Carvel Case Study
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Tom Gleave prepared this case under the supervision of Professor Mark Vandenbosch solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected] Copyright © 1999, Ivey Management Services Version: (A) 2010-01-12
In August 1998, Steven Wang, manager of business development for Beijing-based Carvel Asia Limited, was considering various ways to increase sales in the company’s flagship product category — ice cream cakes. In the one year that he had been on the job, Wang had worked at increasing the presence of the famous American brand name throughout China’s capital city. In summarizing the task before him, Wang stated: The challenge is to develop a complete marketing program for a product that is relatively new to most Chinese. Therefore, much of what we need to do involves basic education — we need to ensure that our customers and distribution partners understand who we are, what we are about and what benefits our products provide. At the same time, we have been given a very limited advertising and promotion budget, so whatever actions we take must be cost-effective. Once we put a proven program together in Beijing, we will transfer our learning to other parts of the country. CARVEL CORPORATION
In 1934, Thomas Carvel founded Carvel Corporation (Carvel) in Hartsdale, New York after he converted his mobile ice cream truck into a permanent roadside location. Originally, the company served only soft ice cream cones and milkshakes before developing other products, such as ice cream cakes. By 1998, Carvel owned and operated over 300 retail stores in the U.S., Canada, Puerto Rico and China, and had granted franchise rights to over 600 others. It had also established over 4,500 “wholesale” accounts throughout the U.S. These outlets were mainly in supermarkets, although some interstate highway restaurants and highend hotel locations had recently been developed. The company’s system-wide sales for 1997 exceeded U.S. $600 million. The products Carvel sold fell into three categories — fountain ice cream, ice cream novelties and ice cream cakes. Each retail store was completely self-sufficient, and therefore, capable of producing a myriad of soft and hard ice cream flavors, as well as the entire range of Carvel novelties and ice cream cakes.
The fountain group consisted of soft and hard ice cream cones, milkshakes and sundaes. Carvel’s novelties were all single serving-sized products that were sold for both in-store and home consumption. The ice cream cakes category comprised a standard product line known as Carvel Classics, a premium product line known as Blue Ribbon, a specialty line of character and novelty cakes, as well as other individual types of cakes (See Exhibit 1). The Classic cakes came in six, eight and ten-inch round sizes.1 Each Classic cake was made by starting with a layer of soft vanilla ice cream as the base. A chocolate wafer biscuit was then placed on top of the base, followed by a layer of Carvel “Crunchies,” an ingredient similar to chocolate cookie crumbs. Another layer of soft ice cream was then added before a final layer of decorative, vanilla-flavored ice cream whip was applied to the sides of the cake, leaving the top surface available for a customer-specific message.
Blue Ribbon cakes were six-inch rounds and came in such flavors as Sinfully Chocolate, Strawberries and Cream, and Cappucino. Unlike the Classic cakes, Blue Ribbon cakes were completely covered with various whips and toppings, leaving no possibility for the customers to add specific messages. Carvel’s character and novelty cakes followed the same basic recipe as the Classic cakes and were designed to celebrate children’s birthdays, as well as particular holidays and events. They included long-time favorites such Fudgy the Whale, Huggy Bear, and Carvel Bunny, as well as Santa Claus cakes that were sold during the Christmas holiday period and football-shaped cakes around the annual National Football League Super Bowl game. Other cakes included various-sized rectangular “sheets” and half-cylinder “logs.” These cakes followed the same recipe as the Classic cakes. Carvel’s stores were capable of satisfying almost any special order request, provided that 24 to 48 hours’ notice was given. CARVEL IN CHINA
In 1994, Carvel established Carvel Asia Limited to act as holding company for the ice cream maker’s operational investments in Asia, starting in Beijing. To this end, Carvel Asia Limited teamed up with China’s Ministry of Agriculture to create Beijing Carvel Food Company Limited (Beijing Carvel), a joint venture equally owned by both parties. By 1998, Beijing Carvel had established 10 retail stores and 150 wholesale accounts throughout Beijing. The company had experienced losses every year since its inception; however, its financial performance had steadily improved. In 1997, sales exceeded 6,000,000 Rmb (US$725,000) 2 and the company was forecast to break even within the next year. Beijing Carvel derived about 45 per cent of its revenues from ice cream cake sales and 55 per cent from fountain ice cream and novelty sales. By comparison, Carvel’s U.S. operations generated about 60 per cent of its revenues from cakes, 30 per cent from fountain products and 10 per cent from novelty items. Beijing Carvel’s cakes were purchased most often for birthdays and office parties, as well as for major holidays such as Spring Festival and the Mid-Autumn Moon Festival. THE BEIJING MARKET
Steven Wang, a fluently bilingual American-born Chinese, joined Carvel Asia Limited in September 1997. After spending three months at Carvel’s head office in Farmington, Connecticut, he moved to Beijing with a priority mandate to increase Beijing Carvel’s sales, particularly in the ice cream cakes category. But, as Wang quickly discovered, “this was going to be difficult because there is an amazing lack of information upon which to base any decisions and what data that are available are notoriously unreliable.” Given this situation, Wang relied on his own observations, feedback from Beijing Carvel customers and sales staff, and information gleaned from business magazines and public reports to help him make his decisions.
