1.0 Introduction In 1934, Tom Carvel founded Carvel Corporation.

It had one of the oldest and most endearing histories of all the ice cream companies in the U.S. Mr. Carvel used a combination of fresh ice cream and innovative products and manufacturing techniques to establish himself as the local, family-orientated ice cream parlor in the New York City area. In 1947, Mr. Carvel franchised his first store and proceeded to become one of the pioneers in fast food franchising. Throughout the 1960s and 70s, the gravely-voiced Mr. Carvel used his folksy and savvy style to dominate the greater New York area. By standardizing procedures and providing franchisees with exclusive product designs and marketing material, Mr. Carvel expanded all along the East Coast. By the early 1980s, there were over 800 Carvel stores in operation along the East Coast and in some Midwestern states. However, by the mid 1980s, the recession and the strain on Tom Carvel to manage his business began to take its effect on the franchise. Sales and quality control began to decline, and events forced Mr. Carvel to consider changes. In 1989, faced with diminishing sales and increasing store closures, Tom Carvel reluctantly sold his company to Investcorp, a Bahrainianbased investment-banking group. The Investcorp strategy centered on acquiring previously gainful companies whose profitability had diminished in recent years due to recession. By infusing new capital and bringing in a new management team headed by CEO Steve Fellingham, the former president of Kentucky Fried Chicken, Investcorp focused on growth and revamping Carvels listless image. Management was forced to walk a fine line between creating a new, vibrant image for Carvel and alienating longtime, loyal customers. Currently, Carvel Corporations mission statement is Working together, we will make Carvel the leading choice for unique, quality frozen desserts by consistently exceeding customer expectations. In 1994, Steve Fellingham decided to bring Carvel to China, as he has successfully completed a marketing coup by introducing KFC to China in 1978. Carvel Beijing is established through joint venture and headed by Phil Fang. The objective that Carvel U.S. attempted to meet in Carvel Beijing is to create a training and marketing base from which to expand into other areas in China. The success and Crowds of Carvel Beijing is what both Greg Demadis, director of business development and Phil Fang is concerned. Carvel Corporation offered a wide variety of ice cream products. The companys fundamental product, though, remained its soft ice cream and fountain line. Included in this category are cups and cones; shakes; floats; sundaes; hard ice cream. New products introduced lately are novelty ice creams and ice cream cakes. It was Carvels cake line that distinguished it from all the other offerings in Beijing. Carvel also offered both sugar- free and fat-free frozen yogurt and a fat-free ice cream in U.S but had not been introduced to China yet. 2.0 Situation Analysis 2.1 Market Description 2.1.1 Consumers and Their Buying Processes and Relationships The recent Gallup Poll provided interesting insights into the burgeoning consumer market in China. The most striking fact to emerge was that Chinese consumers were very intelligent shoppers who valued quality and long life in their purchases. As for consumer tastes in food, the survey found that, as expected, rice, tea, and pasta were the most common foods in the Chinese household. However, 17 percent of those polled had diary products in their house, and 13 percent regularly kept frozen foods at home. The survey also indicated that Chinese were very well aware of foreign brand names. The Gallup Poll also gathered information relative to fast food and soft drinks and found that Kentucky Fried Chicken was the most widely recognized fast food chain in China. The most telling fact about these findings that the survey concluded was that urbanization is the factor most affecting brand recognition levels. Those living in urban areas are much more likely to recognize brand names than are people nation-wide, and residents of the largest 9 cities are still more able to recognize brand names than are urban residents in general. From the information gathered on buying habits in China, Gallup Poll revealed that there are considerable differences found between large cities, urban areas, and the country as a whole when they are asked on the household spending amount. 2.1.2 Direct and Indirect Competitors and their Strategies Carvel Beijing faced a very fragmented market in Beijing. Several domestic and international companies had penetrated the market and achieved moderate brand awareness. Nonetheless, no brand had yet to break from the pack and establish itself as the market leader in ice cream. The following are the description of Carvels direct and indirect competitors.

