Analyzing the External Environment of Dippin Dots - Research Paper Example

Executive Summary Neither the company's website nor the case study come out and the company's vision or mission. However, one can surmise fromthe information given that the goal of the company is, much like any other company, to continue to grow and become more profitable. They seek to delight their customers through the experience of their unique ice cream. History In 1988, Dippin' Dots was started in Grand Chain, Illinois. In 1999, they landed their first account at Opryland Amusement Park in Nashville, Tennessee. In 1990, Paducah, Kentucky became the home of their new manufacturing facility. In 1991, they established their dealer network. 1994 marked the year of their first international account, which was in Japan. In 1995, they opened a new production facility that was 32,000 feet in Paducah. The facility expanded by 20,000 feet in 1997 and the company earned a spot on Inc. Magazine's 500 list of fastest growing companies. In 2000, the first franchise opened and the company went to court against imitators. In 2001, Dippin' Dots came in third behind Baskin Robbins and Dairy Queen as far as number of franchises. In 2002, Dippin' Dots was ranked 112th on the Franchise 500 list, 69th on the list of Fastest Growing franchise companies, and number one on the New Franchise Company lists of Entrepreneur's Magazine. Dippin' Dots also becomes available at San Francisco Bay area McDonald's restaurants during the same year. The awards and high rankings continue through 2005. In 2006, the company was restructured and Tom Leonard became president of the company. Analyzing the External Environment-PESTEL According to Improvement Network (2008), "A PESTEL Analysis can be particularly useful for groups who have become too inward-looking. They may be in danger of forgetting the power and effect of external pressures for change because they are focused on internal pressures. You can use this technique for a large or a small group activity. PESTEL stands for Political, Economic, Social, Technical, Environment and Legislative. It is a strategic planning technique that provides a useful framework for analyzing the environmental pressures on a team or an organization." Political There are political concerns that companies like Dippin' Dots need to take into consideration when operating their companies. Two of the most important are regulators and politicians (Improvement Network, 2008). Economic There are also economic considerations for Dippin' Dots. These include world trends, trends in the countries and states in which the company operates, and industry trends (Improvement Network, 2008). Social There are social considerations Dippin' Dots must pay attention to. These include cultural change, the expectations of consumers, changing demographics, and changes in the structures and habits of families (Improvement Network, 2008). Technology Technological considerations for the company are pretty self-explanatory. The ice cream treat is based on technology that was before its time, so it must maintain that expertise and quality. The company also needs to look for new innovations in order to keep growing. Environmental There are also a number of environmental implications for the company to consider. These include cost implications, public opinion, and sites and locations (Improvement Network, 2008). Legal Legal considerations for the company vary according to the state, territory, or country the company is operating in. They must follow United States legislation and directives, for instance (Improvement Network, 2008). SWOT Analysis Strengths The company's biggest strength is that it has a completely unique product that its founder created on his own. The product is also very popular among consumers. Weaknesses The company's biggest weakness is that its product has to be stored at extremely cold temperatures. This makes it difficult to transport. It also makes it impossible to carry in supermarkets or sell for take-home consumption. Opportunities There is not a lot of room in the area of research and development left for this product. It mainly consists of creating new flavors. The company could, however, continue to grow as far as the number of locations and the even spread of those locations. Threats All of the competitors listed in this analysis are threats. Perhaps even bigger threats exist in copycat companies. Industry Analysis Competitors The company's competitors include the following: 2 Scoops Caf Abbott's Frozen Custard All American Specialty Restaurants, Inc. Applegate, Inc. Baskin-Robbins USA Co. Ben & Jerry's Blue Sky Creamery Bruster's Real Ice Cream California Quivers Carvel Cold Stone Creamery Culver Franchising System, Inc. Dairy Queen Frats Ices Haagan-Dazs Shoppe Co., Inc. Happy Joe's La Paletera Little Scoops MaggieMoos Int'l LLC Marble Slab Creamery Melt, Inc. Paciugo Italian Gelato Ricky's Candy, Cones, and Chaos Rita's Franchise Co., Inc. Ritter's Frozen Custard Shake's Frozen Custard Strickland's Porter's Five Forces Analysis "Five Forces Analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. For example, Dell would analyse the market for Business Computers i.e. one of its SBUs. Five forces analsysis looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry" (Marketing Teacher, 2000, pg. 1). The threat of entry. Economies of scale e.g. the benefits associated with bulk purchasing. This would be relatively low for Dippin' Dots since it is a small company. The high or low cost of entry e.g. how much will it cost for the latest technology This would be relatively high for the company given the cost of making the product, storing it, transporting it, and starting a franchise. Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up Distribution is a challenge for Dippin' Dots because of the temperatures that the ice cream must be transported at. It requires special containers and vehicles. Competitors can distribute their products for much less. Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own or learning curve effects. Most of the cost advantages are related to the uniqueness and popularity of the product. Will competitors retaliate They have retaliated, hence the lawsuit mentioned above. Competitors that do not try to specifically imitate the product, however, can only retaliate through focusing on the company's weaknesses or through introducing new and innovative flavors. Government action e.g. will new laws be introduced that will weaken our competitive position This is not very likely to happen. How important is differentiation e.g. The Champagne brand cannot be copied. This desensitises the influence of the environment. Differentiation is vital to this company's success. The only reason they became so popular so fast is because they were different, or as they say, 'The ice cream of the future.' (Marketing Teacher, 2001, pg. 1) The power of buyers. This is high where there a few, large players in a market e.g. the large grocery chains. Dippin' Dots does not fall under this category. If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains. This is the category that Dippin' Dots falls into. The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another. Dippin' Dots does not fall under this category. The power of suppliers. The power of suppliers tends to be a reversal of the power of buyers. Suppliers do not have much control when it comes to the demands of Dippin' Dots versus the popularity of the product. As the case study claimed, the company only lost 2% of their franchisees when they started demanding franchising fees and royalties. Where the switching costs are high e.g. Switching from one software supplier to another. Switching costs are likely to be high, but more likely for the supplier than for Dippin' Dots itself. Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft. The Dippin' Dots brand is indeed powerful. There is a possibility of the supplier integrating forward e.g. Brewers buying bars. The company is having a challenge in this area, but they are continually investing in research and development to try to further their growth. Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places. The case study does not mention the product having different prices around the country, so it seems pretty stable although there is not an even distribution of suppliers around the country. The threat of substitutes Where there is product-for-product substitution e.g. email for fax Where there is substitution of need e.g. better toothpaste reduces the need for dentists. For Dippin' Dots, the biggest threat in this area is that of take-home ice creams. Their specially frozen ice cream is not suitable for supermarkets and the like. Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel companies. We could always do without e.g. cigarettes. Any other sugary snack would fall into this category for Dippin' Dots. Competitive Rivalry This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram. Dippin' Dots pretty much had control over their market at first since they were so different from other ice creams. This was, of course, until their patent failed and direct competitors were able to market their copycat ice creams as well. Strategy Group Dippin' Dots may merely produce ice cream, but they fall into their own specialty strategy group. They are their own market. Key Success Factor There is one factor that continues to lead Dippin' Dots to their ongoing success. This is the fact that they have a unique product. Internal Analysis Value Chain Analysis "Michael Porter in 1985 introduced in his book 'The competitive advantage' the concept of the Value Chain. He suggested that activities within the organization add value to the service and products that the organization produces, and all these activities should be run at optimum level if the organization is to gain any real competitive advantage. If they are run efficiently the value obtained should exceed the costs of running them i.e. customers should return to the organization and transact freely and willingly. Michael Porter suggested that the organization is split into 'primary activities' and 'support activities'" (Learn Marketing, 2008, pg. 1). The following are part of the value chain: Operations : The raw materials and goods obtained are manufactured. This happens in Dippin' Dots main manufacturing facility. Procurement: This department must source raw materials for the organization and obtain the best price final product. Value is added to the product at this stage as it moves through the production line. The raw materials would be the ice cream and the products it takes to freeze it to the proper temperature and shape. Outbound logistics : Once the products have been manufactured they are ready to be distributed to distribution centres, wholesalers, retailers or customers. This is a big challenge for Dippin' Dots due to the temperatures required for transport. Marketing and Sales: Marketing must make sure that the product is targeted towards the correct customer group. The marketing mix is used to establish an effective strategy, any competitive advantage is clearly communicated