In compiling his findings, Wang identified several characteristics about Beijing in general that he felt were important to remember: the city’s overall economic growth rate for 1998-99 and 1999-2000 was forecast to be about eight per cent, with inflation expected to be -1.4 per cent. average annual base incomes had risen by 75 per cent over the past three years to 16,100 Rmb; about 300,000 people were considered upper-middle or upper income earners based on average annual base incomes exceeding 29,800 Rmb. subsidized housing, transportation, medical services and education provided the average resident with an estimated total income equal of 80,000 Rmb. per year. residential freezer ownership amounted to about 15 for every 100 households. the city’s literacy rate was about 90 per cent.
The Beijing ice cream market consisted of standard and premium categories that were distinguished by price and quality. Over 98 per cent of the approximate 35,000 tonnes of ice cream products annually consumed in Beijing were manufactured by low-cost producers who offered standard quality products at low prices. These competitors focused on producing a wide array of single serving-sized ice cream and fruit juice-based products, such as drumsticks, ice cream tubs, sundaes and fruit-flavored popsicles. Retail prices for these items usually fell between 1.5 and 7 Rmb. Many competitors in the standard ice cream segment were local producers who demonstrated very little effort or commitment in building awareness for their brands. In contrast, several joint-venture companies involving high-profile foreign firms (such as Wall’s, Bud’s and Nestle’s) had entered the market in recent years with a strong commitment towards brand building. This commitment was demonstrated by the substantial market share that these firms had collectively been able to garner, which went from virtually nothing to an estimated 80 per cent of the standard ice cream segment within the past seven years.
The main strategy deployed by these producers was to entice retailers to sell their products. To this end, the joint-venture companies developed so-called “freezer loan programs” wherein the producers installed freezers at all types of food and general merchandise stores. To help build awareness with potential customers, the external walls of the freezers displayed colorful graphic designs, pictures of the company’s products and the company’s logo. In exchange for the free installation and use of the freezers, retailers agreed to keep the freezers prominently displayed and to use them exclusively for the sponsoring company’s products. In reality, however, some retailers used the freezers to sell several competing products. Some also turned off the electricity to the freezers in order to save costs. Beijing’s premium ice cream market had not started to develop until Baskin-Robbins, one of Carvel’s strongest competitors in the U.S., opened its first store in 1992.
Since then, the premium category had grown with addition of Carvel and Haagen-Dazs, the only other companies to offer ice cream cakes in Beijing. By 1998, Baskin-Robbins had established 12 full-service retail outlets throughout the city. The menus in these stores were essentially the same as those in the U.S., although the total number of flavors available in Beijing were slightly less. The company’s main product strengths were widely perceived to be its hard ice cream and, to a lesser extent, its ice cream cakes. Several standard cakes were offered year around, and orders could be placed for specialty cakes or cakes requiring specific messages, provided that 24 to 48 hours’ notice was given. All of the Baskin-Robbins stores offered seating for 15 to 20 people and were staffed by full-time managers and employees. Wang estimated that Baskin-Robbins total annual sales in Beijing ranged from about “7,000,000 Rmb. on the low end to 8,300,000 Rmb. on the high end, with about 15 per cent coming from cakes.”
