The case analysis of Dippin' Dots utilizes tools such as Porters Five Forces Mode, Contingency Framework, SWOT analysis and Value Chain analysis to research Dippin' Dots position. These tools have also been used to analyze its potential for the expansion of its franchises. From its inception, Dippin' Dots has prided itself on being "The Future of Ice Cream", but in recent years the company and the industry as a whole has been relatively flat. This case will review the issues as well as offer alternative solutions that might resolve some of the issues and issue recommendations that the company should consider.
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Introduction
Dippin' Dots is an ice cream snack that was created in 1987 by Curt Jones. This product was created by a patented six step flash-freezing process that uses liquid nitrogen. Currently Dippin' Dots is operating over 400 franchise locations and is selling products such as ice cream, frozen yogurt as well as frozen ice ("Dippin' dots, inc.," 2011). The company is currently utilizing the marketing slogan as its ice cream being "Ice Cream of the Future" Dippin' Dots Inc. is a privately traded company meaning they do not offer or trade its company stock to the public or in the stock exchange. This company also has global licenses that reach to 10 different countries outside of the United States of America. Most of Dippin' Dots are manufactured at their headquarters in Paducah, Kentucky.
Dippin' Dots believes that through its flash-freezing the ice cream ingredients would lock in flavor as well as freshness ("More info", 2011). The company is home to the nation's largest -50OF commercial walk in freezer. The once patented company lost its freezing process patent in 2007 through a series of lawsuits. This patent was deemed invalid because Jones had made over 800 sales of the product prior to applying for the patent (Dess, Lumpkin, & Eisner, 2010, p. C209).
Problem Statement
Given the case study on Dippin' Dots Ice cream a few problems have been identified. Firstly the company is faced with an issue of its previous customers becoming uninterested in the product. Secondly Dippin' Dots has seen a significant reduction in franchising numbers since the year 2000. Finally the company is no longer the only company who offers flash-frozen ice cream. All of these factors have contributed to the recent stagnant growth of Dippin' Dots. Through extensive research several recommendations will be made in this analysis to address the previously mentioned problems that Dippin' Dots faced.
Strategic Analysis
Contingency Analysis
Dippin Dots is facing an issue of whether or not they should continue to expand both its franchises in the midst of a flattened market or should it continue to reduce its number of franchises that it allows to operate. Dipping Dots can also expand into different markets with the most popular being the in-home ice cream market which it has stayed away from in years past do to the shelf life of the product. The contingency analysis below will analyze the different market conditions scenarios and the possible consequences and outcomes that the company might face.
Market Condition Scenarios /Possible Consequences
Market Continues to flatten out
Market starts to grow/ Buyer spending increases
Cut back on number of franchises globally
Cutting back the number of franchises will cut down some of the overhead expenses for the company if the market continues its trend of flattening out
This is the more likely of the two scenarios.
If the company continues to cut back on the number of franchises that it has globally and the markets grow then it might not be able to handle the demand for that product which will give competition an advantage if they are better equipped.
This is the less likely of the two scenarios.
Keep number of franchises where they are
This strategy will be more costly than the option to cut back the number of franchises like it has been doing over the past several years.
If the market starts to grow then this will be a profitable option. While this decision is profitable the company must be cautious to not over expand in case the market shrinks again.
Continue to expand in to different markets such as the in-home ice cream market
If the market continues to react the way it is currently, this would result in a failure of entering a new target market.
This new target market coupled with a growing market could prove to be one of the most profitable options for Dippin' Dots.
Value Chain Analysis
The value chain analysis of Dippin' dots is fairly typical. The different aspects that make up this analysis are its franchising opportunities, finance department and financial information, technical development, marketing and how it converts its traffic to buyers
Franchising
Dippin' Dots, Inc. has very strict rules when it comes to its franchising opportunities. Dippin' Dots offers two types of franchising opportunities: an event-based opportunity and a store-based opportunity. In 2008 the initial franchise fee was $12,500 just to be able to use the name. This also came with an initial investment range that topped out close to a quarter-million dollars (Book, p.c208). The companies' website gives extra criteria in which owners must meet before they can become a franchise. A few examples of the criteria includes: the location has to be around great neighbors (beach, tourist areas, movie theatres or restaurants) and have great space (good visibility, strong mixture of pedestrian and auto traffic, must be within 800-1000 sq feet and have appropriate signage) ("Dippin' dots franchising," 2011).
