Ice cream manufacturing industry
As a person with knowledge of economic theories, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of these topics and at times fails to understand the reasons or logic behind certain strategic implementations imposed on it.
By delving into this project paper, the author intends to have better insights into how economic theories are thought up, formulated and then imparted down into the subsidiaries of the business. The author hopes to have an in-depth understanding as to how the economic theories enable businesses to compete effectively and profitably in this era of internationalization where competition is extremely intense.
In order to reinforce the learning objectives, two key focal issues were focused upon i.e. innovation and diversity. Innovation was discussed with regard to economic theories where they were renowned for their developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better understand the issues being discussed.
This essay utilized ice cream manufacturing as the model business to review its present market conditions and how it dealt with critical situations. From the analysis, key economic trends in the ice cream manufacturing were then identified, how it worked and its effectiveness in dealing with critical situations was ascertained. The paper then moved on to assess the ice cream manufacturing industry with regard to its suitability to critical situations, during which the internal capabilities of the ice cream business in relation to the strategy being followed by most manufacturers was determined also. An overall analysis of the performance and effectiveness of the ice cream manufacturing industry was also conducted to assess and compare the capabilities of the industry with those of others. Gaps in the capabilities and environment were then identified.
Finally, several choices of strategies to improve the operations management of the ice cream business as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.
- The effect of a hot summer on ice cream
1) Demand / Supply
It is a common knowledge that that when the ice cream is being sold in a free market at a price where consumers are so demanding than what the cheap ice cream manufacturers can supply, then add the fact that it is summer then this shortage enables the cheap ice cream manufacturers to increase the prices of their ice cream products. Therefore, the heightened demand on ice cream will cause the increase of the prices of the ice cream. Those consumers that have the capability or purchasing power will bid up the market price.
On the other hand, the prices of the ice cream decrease when the number supplied by the cheap ice cream manufacturers surpasses the number demanded by consumers, as well as when the weather changes from hot to colder seasons. This price/quantity balancing mechanism eventually helps the ice cream market to reach an equilibrium point, where changes are not given so much significance. A status of stability in the ice cream business is reached when the cheap ice cream manufacturers are ready to sell an accurate quantity of ice cream products as their consumers would like to purchase ( 2000).
2) Cost of production
The general rule is that when this will rise, ice cream manufacturers will cut back on product leading to decrease in supply. However, the evidence of the price-sensitive industries continuing their businesses is a primary exemption to the rule. The existence of learning curve, oligopolistic market structures and risk diversification of large international firms has the ability to absorb price shocks to the cost of inputs, technology, organizational changes and government polices (taxes). As observed, there is an eminent presence of rationality exemplified by these producers. Since they have the financial, structural and strategic depth, they enter an industry which has dynamic and unpredictable cost of production. In this way, they may have financial loss from time-to-time, but long-term gains will be pervasive due to the opportunity to dominate the market (1991).
3) State of production technology
When production technology on ice cream is high, production will become more efficient that can lead to increase in supply. However, ice cream technology is not the only factor of production existing in the ice cream manufacturer’s plant. There exist more complex interrelationships between these factors to be able to exploit the improved efficiency of one. The most crucial of all is governing human resources. Without proper guidance from the leaders of the ice cream firm, production efficiency will not hold because of resistance, de-motivation or just a plain technological ignorance. Technology is not 100% automated and human intervention as well as errors is inevitable. In addition, technology may also be intended for a specific segment of the industry, say, large corporations. As such, aggregate supply may not necessarily increase because small entrepreneurs who cannot afford to buy the technology cannot contribute in increasing supply ( 1994).
4) Income of consumers
As the people’s income rises, the demand for the good increases. This is also true for normal goods like ice cream but inconsistent to inferior goods. However, there are cases that this may not hold for both kinds of goods. Rich as well as working and poor people have variety of investments and savings is also their priority. In effect, even though their income or wealth may increase, their consumption for wither normal or inferior goods will not necessarily happen due to being conservative on spending. In the long-run, the deferred demand due to increase in income would now be unpredictable (1984). This is because investments and savings are pegged to risks, economic uncertainties and individual people strategy. As a result, there is a possibility that any wage increase pose by the government will not significantly affect an economy under recession.