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The most recent entrant into the Beijing market was Haagen-Dazs, the multinational company perceived by many as defining the standard for “gourmet” ice cream. The company had previously established two stores in Shanghai before it decided to enter the Beijing market in August 1998. The Beijing store was located in one of the most popular retail shopping districts, beside the posh Beijing International Hotel, and approximately 300 metres from Baskin’s flagship store. Wang suggested that Haagen-Dazs positioned its store as an “up-scale, full-service lifestyle boutique which catered to Beijing’s Westernized yuppies.”
The products offered included 14 flavors of hard ice cream, ice cream bars, fancy desserts topped with liqueurs and ice cream cakes. Most cakes were made to fill specific customer orders which were communicated in person, or by phone or fax. The cakes were stored in a multi-tiered display case located immediately beside the store entrance and were named accordingly. As Wang noted with interest, many were also labelled as “Sold.” Because the store had only been open for about two weeks, Wang felt that it was too soon to be able to properly gauge the impact that Haagen-Dazs would have on the ice cream cake market. However, he did realize that the company had “deep pockets,” given that it had spent an estimated 2,000,000 Rmb. to promote the Beijing store opening. This included appearances by several dignitaries as well as local and national pop culture and film celebrities. BEIJING’S CONSUMERS
In terms of Beijing’s consumers, Wang identified several attributes that needed to be factored into the development of his marketing program. One factor was that China’s consumption of dairy products was among the lowest in the world. Wang attributed this to China’s poor infrastructure, which prevented sanitary and cost-effective distribution, and a high incidence of lactose-intolerance among Chinese. There were encouraging signs, however, that dairy products were becoming much more commonplace in China. Wang had learned that, over the previous decade, overall dairy product consumption had tripled in China and that ice cream was the most popular dairy product consumed. In addition, Chinese health-care professionals had become more vocal in advocating much greater consumption of dairy products in order to achieve improved health. At the same time, growing numbers of Chinese had become increasingly health-conscious and, in contravention to some long-held beliefs, had started to eat cold foods.
As Wang related, “Many Chinese still believe that cold foods are bad for you. I have even seen it where parents will have their child’s orange juice microwaved in the summer for fear the child will catch a cold or flu if it is drunk cold. Thankfully, some people are now realizing that cold foods can be both delicious and beneficial to your health.” In examining the premium ice cream market, Wang concluded that there were three customer segments that held the greatest promise for increased sales, namely, middle and upper class Chinese professionals, an emerging generation of so-called “little emperors,” and expatriate residents. These segments contrasted sharply with the North American market where Carvel’s clientele was heavily skewed towards women aged 25 to 39.
Wang stated: In Beijing, our most important customer segment so far has been middle and upper income working professionals who provide us with about 70 per cent of our cake sales. This segment comprises male and female Chinese, aged 25 to 45, who are seeking novel products and experiences. These people are in an experimental frame of mind these days since they have much greater incomes than they did just a few years ago. They are more willing to purchase unique products for the new experiences they provide. Since many within this group are relatively young and no longer live at home, they tend to celebrate their birthdays or other special occasions with their co-workers or friends. But there is still some conservatism within this segment which prevents them from making purchases that are viewed as risky. I think that is one of the reasons why our eight inch Classic cake is our best seller. Another reason is that the Classic cakes allow our customers to customize their messages on top of the cake — this is something that is very culture-driven in China. Wang believed that one potentially lucrative segment that he should consider targeting was children and young teenagers.