Finance
Dippin' Dots is a privately traded company which makes its financial records and information on its financial department virtually impossible to find. While researching financial information and information about the finance department, the only relevant information that could be accessed was that the director of finance is Sheri Dikin ("Dippin' dots, inc.," 2011).
Technical Development (R &D)
Innovation has always been the driving force behind Dippin' Dots, Inc. Their Research and Development departments are constantly looking for the next big thing. New products, such as Coffee Dots, are hopeful in the efforts of Dippin' Dots to return to the top of the innovative throne.
Marketing
Marketing could very easily be a strong point for Dippin' Dots. Each of the companies' 400 franchises place ½% into the companies' overall advertising fund (Dess, Lumpkin, & Eisner, 2010, p. C209). While most marketing it targeted at youth, one set of marketing techniques proved to be highly successful. One thing that consumer' value is the approval from celebrities. In 2008 Oprah Winfrey had Curt Jones on her show to talk about the product and after she tasted it, she gave Dippin' Dots a thumbs-up approval (Horovitz, 2009).
Conversion from traffic to buyers
The bulk of Dippin' Dots sales are based at what the company calls "Fun Places". The organization classifies theme parks, major league sports venues and water parks ("The original beaded," 2007). Dippin' dots is also starting to be involved in on-line sales with the product being delivered in a cooler packed in dry ice.
SWOT Analysis
Strengths
Weaknesses
Innovative Product
Brand Recognition
Advertising Fund
High Prices
Limited places that the product can be sold
Storage Issues
Target Marketing
Opportunities
Threats
In-Home ice-cream market
Different forms of Ice-cream
Competitors such as Frosty Bites and Mini Melts
Strengths: The first strength for Dippin' Dots is what made them famous, their innovative product. Dippin' Dots has claimed to re-invent ice-cream ("The original beaded," 2007). Innovation is has a great impact on consumers, especially when it's based on a technology that hasn't been seen or used before. This was the case with the flash-freezing technique that Dippin' Dots employed. Dippin' Dots also has a brand recognition that gives them a slight advantage of its competitors. Being the market share leader in high profile locations gives Dippin' Dots a brand that is viewed hand in hand with "Fun Venues". Any franchise of Dippin' Dots must agree to give one-half of one percent to the general advertising fun. This creates strength because with over 400 franchises worldwide, Dippin Dots advertises globally instead of having each individual store be held accountable for its own advertising expenses. This allows for the company to be more unified in its advertising efforts.
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Weaknesses: The first weakness of Dippin' Dots is its extremely high prices. Prices range from an individual "Pre-Packaged" Dots for $2.50 to a 2.5 gallon tub for $50.00 ("Check out dippin'", 2011). These high prices are an extreme weakness since the market for ice-cream products as well as an overall buyer downturn in America. Coupled with high prices, Dippin' Dots is weakened in the locations in which they can sell their products. The product has to be served at sub-zero temperatures, -10 to -20 to be exact. This makes it nearly impossible to be consumed unless it is near a retail location (Dess, Lumpkin, & Eisner, 2010, p.c205). This also causes storage issues. Because of the fact that Dippin' Dots can only hold it shape for roughly 2 weeks any type of inventory is virtually impossible. This means that if they don't sell their product it goes to waste within two weeks. Target marketing is usually a good thing and it is the first step in creating a marketing plan. For Dippin' Dots it was actually the opposite. Dippin' Dots targeted a market that consisted of a younger demographic ("The original beaded," 2007). Limiting your demographic, in this case, will also limit your profits. Some of Dippin' Dots customers feel like they are being ignored and want something new to keep up with their claim of being the ice-cream of the future.
Opportunities: This case only revealed one opportunity for Dippin' Dots. Based on one of the company's weaknesses, the move from solely an out-of-home ice-cream company to one that encompasses in-home as well could be very promising as well as profitable. Exploring this market would be difficult based upon the shelf-life of the product, but if Dippin' Dots was able to fix this it would add a convenience factor to the marketability of the product. For instance, if you wanted to curb your craving for Dippin' Dots at 2am on a Sunday morning, the way the company was set up in the case wouldn't allow you to get any of their products. If there was some way to enhance their product to where it could be bought and frozen in a household freezer, the product becomes that much more valuable and convenient. Also based upon the 2008 numbers there is an $8.9 billion on ice cream products that were strictly for at-home consumption (Dess, Lumpkin, & Eisner, 2010, p. c205).
