.

From 2004 to 2006, the company’s sales stood at around 1.5 m GBP, trading profit reached 1.1 m GBP. The company’s profile looks OK, but there is no doubt that times are getting harder. The UK ice cream market previously is dominated by three large players – Walls, Lyons, and Cadbury – Schweppes. The competition has been highly stiffer all the time, and things are becoming even worse with more and more global varieties of ice cream find their way to the UK.

Chinese market for ice cream

Just about a decade ago, ice cream, especially high-end ones, is regarded as luxurious snack in China. Now, with dynamic economic growth, and disposable incomes growth for ordinary consumers, eating out is becoming increasingly affordable and is increasingly popular, especially in the cities. However, Ice cream sales in China are highly fragmented. With the exception of key national players, such as Inner Mongolia Yili Industrial Group Co Ltd, Wall's (China) Co Ltd, Inner Mongolia Mengniu Group, Nestlé (China) Ltd and Bright Food Co, the rest of the ice cream players are mainly regional players with value shares of less than 2% in 2003. According to Euromonitor International (2005), Volume sales of ice cream are expected to record robust growth of 46% in the next four years, to reach 4.1 billion litres by 2009. This is predicted to see a continued emphasis on new launches, whilst the strengthening of retail distribution will also drive volume sales of ice cream. Trade sources have indicated that ice cream consumption is increasingly less seasonal, and this is likely to drive overall sales of ice cream. The development of the retail market, with the expansion of modern retail channels such as supermarkets/hypermarkets and chained convenience stores, is also expected to enhance the retail presence of ice cream on a national level, thus boosting sales.

The Turner’s Ice Cream SWOT analysis

Although the Turner’s is doing currently OK, but facing the intensive competition, the limited UK ice market is seen more and more hard. Under this circumstance, it is necessary to consider developing new market. This section analyses the company in terms of Chinese ice cream market by adopting SWOT approach.

Strengths

Strong brand name

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The Turner’s Ice Cream SWOT analysis

Strengths

Strong brand name

The company has marketed a UK well known brand throughout the years. This is perhaps the reason why the consumers still willing to buy its products even there has been no innovation and high price. This means that the brand to a certain extent represents a high quality product. This gives the company the chance and confidence to develop new products and entry to new market.

High quality products

“Verona” rang of flavoured ice cream products are known as high quality. It is this which helps the company holding its competitive advantages. This value will undoubtedly make easy to the company developing its new market.

Weaknesses

Products innovation

The company is known as a traditional value keeper, with its traditional products and traditional ingredients. It does pay attention to suiting consumers’ life style needs. This could result in a situation where it will loose its segment consumer group like children.

Poor operate system

The tightly control over the overheads has been a major weaknesses that prevents the company growth. The company’s investment in research is extremely low. In 2004 and 2005, it spent only 1,000 GBP on research, which holding a per cent as low as less 0.1. Meanwhile, its advertisement costs are also seen as the lowest among its competitors. In addition, the company’s management system is also seen as poor example.

Opportunities

Positive outlook for the Chinese snack food market

China's accession to the WTO will have a positive impact on the ice cream industry overall. There will be more foreign imports of advanced technology, and traditional machinery will be replaced. The quality of products will improve as a result. Urban consumers will be exposed to more foreign brands and will be tempted to be more adventurous in trying out these products. Improvements to the distribution infrastructure will benefit sales of ice cream products, as they become more widely available, even in remote areas. With the further opening up of the retail ownership system, more international brand launches are expected through foreign-owned channels.

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Low-end products

Intense competition has led to the price campaign, and in turn has resulted in a situation where manufacturers have to give up high-end products to cater for the demands. Even key foreign players such as Wall's and Nestlé have to adjust their product portfolios to cater to local preferences. For instance, they cut their product prices by more than 30% over the period to compete better with domestic players. New product launches in 2003 were mostly mid-priced products, thus increasing competition in this price segment. According to official statistics, about 80% of ice cream products cost below RMB2, while only 3% of sales are comprised of products costing over RMB4 (CABCI, 2004).

Product innovation

Another outcome of the intensified competition is that foreign manufacturers are engaging in the launching of new products to increase brand shares. The multinational companies have introduced ice cream with typical Chinese flavours to compete with products from local players. New launches have also included higher end products, as companies aim to offset falling margins due to the reductions in the prices of existing products. The market for impulse ice cream is still the focus because consumers commonly buy ice cream on an impulse basis. This means that the Turner’s traditional values must be changed otherwise it will not be able to tackle with the competition.