This was because the imposition of China’s “one-child policy” had created an interesting dynamic in the marketplace. Wang explained: Back in 1980, the government imposed the “one-child policy” as a means of curtailing the country’s exploding population. As a consequence, an entire generation of so-called “Little Emperors” has now emerged and virtually all marketers are trying to figure out how to reach them. The label “Little Emperor’’ has been used to convey the notion that, since most of these children have no brothers or sisters, they are continuously spoiled by their parents and two sets of grandparents. This has created a boon for those companies that can effectively exploit the fact that many urban families are now spending over 60 per cent of their disposable income on their children. This means that these “Little Emperors” are used to getting almost anything they want, everything from computers and video games to Michael Jordan t-shirts and sneakers . . . and this stuff is not cheap! We have determined that about 20 per cent of cake sales are being driven by Little Emperors, and with 1.5 million children in Beijing between the ages of five and 12, there must be a way we can get them and their parents more interested in cakes. To date, about 10 per cent of Beijing Carvel’s annual sales came from Beijing’s 100,000 strong expatriate community.
These were mainly foreign business and embassy employees (and their families) who were living and working in Beijing. The vast majority of these people lived in and around two large embassy districts that were located on the east side of the city. In contrast to many local residents, “expats” often lived in more comfortable surroundings in terms of both living space and the availability of amenities (such as home appliances, reliable hot water supply and dedicated telephone lines.) In considering targeting this segment, Wang had mixed feelings. On the one hand, he realized that expatriates would be easier to reach than the two main Chinese segments. This was because most Westerners were heavily concentrated in one section of the city where they usually lived in apartment buildings that catered exclusively to foreigners.
In addition, virtually all North American and most Europeans living in Beijing had an excellent command of English which meant that Beijing Carvel could avoid the cost and effort of translating a total marketing program into Chinese. Moreover, this same group was familiar with ice cream products in general, and ice cream cakes in particular. Therefore, comparatively little effort needed to be done to adapt a Western-style marketing program to Beijing since many expatriates understood Beijing Carvel’s products and their benefits, and Carvel largely understood the purchasing habits and criteria of these consumers. On the other hand, Wang was concerned that too much effort dedicated to attracting expatriate customers would detract from Beijing Carvel’s ability to reach a much wider audience. IMPROVING BEIJING CARVEL’S PERFORMANCE
As Wang began to develop a marketing program for Beijing Carvel’s ice cream cakes, he realized that he had several options to analyze before making his final decisions.
Several decisions had to be made concerning the types of products to focus on selling and their corresponding prices. One option was to expand the number of products offered. Wang believed that two products Carvel had marketed in the U.S. might also suit the Beijing market. The first was the “Little Love,” a smaller (six-inch round — 600 gram) Classic cake which retailed in the U.S. for $7.99. These cakes were marketed as an “everyday” product by which consumers could “turn any common day into a special occasion by serving a Carvel cake.” To this end, Carvel targeted working mothers because they could “surprise the family” by purchasing a Little Love on the way home from work. Wang believed that the Little Loves had a potentially wide appeal because their lower price would reduce the “purchase risk” felt by hesitant customers. The nature of the product might also appeal to mothers who were interesting in satisfying the wishes of their “Little Emperors.” The other product that Wang believed had potential in the Beijing market was “Piece of Cake.” The recipes and names for these products were identical to those of the company’s Classic and Blue Ribbon cakes, and were individually made in their own 96-gram, triangular-shaped molds. The rationale underlying the sale of these products was to reduce “purchase risk.”
By providing consumers with what it called a “saleable sample,” the company hoped to induce more trials of its larger cakes. Originally, these products were met with a noticeable level of resistance from many U.S. franchisees who believed that such products would not be worth selling at the target price of US$0.99 for all flavors. However, given the smaller incomes in China, Wang believed that a “Piece of Cake” might appeal to Beijingers who were still unfamiliar with the ice cream cake concept. Such a product offering would also distinguish Beijing Carvel from its main competitors since they offered no similar product — one that could be easily consumed in-store. One concern that he did have was the lack of concrete data from the U.S. to prove whether or not “Piece of Cake” sales actually induced trials of larger cakes. In terms of current menu items, Wang was unsure whether or not he should adjust Beijing Carvel’s cake prices because of the effect it might have on Carvel’s image relative to its competitors. This was an especially important consideration given that the company’s cake prices were already lower than both Baskins and Haagen-Dazs (See Exhibit 2).