5) Consumer tastes
This may be the psychological side of economics which gave it a very challenging position as a determinant of demand. Partially, this can only be the determinant that can directly affect economic behaviour; however, the result is also ambiguous and embedded on the “brains” of individuals. Consumer tastes can determine the level of demand through advertising and market research. As long as ice cream manufacturers focus their resources towards informing consumers, providing quality and protecting its reputation, desirability of its products will pull more demand. However, competitors also have their own strategies to counter any industry actions. In effect, this makes a heavily competitive industry under uncertainty (1998).
B. Discuss the resulting changes in equilibrium price and the quantity trade
The ice cream market experiences a clearance at the situation where the quantity of ice cream products demanded is equal to the quantity of ice cream products supplied. Other ice cream markets which do not experience market clearance will also undergo significant changes along the way, either through modifications in the ice cream prices, or through the number of ice cream products made, or in the quantity of ice cream products being demanded by the consumers. However, in the case of market equilibrium, all ice cream markets will experience market clearance at the same time and their prices can all be compared in terms of tradeoffs with other goods.
The market clearing price on ice cream markets does not have any maximization basis. Therefore, if the ice cream market experiences any surplus of demand or surplus in supply, then its consumers will only purchase the ice cream products when their prices are significantly low, and the ice cream manufacturers will sell when the prices are significantly high. In the event of market clearance in the ice cream market, the prices of the ice cream products simply mean that the optimal utilization values of all the stakeholders are equalized. Thus, mutual profit of exchange is emphasized (1999).
C. Discuss market structure for the ice cream manufacturers and its relationship with the price levels for their product
Ice cream manufacturers base their pricing strategies on several key trends that continuously shape the global marketplace of ice cream. One particular trend is labeled as “premium-tization” (1981). This phenomenon causes the polarization of different markets. This would then trigger the consumers to demand and pay much higher prices for perceived quality. However, discounting in prices is also simultaneously taking place, therefore squeezing out the middle range. More often than not, supermarkets undergo internationalization which leads to a tighter squeeze for shelf space. This will in turn leave ice cream manufacturers as winners. It is for this reason why ice cream manufacturers value the “premise sector” so much because this would allow consumers can to try their brands at low risk and price.
In terms of market segments, premium and specialty ice cream brands of well-known ice cream manufacturers have a disproportionate share of volume growth at an estimated 4-5% per year, as against the 2-3% overall growth rate. These rates come up as a result of both the rise in GDP among developing markets and consumer demands for higher value propositions, which is obviously dominated by international brands. Therefore, ice cream manufacturers have to increase their portfolio and operate globally to overcome the home market. Ice cream manufacturers practically operate on a relatively fragmented market, with the top four ice cream companies accounting for 22% of global ice cream volume five years ago and only about 28% today.
D. Show on a diagram the initial market equilibrium for ice cream
Figure 1. General supply and demand curves of ice cream markets, with intersection showing free market equilibrium
Ice cream prices experience either a significant increase or decrease because of a balance between the availability of the ice cream products at every price and the wishes of consumers with purchasing power at every price. The graph presents an increase in demand for ice cream from D1 to D2 along with the resulting increase in price and quantity necessary to attain a market clearance equilibrium point
The results of the analysis carried out on the economic trends of the ice cream industry indicated very significant effects, even amidst the threats of unrest. Therefore, we could conclude that the operations of the ice cream industry could still be expected to improve faster than average.
The review of the ice cream industry’s operations, capabilities and resources revealed very little inconsistencies regarding the strategies of most ice cream manufacturers. This is coherent with their traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for the ice cream manufacturers.
The analysis among the environment as well as the operations management and capabilities of the ice cream manufacturers revealed certain gaps, most of which are biased towards the environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure their competitiveness.
Also, the ice cream manufacturers have to find a balance between adherence to internal forces within the management and to the changing forces of the environment in order to implement such strategic options.
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