Rising raw material prices

With the price of basic food and feed commodities on the rise, food manufacturers are increasingly facing pressure on their margins. The Turner’s uses basic raw materials in large amounts. If raw material prices continual rise, it would thus lead to increased pressure on the company’s margins.

Marketing plan for the Turner’s

To develop Chinese ice cream market has never been easy as analysed above. However, this does not mean there is no chance to success. Being have the good reputation in this industry, the Turner’s ice cream could still win the campaign if following an appropriate marketing strategy. This includes a general strategy and step by step plans. The general strategy refers to the regenerative innovation with respect to the company’s traditional values. This calls for the new strategy on product innovation, distribution channel, sales promotion, and new market development as well. The entry to Chinese ice cream market, in particular, requires properly prepared plan as presented below.

Learning Chinese business culture

The process of globalisation has witnessed the rapid growth of international activities (Frank 1994). Once a firm expands its operations outside the borders of its own nation-state and outside the dominance of its own home culture, the influence of the host countries’ national cultures becomes reality (Fatehi 1996). Conducting business across international boundaries requires interaction with people and their organizations nurtured in different cultural environments (Kale and Barnes, 1992). Therefore the need for knowledge and understanding of the social-cultural difference between host country and home country becomes of paramount importance.

For most western people, China is still a mystic country owing to its cultural features being completely different from those of western countries (Ghauri et al, 2001). Indeed, the traditional Chinese culture, in which Confucian philosophy is dominant, is a high context culture, which is opposite to western culture which is low context. It also has its own incredibly complex Chinese condition (guo qing), which always confuses western people (Ghauri et al, 2001). All of these make western negotiators feel difficult and confused when they negotiate with Chinese negotiators. Many failed negotiations are caused by the poor understanding of Chinese culture or lacking of awareness of the Chinese business negotiation style (Kirkbride, Tang & Westwood, 1998). This is why more and more scholars are studying Sino-Western Business Negotiation in order to be more effective in negotiations with Chinese.

Choosing appropriate entry strategy

To compare with its counterparts, the Turner’s has missed an early chance to develop the Chinese market. However, it may enjoy the advantages over the follower strategy in terms of initial market costs and questionable effectiveness. Indeed, for pioneer entrants, some factors such as demand uncertainty, entry scale, advertising intensity, entry time of followers, and the scope of the economy are all risk. Now for the Turner’s, it is more easily to develop effective entry strategy into the emerging market in China. Moreover, studies have demonstrated that those innovative late entrants grow faster than pioneers and have higher market potentials and repeat sales rates. Moreover, they can slow the pioneer’s growth and reduce its marketing spending effectiveness.

Nonetheless, in doing so as innovative late entrants, apart from the above mentioned general innovation strategy, the company needs to study how to build its distribution channel in short order and to develop it market share. In so doing, an effective way is to set up joint venture through the Turner’s find an appropriate counterpart to merge it and use its distribution channel and factories. This strategy has been evidenced by many examples.

Conclusion

This work has analysed the Turner’s Ice Cream Ltd’s case to look at its entry strategy to Chinese ice cream market. It can be concluded that the UK ice cream market is highly dominated by three large players i.e. Walls, Lyons and Cadbury – Schweppes. Although the Turner’s currently runs smoothly, it has to seek for new income point if it is fighting survival in the future. The Chinese ice cream market as an emerging market, although it is also competitive, provides a great potential to increase income. The company have its key strengths in developing new market, and it is right time to think about its future. However, the weaknesses accompanied with the company could be risk in developing new market, as well as external environment. In general, the Turner’s may make success in entry to Chinese ice cream market if following a proper marketing strategy.

References

Benkouider, C. (2004). Indulgent ice cream overrides health concerns. Euromonitor International.

China Association of the Bakery and Confectionery Industry (CABCI), (2004, 2006), The annual report on Bakery and Confectionery Industry.

Ghquri, Pervez, Fangand Tony . Negotiation With the Chinese: A socio-cultural analysis. Journal of World Business. 10900516, Fall2001, Vol. 36, Issue 3

Kanter, M. and Corn, R. I. (1994) Do Cultural Differences Make a Business Differences? Contextual Factors Affecting Cross-Cultural Relationship Success. Journal of Management Development, 13.