Part of this difference was due to the recent 10 to 20 per cent price reduction that Beijing Carvel made across all product groups. Although this price cut resulted in an increase in sales, it was too early to tell if the reduction in margins had been offset. One possible pricing option was to extract greater cost reductions from the manufacturing process and pass these savings on to the consumer. This could be done controlling the level of “over-run” used in making the ice cream. Wang described the process as follows: Over-run is an industry term used to quantify the amount of air that is whipped into ice cream during its production — the lower the number, the richer or denser the ice cream. The standard producers typically use an 80 to 90 per cent over-run.
Essentially, this means you are eating a lot of air! The upper-end players [including Carvel] typically use a 30 to 40 per cent over-run. In other words, when you bite into our ice cream, you eat ice cream! What surprises me the most, though, is that despite such an obvious difference, in some recent blind taste tests we conducted, many Chinese still seem to prefer the low-end variety. Wang estimated that he could lower his cost of variable costs by five per cent if Beijing Carvel increased its over-run to a 45 to 50 per cent level. Although such a move would result in ice cream that more closely resembled the widely popular standard ice cream products, he recognized the possibility that this could compromise Carvel’s image for quality in the market. Therefore, he knew that he would require head office approval before proceeding. Distribution
In exploring his distribution options, Wang needed to determine, first, how he could improve sales in Beijing Carvel’s existing retail and wholesale locations; second, whether or not he should target the growth of specific channels more than others; and third, whether or not he should exit certain locations. The difficulty he faced in making these decisions stemmed from the wide variability in performance among all distribution channel types, wherein no clear pattern of success had yet been established. In terms of Beijing Carvel’s retail stores, only four were viewed as “full service” because they alone offered all Carvel product lines and each could accommodate 15 to 20 customers. The remaining six stores were scaled-down outlets which served only hard ice cream and cakes, and had little or no available seating. In contrast to Carvel’s North American stores, the Beijing stores did not produce most products on site, save for soft ice cream at the four full-service locations.
Therefore, all ice cream cakes, hard ice cream and novelty items were supplied by a centralized production facility attached to the back of Beijing Carvel’s retail store on Wanfujing Lu. The Wanfujing store served as the company’s flagship outlet since it was located on Beijing’s trendiest street where a wide array of famous foreign cosmetic, clothing and food brand names could be found. Because the prices in the surrounding area were considered very high by most Chinese, the Wanfujing area catered mainly to foreign residents and tourists, as well as Beijing’s emerging middle and upper classes. In assessing the overall performance of Beijing Carvel’s retail stores, Wang commented: Our stores vary substantially in terms of location, size and product offerings. Five of them are on the east side of the city, although none of them are actually in a foreign-dominated neighborhoods. The remaining five are scattered throughout the other sections of the city where very few expatriates or tourists ever travel. The average monthly sales range from about 15,000 Rmb. to 120,000 Rmb. at the Wanfujing store. In terms of investment, the stores’ ROIs range from -25 to 60 per cent.
This is because the build-out costs can vary a great deal from store to store. Our smallest locations can be built for as little as 70,000 Rmb. while our full-service locations require a minimum investment of 415,000 Rmb. This means that the break-even sales points vary greatly among our stores. As a general rule, a full-service store needs to sell about 85,000 Rmb. worth of product per month to break even.3 The smaller stores need to sell about 7,000 Rmb. per month to break even. One interesting finding has been the performance of our Chao Bai store. Chao Bai is our smallest store in terms of physical size and one of our smallest in terms of sales at only 20,000 Rmb. per month, but it provides us with our best return, in part, because we have a good deal on the rent. More interesting, however, is the fact that over 90 per cent of its sales come from cakes — even though it is in a very Chinese neighborhood. This is in sharp contrast to our Wanfujing store where 45 per cent of sales come from cakes. If you take all stores combined, 45 per cent is about average, but we do have some sore spots in both foreign and local neighborhoods where cake sales make up only 20 per cent.