Threats: Dippin' Dots faces a few threats based off of the information given in this case. The first threat is the presence of different types of ice cream. Most of the novelty ice creams could be found at local supermarkets and at a cheaper price. This brings into question, how willing is the buyer to be loyal to Dippin' Dots when it can get the other types of ice cream wherever they desire. Secondly the competition from companies who offer the same flash-frozen ice cream is starting to become an issue. If companies like Frosty Bites are marketing its nitrogen frozen ice cream as "The Ultimate Ice Cream Sensation" and the failed lawsuit to halt Frosty Bite's production, it will be hard for Dippin' Dots to contain as much of the market share as it currently has (Mehl, 2004).
Five Forces Analysis
The reasoning behind Michael Porter's five forces analysis is to be a model for industry analysis. This is done on an industry by industry basis because different industries can sustain different rates and levels of profitability. This analysis takes into consideration the variance in industry structures. Dippin' Dots is classified to be in the frozen dairy industry.
The degree of rivalry
The degree of rivalry in the frozen dairy industry is relatively high. Not only does Dippin' Dots compete with other flash-frozen companies such as Frosty Bites and Mini Melts but they are also in competition with their more traditional counterparts. According to the yahoo directory, there are currently 43 companies who sell ice cream and frozen dairy products nationally, with more companies selling world-wide ("Yahoo! directory," 2011). This rivalry is fuelled by the availability of most products. Nearly every convenience store and grocery store that you go to sells multiple brands of ice cream or other frozen dairy products. Based upon a high buyer power companies in this industry must compete to have a quality product that its consumers must enjoy and offer it at the lowest price that they can.
The threat of new entrants
The threat of new entry for the frozen dairy industry is extremely low. There are several barriers to entry that a company must fight through in order to join the industry. Each of the eight sections that are categorized in the frozen dairy industry has different and high standards that are regulated by the federal government (Dess, Lumpkin, & Eisner, 2010, p.c205). Things such as different percentages of fat content, weight per gallon and package size make smaller companies with less cash flow for R&D nearly impossible to be successful. High start-up costs are another determining factor as to why the threat of new entry is low. Porter says that one thing that would make threat of new entry low is if brand names are well-known. In this industry there are several known brand names including: Dippin' Dots, Good Humor, Ben & Jerry's and Klondike.
The threat of substitutes
There is a medium threat of substitutes. The frozen dairy industry is mostly consumed by the same consumers of other desert. If something was to go on with the currently flat industry, many of the consumers would be able to switch to items such as cakes and pies and other deserts. This makes the probability of product substitution high. With this being known the frozen dairy industry has to find more ways to make customers want the frozen dairy products over alternative dairy products. Currently there is also a trend of consumers heading towards a more health-conscious treats (Dess, Lumpkin, & Eisner, 2010, p.c205).
Buyer power
The buyer power for the frozen dairy industry is mixed. There are two types of buyers for this market, there are the individual consumers and then there are the retail clients. Individual consumers are more brand-conscious when it comes to this market, meaning that they look at the brand first before they look at the price. Retail clients are the opposite. While frozen diary is a multi-billion dollar industry, it does not make up a significant portion of a food retailers business, which will increase buyer power and heighten price sensitivity at the same time ("Ice cream in," 2008, p. 15). The buyer power becomes mixed due to the fact that the consumer still drives the retailers purchases based upon their demand.
Supplier power
Overall the supplier power for frozen dairy products is moderate. In regards to large manufacturers there is a strong negotiating position and there is also an absence of fixed-term agreements. This makes for the cost of switching suppliers and supplier power to be low ("Ice cream in," 2008, p.15).
The dairy companies are slightly larger than most of the frozen dairy product companies, and since the companies must maintain a certain level of quality the strength of dairy suppliers is relatively high.