to the target group by the use of the promotional mix. This is something that clearly the company has been working on since it was established and is continuing to work on as it grows. Services: After the product/service has been sold what support services does the organization have to offer. This may come in the form of after sales training, guarantees and warranties. The company is not one that offers services. Technology development: The use of technology to obtain a competitive advantage within the organization. This is very important in today's technological driven environment. Technology can be used in production to reduce cost thus add value, or in research and development to develop new products, or via the use of the internet so customers have access to online facilities. There is not a technology department per se, but the product is manufactured using a high degree of technology. Human resource management: The organization will have to recruit, train and develop the correct people for the organization if they are to succeed in their objectives. Staff will have to be motivated and paid the 'market rate' if they are to stay with the organization and add value to it over their duration of employment. Within the service sector eg airlines it is the 'staff' who may offer the competitive advantage that is needed within the field. Most of the people 'recruited' for this company are of the executive level because of the high number of franchisees. Firm infrastructure: Every organization needs to ensure that their finances, legal structure and management structure works efficiently and helps drive the organization forward. The company made a great move in this area when they started charging royalties and franchising fees. Other Value-Adding Capability The most obvious way that value is added to the products of Dippin' Dots is through the experience of consumers eating it. Virtually every one of them have positive feedback to offer. Core Competencies According to 1,000 Ventures (2008, pg. 1), "Core competencies are the most significant value-creating skills within your corporation and key areas of expertise which are distinctive to your company and critical to the company's long term growth. Your company's core competencies are the things that you can do better than your competitors in the critical, central areas of your company where the most value is added to your products." Each of these have been listed above in the case of Dippin' Dots. 'VIRO' consists of a firm's resources and sustainable competitive advantage. They are as follows: Value: The company manufactures a unique product. Inimitable: The product is relatively inimitable, except for a few copycats. Rarity: The product has a high degree of rarity. The organization is highly organized, partly because it is still relatively small. The executive arena is run by family, friends, and business associates, and the rest are franchisees. Evaluating a Firm's Performance According to Finpipe (2008, pg. 1), "Financial ratios are calculated from one or more pieces of information from a company's financial statements. For example, the "gross margin" is the gross profit from operations divided by the total sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a useless piece of information. In context, however, a financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. A ratio gains utility by comparison to other data and standards. Taking our example, a gross profit margin for a company of 25% is meaningless by itself. If we know that this company's competitors have profit margins of 10%, we know that it is more profitable than its industry peers which is quite favourable. If we also know that the historical trend is upwards, for example has been increasing steadily for the last few years, this would also be a favourable sign that management is implementing effective business policies and strategies." Unfortunately, from the information given, a financial ratio analysis cannot be performed for Dippin' Dots, nor can the balanced scorecard. Business-Level Strategy Generic Strategy The generic strategy for Dippin' Dots is pretty obvious. They focus on differentiation. Industry Life Cycle Stages The industry life cycle stage that Dippin' Dots is in is also particularly obvious. They are currently in the growth stage. Corporate-Level Strategy Diversification Dippin' Dots has not taken part in any mergers or acquisitions. The only diversification that it is apparent that they have involved themselves with is through franchisees and internal development. Implementation and Recommendation The most important thing for company executives to remember-no matter how much they grow-is that they must maintain a learning and ethical organization. This type of organization will learn as they grow and always strive to do what is best for others, not necessarily the company, even if it means losing out on profits. References Core competencies. (2008). 1,000 Ventures. Retrieved December 26, 2008, from http://www.1000ventures.com/business_guide/crosscuttings/core_competencies.html Financial ratio analysis. (2008). Finpipe. Retrieved December 26, 2008, from http://www.finpipe.com/equity/finratan.htm PESTEL analysis. (2008). Improvement Network. Retrieved December 26, 2008, from http://www.idea.gov.uk/imp/aio/1033478 Porter's Five Forces. (2001). Marketing Teacher. Retrieved December 26, 2008, from http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm Value chain. (2008). Learn Marketing. Retrieved December 26, 2008, from http://www.learnmarketing.net/valuechain.htm Read More