These figures were based on an average contribution margin of 70 per cent on the current retail price list for all menu items. Beijing Carvel’s variable cost for its cakes (which included ingredients, labor and packaging) ranged from 30 to 35 per cent of the retail price.
In terms of wholesale outlets, Beijing Carvel had established sales accounts with various food merchants which were categorized as follows: 25 in high-end supermarkets, 25 in local supermarkets, 40 in bakeries, and 60 in restaurants and bars. In developing these accounts, Beijing Carvel focused mainly on growing its ice cream cake business, although a limited selection of hard ice cream and novelties was available at certain locations. Eight sales account representatives were responsible for prospecting new accounts and servicing existing accounts. Their duties included educating vendors about the products, as well as demonstrating appropriate placement and presentation. All cakes sold to the wholesalers were priced at a 30 per cent discount off Beijing Carvel’s retail prices and were displayed in self-contained freezers leased from Beijing Carvel. The high-end supermarkets serviced by Beijing Carvel were all joint-venture companies involving well known foreign retailers such as Carrefour (from France), Makro (from Holland) and Park ‘n’ Shop (from Hong Kong).
These stores offered the widest range of food and specialty cooking items in Beijing and catered mainly to the expatriate community and the growing number of upper-income Chinese. In the case of Carrefour and Makro, the food sections in these stores were part of much bigger “discount” superstores that sold a wide variety of hard and soft goods. Despite their strong association with discounting in the West, the cost of many imported food items offered at these stores was out of reach for most Chinese. However, several locally owned supermarket chains had emerged in recent years that catered to the larger (and rapidly growing) middle class in Beijing. Unlike the high-end supermarkets, items in these stores catered to local tastes and were offered at more moderate prices. Beijing Carvel believed that bakeries were a natural point of distribution for ice cream cakes since many consumers frequented these stores for flour-based cakes and other items. Unlike southern China, flourbased foods were staple items in the diets of many northern Chinese.
This meant that many Beijingers were accustomed to eating bread or buns on a daily basis, as well as cakes during periods of celebration. Unlike the general custom in North America (where people purchased birthday cakes for those who were celebrating their birthday), in China the person celebrating the birthday would often buy a cake which he or she would then share with friends and family. One concern that Wang had about developing bakery accounts was related to the average prices for flour-based cakes, which were often 15 to 30 per cent less than Beijing Carvel’s cakes. Beijing Carvel’s rationale for developing wholesale accounts in bars and restaurants was related to the emergence of Beijing’s middle and upper classes and the corresponding explosion in the number of new eating and drinking establishments throughout the city in recent years. Since many of Beijing’s new middle and upper classes were professionals who worked long hours, many of them had started to spend a great deal more time eating and socializing with friends and co-workers outside the home.
As well, the Chinese tradition of conducting business in a social atmosphere also meant that many of Beijing’s high income individuals spent a great deal of time entertaining existing and potential business partners. It was for this reason that Wang thought about emphasizing the development of KTV (Karoke Bar) accounts. These establishments provided private facilities to people who were often willing to spend 1,000 — 3,000 Rmb per night for entertaining business associates and friends. Most rooms at KTVs could comfortably accommodate 10 to 15 people and came equipped with a television, hi-fidelity stereo system, karaoke machine and one or two dedicated hostesses. Because the focus of the evening was as much on eating and drinking as it was on singing, a full range of Chinese dishes could usually be ordered at any point during the night. Wang was not pleased with the “quality” of many of the wholesale accounts that had been recruited prior to his arrival. Though some progress had been made, the problem continued to plague Beijing Carvel, prompting Wang to suggest:
Much of the problem is related to the fact that the eight sales reps are compensated by the number of accounts they develop, not the quality of accounts developed. This has meant that we have mix in terms of the quality of our accounts within all the different types of outlets — about one third are solid performers, another third mediocre and the other third poor. What we need now is radical surgery to ensure that the accounts we have are worth the time and effort required to supervise them. This may mean slashing our nonperforming accounts and reassigning our freezers to other locations. Communications
In analysing his various communication options, Wang knew that he was constrained by a budget of only 165,000 Rmb. for the upcoming year. However, he could request additional funding in the event that he identified an option which he deemed “very feasible” in terms of its cost-benefits analysis. This meant that, for the time being, media such as television and radio were not tenable options. Therefore, Wang needed to rely on various print media to convey what he believed was the most important message that he wanted to deliver, specifically “Who we are, what we are about and the benefits of our products.” This limitation was not viewed as a significant obstacle because many Beijing residents exhibited a strong preference for acquiring their information through the print media. This was demonstrated by the fact that the city was home to more than 30 daily and weekly newspapers and specialty publications, many with circulation numbers in the hundreds of thousands.
