Cumnor Ice Cream Ltd is primarily an ice-cream manufacturer and supplier but it also operates its own outlets and directly sells to consumers. The company sells a non-premium ice cream brand that does not compete with well established nationally and internationally distributed ice-cream brands. Its market segments include local consumers, independent retailers and institutions (schools, hospitals and community centres). Over the last ten years, the company has faced several different forms of challenges that ultimately question its sustainability. The challenges have stemmed not only from the external environment but also from the internal environment. The company at present has failed to respond effectively to external challenges and has done little to resolve the problems that have risen from the internal environment. For developing an effective management advice for the company, it is fundamental to analyse the external challenges and problems that are currently faced by the company and highlight key marketing, operational, human resource and financial issues that need to be extensively checked upon to identify loopholes and potential sources of competitive advantage for the company.
Analyse two significant developments in the macro external business environment that influence demand for ice cream
The external business environment that Cumnor Ice cream Ltd operates in has changed tremendously over the last ten years. The industry that Cumnor Ice Cream Ltd operates in is a small one. There are fewer competitors to worry about in the local market. Cumnor Ice Cream Ltd for a long time has the prime distributor and supplier of ice cream to local retailers and institutions. The grave concern for the business is that the demand of its ice cream has fallen. There are two main sources of this problem.
The institutional market segment that comprises of schools, hospitals and community centres are now planning to reduce the amount of ice-cream they purchase from Cumnor Ice Cream. Their plans are related with their rising concerns towards more healthy food for the members of the institutions.
Its other customers that fall into the segment of independent retailers are not contributing in terms of high demand either. They constitute a smaller market segment whose significance in terms of sales volume is not high in comparison.
On the other hand, Cumnor suffers from seasonal trends in sales. Since the brand is most consumable during summers, one bad summer can produce an adverse impact upon sales. The seasonal trends produce a negative effect on the cash flows of the business and its operational efficiency. The ice cream is only sold in high volume during the summers, whereas, during the winters minimum profitability is attained. The company has forecasted that owing to the change in climate, more bad summers are expected in the near future. This would translate into a drastic fall in sales in future for the company.
Analyse the key marketing issues at Cumnor Ice Cream Ltd and recommend the marketing actions you think the business should take
It is important to note that the company is focused towards operational efficiency and the management philosophy therein is “to make ends meet.” The company has been over the years more inclined towards survival than growth. This has been due to the lack of marketing focus within the company. The evidence of the lack of marketing management comes from several issues that pertinent to the existing performance of the company (Hitt et al., 2010).
The market positioning that the company has established for itself in the area it distributes to shows how less importance the company gives to its own brand. It is positioned in a low-end market where it sells a non-premium ice cream brand that is perceived to be ‘local’ and not put in comparison against well established ice cream brands available in the area. The fact the company’s management has restrained the ice cream under limits of being a non-premium brand undermines its capability to compete in the high-end ice cream market. This pertains to a narrow approach taken by the management for the brand that could otherwise do better considering the fact the consumers actually have shown interest in the ice cream over the years.
The company caters to fewer market segments. This is another marketing issue that has paved way for the current position of the company. Because of this, the ice cream is distributed to limited locations. The distribution is mainly limited to the local region. Over the years the company has made no attempt to enter into new regional markets, attract more retailers and more institutions (Doyle, 2002).
Brand focus is nowhere in sight for the ice cream. This is evident from the lack of attention given to the product over the years. There are only flavours that are offered to consumers. Since the launch, the company has failed to add to the flavours and has introduced no innovations that could attract more customers and give the brand an edge in the market. The focus has been instead towards ‘how’ the product is produced rather than what and for whom it is being produced. The company has never conducted proper and formal market researches to identity industry trends and consumer behaviour that could allow it to identify opportunities and challenges.
The company has never invested in advertising and promotional activities. Its strategy has been to curtail supplier and customer relations to benefit its long term association with its customers. This has been rendered as an ineffective strategy as the customers are still choosing to cut down on the supply of ice cream.
