five force model is used to express how profitable and attractive a specific industry
may be. An industry is considered to be attractive when the threats of each
force are fairly low. Throughout this essay, I will explain each of the five
forces and their attractiveness in regard to Ice-Fili, a Russian ice cream
industry. Also, I will include suggestions to Ice-Fili on how to lower threats
within the industry.
threat of new entrants was a dominating issue for Ice-Fili due to weak barriers
issue made it difficult for Ice-Fili to remain one of the top ice cream
producers in Russia. In 1991, Russia decided to institute an open market
economy. This policy allowed industries to access markets in a free manner.
Industries such as Ben & Jerry’s and Baskin & Robbins took advantage of
this open market concept in order to increase capitalization. In turn, this
created higher competition with local industries such as Ice-Fili who
experienced a significant drop in sales and production. Overall, the threat of
new entrants would be considered high due to its weak barriers to entry.
threat of product substitutes becomes high when outside industries create
products at a lower cost with similar benefits. Available substitute products
include sodas, yogurts, chocolates and other sweet treats. These substitutes
may serve the same purpose to the consumer which is the indulgence and intake
of a sugary substance. “In 2000, the production of ice cream was down 3.5% from
the year before; in contrast, the production of confectionaries was up 8%, soft
drinks 25%” (Rukstad, 2005). Overall, the threat of product substitutes is
considered to be medium-high in regard to the ice cream industry. The ability
to purchase items at a lower price that essentially provide the same amount of
benefits is the reason for higher competition.
power of suppliers in the ice cream industry is low. The supplier power is low
when referring to ingredients used to create the ice cream. Ingredients such as
milk, butter, and sugar are currently sold as a commodity. These essential
ingredients can be purchased for a lower price through different suppliers at
any given time. Having the ability to purchase lower priced items from different
sellers decreases the suppliers bargaining power.
distributors, Ice-Fili has the power to decide what products are available to
the consumers which is an indicator of possessing high bargaining power. There
are currently 300 active ice cream industries in Russia. Consumers are able to
choose one product over the other without second-guessing due to lack of brand
loyalty. Price sensitivity is also a factor in bargaining power. Small
differences in pricing of a product will not change consumer buying behavior so
the price sensitivity is low.
Rivalry amongst competitors is likely to be
high when there is a large number of similar functioning industries. Many
competitors relied heavily on advertising and marketing to ensure consumers
became familiar with their products. Ice-Fili did not spend near as much money
in advertising compared to its competitors. Because of Ice-Filis lack of
advertising, consumers were more prone to choose other options. The competition
and rivalry amongst existing industries would be considered high because of
domestic and foreign competition.
five forces has helped my analysis in deciding whether or not this particular
industry is considered attractive. In my opinion, this industry would not be attractive.
Numerous ice cream industries create higher competition which forces industries
to diversify their products and causes a decrease in the market share. The quantity
of available substitutes makes it difficult to attract consumers to your
products. These factors justify my opinion on the industry attractiveness.
most problematic force is the threat of rivalry amongst competitors. A combination
of marketing and advertising tactics are used to drawn in consumers to purchase
specific products. If your company does not have the funds to advertise or market
your products, it lessens the chance of gaining loyal customers. Low barriers
to entry creates more competition by allowing outside industries to plunge into
any open market.
suggestions that may lower the threat of Ice-Fili’s competitors are to access
more distribution channels, invest in advertising as often as possible and try
expanding to other foreign countries. Ice-Fili is currently selling their
products at ice cream kiosks. Although kiosks contribute to 49% of ice cream distributions,
expanding to cafes/investing in their own café chains and restaurants will potentially
increase sales volume. Since ice cream altered package techniques (boxes,
buckets) in the early 2000’s the demand for at home consumption products became
a large target market. Ice-Fili predominately caters to a small range and is in
need of expanding market range. This industry should focus on taking advantage
of the large market of consumers who demand products for use at home. Ice-Fili
has a history of spending less money on advertising products compared to that
of other ice cream industries and or companies that provide substitute
products. Ice cream industries spent about
five million dollars in advertising and marketing costs. While the soft drink
industries paid about two hundred billion dollars in advertising costs. Advertising
serves as a way to inform consumers about new and existing products. This
tactic may help build a well-established brand and increase brand loyalty.
Ice-Fili manufactures and sells its products in one place, Russia. However,
Russia encourages foreign and local competition between various industries. The
idea of expanding Russian ice creams to other countries should initially be treated
as a trial to see if it becomes a success. To minimize the risk, Ice-Fili
should focus on serving only its most popular ice cream flavors. Ice-Fili
should use these suggestions as a guide for decreasing current industry
competition. If executed correctly, Ice-Fili should be able to gain consumers
attention with new marketing techniques, expand access to distribution channels
and finally expand to other foreign countries.