Alternative Solutions
Utilize the innovation that brought you your initial success
Dippin' Dots must get back to doing some innovative things that brought them their success from the company's inception. Curt Jones and the rest of his executive staff must make their products stand out at a time in which the market for frozen dairy is stagnant. Its recent efforts have shown that they are taking a step in that direction. In 2009 Jones mentioned that the company was going to try and take its innovative lead business a step further. Keeping the same flash-frozen technique, Jones has gone on record to say that he will be offering coffee dots. All you would need to do is add hot water and the consumer would have freshly brewed coffee. He has affectionately given Coffee Dots the same slogan as its ice cream counterparts by calling it "The Coffee of the Future" (Horovitz, 2009). Dippin' Dots needs to pump money into its Research and development team to find the next big things that will help their company if not the whole industry out of the slump that it currently faces. Dipping Dots has made its money being ahead of the curve and without added funding to its R&D other competitors may take that competitive advantage.
Get rid of targeted market
Target marketing in a business strategy is very risky. Targeting a certain market may be risky since it can hamper the organizations ability to quickly respond to changes in the market's condition and needs (Dess, Lumpkin, & Eisner, 2009, p.252). With target marketing a narrow segment can be accessed less expensively through outlets such as the internet. Dippin' Dots was targeting the youth which seemed like a good idea at first. The problem with targeting the youth is that they become older and then they aren't targeted again. As seen in the case the adults who still purchase the product are looking for something different from the brand. One customer went on record as saying "How can this stuff keep continuing to call itself the 'ice cream of the future'? Well the future is now..." (Dess, Lumpkin, & Eisner, 2010, p.c209).
Integrate more health conscious items to the company
Frozen dairy products aren't considered to be the healthiest of industries. By definition ice cream must have at least 10 percent butterfat in it before the additions of its bulky ingredients (Dess, Lumpkin, & Eisner, 2010, p.c205). In recent years there has been a trend towards a more healthy option for after dinner treats. Companies like Nestle and Haagen-Dazs have been offering a low-fat option since 2004. Coupled with the fact that the company needs to be more innovative, it must also become more health-conscious. With a number of consumers going to healthy alternatives such as frozen yogurt and smoothies, Dippin' Dots must do something to ensure that they are not losing their consumer base. Increasing product differentiation will also allow them to reach out to a broader market. They must be careful not to go away from the product that made them so successful, but reach out to different markets such as the health-friendly market. Doing something as simple as offering a no-sugar product will show its diabetic consumers, who might not been able to eat the normal product, that they are concerned about them as well.
Take no action
Doing nothing is always an option. This option poses the most risk for Dippin' Dots. If the market continues to flatten out like it currently is, then Dippin' Dots and the rest of the market could find itself in more trouble than they currently are. Many would agree that this reactive stance might not be the best stance in regards to growth, if the market continues in the slum that it is in Dippin' Dots could potentially save itself a lot of money in the long run. This alternative may also allow for competition to move ahead if Dippin' Dots sits back and waits for the market to improve.
Recommendations
In regards to the overall United States economy, it is recommended that Dippin' Dots should continue its expansion efforts and broaden its target market. Based off the above analysis there are a few steps in which Dippin' Dots can approach the current problems faced with the following steps:
Focus on creating a non- seasonal product that you can market equally year round. (Coffee Dots or Smoking Joes' a good start)
Keep innovative breakthroughs secret and ensure that all patents are filed correctly. This will hinder competitors from stealing ideas.
Put the advertising fund to good use. Continue to build brand equity through the use of celebrities such as Shaq and Oprah.
Switch slogan. Ice Cream of the future isn't as promising as it initially was.
This approach will allow Dippin' Dots to continue to have a competitive advantage with its innovative efforts through its Research & Development departments. Currently Dippin' Dots has brand recognition advantages over its competition but without working on some of its weaknesses one of the other competitors might close in on the market share.
Conclusion
The frozen dairy industry and Dippin' Dots has faced a reasonably flat market over the past decade. This has made the company reduce its number of franchises in every year since 2005. Dippin' Dots has also fluctuated on its position on Entrepreneur's Franchise 500 lists. Through careful analysis of the company and the industry I have illustrated a few alternative solutions for the company that might stimulate potential growth as well as made some recommendations that Dippin' Dots should strongly consider. Since Dippin' Dots is a privately traded company, its financial records aren't made public. These financial records could have given more insight to the financial health of the company and could have yielded some other recommendations. One thing that became completely evident through this case analysis, Dippin' Dots must continue to build upon its brand equity and sustain its innovative advantages over its competitors if it wants to stay relevant in its industry.
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