Because of the lack of interest shown to consumer demands and product innovation, the company is now seen to decline as its existing product, positioning and distribution. The company needs to expand into new markets, strengthen its brand positioning, segmentation and image via introducing new product innovations, packaging and flavours and invest in advertising and promotional activities so that it can equip itself to compete against big rival firms in the middle and high-end market and acquire higher revenues with value additions to its product lines (Johnson and Scholes, 2003).
Analyse the key operations issues at Cumnor Ice Cream Ltd and recommend the operations actions you think the business should take
Cumnor Ice cream Ltd uses a company-owned manufacturing plant for the production of the ice cream that allows it to benefit from the lower cost of production that otherwise would have been higher as the rates of rent of such a location and size of plant are quite high. However, the cost it saves from the rent payout is offset by the excess capacity in the plant that is spared from being used owing to the seasonality of demand of the ice cream. The focus of the operational management is towards cost and production efficiency. The targeted efficiency levels are far from being acquired as the seasonal variations affect the capacity utilization and several resources remain ineffectively managed. The plant hires fewer full time and more temporary staff for the production of the ice cream. The workers are made redundant and the ones employed are made to over work with limited pay raises to allow further costs to be saved. This hard woven operational strategy has allowed the company to benefit from short term operational efficiency. In the long term, the company has witnessed a fall in the quality of the product that is distributed to customers.
Where customers have complaints about the quality, employees have complaints about the improper work schedules as well as lack of proper pay scales. The operational strategy has resulted in lowering the morale of the employees that has ultimately affected their performance outcomes and the quality of the product has been seriously hurt. The attempts to improve quality that Julie, Mark’s daughter has tried to introduce have failed drastically as she has failed to win the cooperation of the employees in the production unit. This has been the direct outcome of the management approach taken by the company that ignores the importance of motivated employees.
Analyse the key human resource issues at Cumnor Ice Cream Ltd (including the structure and culture) and recommend the actions the business should take.
Having motivated employees whose rewards are linked with performance outcomes is a strategy that is nowhere to be seen (Dess et al., 2004). The management has ignored this element as a large majority of its staff has been hired on temporary basis. Management tends to ignore that the individual goals and values need to be aligned with the company’s values and vision in order to expect effective performance from them.
The long term employees share either a family bond or a long term in-formal association with the owners of the company. Because of the nature of the recruitment, fewer effective human resource management techniques and practices are made use of in the company. Employees are selected for hiring based on their willingness to be hired for less pay rather than their commitment with the company to produce quality work for reasonable pay.
There is no formal structure. A simple functional structure is followed where operational, marketing, finance and administration share limited coordination and communication amongst themselves. Despite of the fact that the company has limited operations and is small in size, its functional departments operate in isolation (Hill, 2009).
The management needs to first define values upon which the organisational culture needs to be based. These can be then translated into the structure, strategy, action plans, management approach, management style, departmental goals and individual goals (Gasper, 2006).
Analyse the key financial issues at Cumnor Ice Cream Ltd and recommend the financial actions the business should take
With rent, salaries and operational expenses under control, the company has less to worry about short term expenditure. However, its continued negative cash flows owing to the seasonal impact on sales have reduced its financial strength. Financial strength can only be revived via bringing in personal capital into the company to invest in marketing activities to boost sales and attain high revenues that could improve the cash flows and allow more retained earnings to be generated (Arnold, 2002).
Provide a conclusion highlighting the overall priorities of the business and recommend the key actions that need to be taken in the immediate future
The focus of the company has been towards operational efficiency as well as “making ends meet”. The company is leading towards an unsustainable future because of this very approach. The lack of advertising and promotional activities has forced the end-consumers to perceive it as a non-premium brand and because of which they are not willing to pay more for it. Seasonality is another major concern that produces negative impacts upon operational and financial performance of the company. Marketing initiatives such as product innovations, positioning, segmentation and promotions are required to control the impact on the seasonality in sales.