This left Wang to consider using one or more of three print media alternatives — a weekly consumer newspaper, information leaflets and/or an entertainment association coupon book. Beijing Shoppers Guide was a twice-weekly consumer newspaper that targeted the city’s emerging uppermiddle and upper classes. The bulk of the print copy was assigned to advertising space which allowed companies to promote awareness of their products. Each edition had a circulation of 250,000 and cost readers 1 Rmb. Advertising costs were 10,000 Rmb per edition for a four-square inch placement. Many companies used this space to introduce and describe their products, as well as offer a cut-out, returnable coupon. These coupons typically offered a 12 per cent discount off the retail price because the number eight was considered lucky in China, and therefore, 88 was seen as doubly lucky. Wang believed that if he were to use this print medium, he would need to offer more than the standard 12 per cent discount in order to induce purchase. The advertising leaflet that Wang envisioned would be a dual-language, full-size (about 8.5” x 11.0”), double-sided glossy leaflet which could fold into thirds. One side would present pictures and prices of Beijing Carvel’s main menu items, with an emphasis on cakes.
The other side would display a miniature map of Beijing indicating the addresses and phone numbers of the company’s retail locations, as well as a discount coupon. Initial costs were estimated to be 0.45 Rmb. per sheet for a minimum of 2,000 prints. If 5,000 or more copies were ordered, the cost would be reduced to 0.30 per sheet. Wang believed that the most effective points of distribution would be outside several new shopping centres located throughout the city, including the shopping centres where stores were already established. This was because these centres were key destinations for Beijing’s emerging consumer classes. He felt that the most appropriate people to distribute the leaflets would be company employees, dressed in full Carvel uniform. The Beijing chapter of the Asian Hospitality Association (AHA) offered an entertainment coupon book which profiled about 175 mid- to up-scale restaurants, eateries, bars and recreation establishments.
The book was revised annually and sold to about 10,000 local “members,” virtually all of whom were in the upper income segment, for 198 Rmb. per copy at the start of each year. Members received an AHA membership card which they could then use as many times as they wished throughout the year at any of the participating advertisers’ establishments, including company locations in other parts of Asia. The discount that Wang had in mind was to offer AHA members a 12 per cent discount off all cake sales. The cost for participating advertisers was 4,000 Rmb. for a half-page placement (3 inches high x 4 inches wide). Wang was confident that, because he knew the publication’s manager, he could purchase a standard placement in exchange for 2500 Rmb. worth of Beijing Carvel coupons. THE DAYS AHEAD
In looking at the task before him, Steven Wang realized that he needed to make a series of sound decisions before his ice cream cake marketing program was complete. This included resolving questions about who to target, what products to focus on and what prices to charge for those products. He also needed to resolve what points of distribution would best increase Beijing Carvel’s cake sales and how to support these sales through various print media options. The difficulty of these decisions was compounded by the fact that ice cream cakes were new to most Chinese and were derived from a relatively unpopular food group. Furthermore, the information that he had at his disposal to help him make his decisions was, at times, unreliable. “But,” as Wang determined, “this is not an excuse to avoid making these decisions.” The Richard Ivey School of Business gratefully acknowledges the generous support of The Richard and Jean Ivey Fund in the development of this case as part of the RICHARD AND JEAN IVEY FUND ASIAN CASE SERIES.