Baskin-Robbins is the most significant long term competition to Carvel Beijing. This was because that it is the chief rival in the U.S. and its products have a more national brand awareness than Carvels. It is also the only competitor in Beijing that produced an all ice cream cake and had retail stores in which to promote them. It also had a longer and broader presence in Beijing and appeared to have the positioning strategy that Carvel had targeted. At present, Baskin-Robbins has only two retail stores. Baskin-Robbins relied on its tradition of hard ice cream cones and fountain products to drive sales. It charges 9 for a single scoop ice cream cone and 107 for a cake. It does not have any wholesale outlets. Walls was a Holland-based company and one of the market leader in Europe and Australia. In Beijing, Walls product line was limited to cups, cones, and various other novelty treats. Their distribution was limited to roughly 3000 rollhards. Walls was also available in several supermarkets. It is one of the first western ice creams in Beijing, therefore, it still enjoyed the benefits of its first mover status. Beijing customers considered Walls to be the preeminent Western ice cream in Beijing, due to its breadth and duration of its presence. Walls products was first priced at 4 but was raised to 5 recently. It was estimated that Carvel had taken much of its market share from Walls. Buds was a San Francisco-based ice cream company that enjoyed a wide presence and brand awareness in Beijing. In China, Buds enjoyed the reputation of being the preeminent American brand because it was the first American brand to appear in the PRC. Up to date, both Baskin-Robbins and Carvel had not yet been able to dispel Buds image. Similarly to Walls, Buds did not have any retail store outlets. It sold only form nearly 600 rollhards scattered throughout Beijings markets and supermarkets. It only produced cup and cone products, and its prices are similar to those of Walls. Small cups were 4.2, hard ice cream was 6, and pins sold for 23. Meadow Gold was a locally produced product with high market saturation. It product quality was much lower than the above competitors, but its rollhards were in twice the outlets than Walls and it sold its products through a number of channels: local stores, supermarkets, and on the street. The company is concentrating on only novelty products, therefore, it charged only 2 to 3 for its product line of cups and cones. New Continent is a venture partner in Carvel Beijing. It was also a strong domestic player in the novelty side of the market. New Continent competed parallel to Meadow Gold for market share and sales, and produced novelty products in the same factory that produced Carvel Beijing ice cream mix. Price were 2 or lower. New Continent had used its partnership with Carvel to project itself deeper into the Beijing market. It had come out with awning and vendcart styles that closely resembled the colours and logos of Carvel. With nearly 6000 vencarts on order, it would clearly redefine the lower end of the ice cream market in Beijing. It had also opened mini stores along the same line as Carvel outlets. It was also considering bringing out a new line of ice cream cakes that would compete on price with Carvel' and Baskin-Robbins' products. Carvel Beijings indirect competitors such as substitute products vary differently. Beijing residents enjoyed a wide variety of desserts and snack treats from which Chinese consumers could choose besides ice cream. These includes traditional Chinese-designed cakes and pastries, pastries with jelly or fruit paste filling, traditional dried fruits, different styles of Chinese and Western candies and traditional sweet treat called suan niu nai (meaning sour milk). The growth of McDonalds, Burger King, and Kentucky Friend Chicken are also possible substitute products such as apple pies, shakes and their own ice cream cups and sundaes. What Phil Fang concern most was that these alternative treat were cheaper and more widely recognized than Carvels product line..

2.1.3 Available distribution structure By April of 1995, Carvel Beijings operations had grown to include one factory, two retail stores, and 17 outside accounts. Cake production is carried out at the factory, whereas the stores and outside accounts are used to merchandise the product and do small decorations and personalizing. Currently, Carvels products are mostly distributed through departmental stores. Its products can also be found in some hotels, shopping center, restaurant, club and KTV lounge. Carvel uses different classification of outlets to distribute its product in the mentioned distribution places. The classification includes A-Type Stores, B- Type Stores, C-Type Stores, Counter Stores, Ice Cream Bakery, Retail outlets, Wholesale outlets. The type and functions of these outlets are explained clearly in the Case pp. 826-827.

However, flat sales had yet to justify the large outlay to build an A-Type store. Because of decreasing cash flow, finances began restrict outlets that demanded large initial costs. Therefore, C-Type stores is concentrated to improve sales volume and cash flow. Fang hoped to increase retail sales through various outlets under Lis control. Demadis agreed to Fangs idea, at the same time he thinks that the wholesale markets were underdeveloped. This is to justify the costs of the factory. Demadis suggested that Carvel Beijing can have a successful grocery store program just like the one in the U.S. on many occasions, it was necessary to have personal recommendations from local business or government leaders before Carvel could determine locations. Although wholesale accounts were a very cost-effective way to increase sales, they might not be the most economically or politically feasible way to increase sales. 2.1.4 Key Environmental Factors In order for Carvel to be success in Beijing, there are several environmental factors that are to be taken in consideration. These factors are such as the political and economic developments in China, customs and import duties, and labor. Political and Economic Developments Since 1978, the Communist government had taken steady but reluctant steps forward improving the business climate in China. Reforms in particular area of telecommunication infrastructure, business and copyright law, and financial structures led to increased foreign investment in China. The foreign investment, in turn, led to significant changes in the socioeconomic structure of China. The apparent stability and growth in the Chinese economy continued to offer good opportunity for profitable business, but political uncertainty still clouded the future. Customs and Imports Duties Custom taxes and regulations presented the single largest day to day problem to Phil Fang. Nearly 90 percent of all his input products were shipped from U.S., arranging for delivery through the complicated and fluid world of Chinese customs was critical. Currently, the import license issued to Carvel Beijing is that it was only allowed to import a certain amount of products each year. In general, tariff rates averaged 50 percent of the net value of the item as listed on the original shipping invoice. In 1995, Fang faced potential tariffs of 100 percent unless Carvel could negotiate a better license or use guan xi (relationship) to arrange a more palatable agreement. Clearly, he must begin to locally source as much of his inputs as he could. The one thing that Fang and Demadis are very concern is the quality standard of these goods. Labor Labor is another financial restraints that Fang is facing. Although relatively inexpensive labor was one of the chief reasons firms expanded into China, labor was not the leveraged competitive advantage it first appeared to be. First, Carvel Beijing must pay a 17 percent government payroll tax, the government also required the company to set aside an additional 32 percent of each employees salary in a special account for health care, training, and child care costs. These costs raised labor expense to 149 percent of their actual cost. Secondly, the government imposed a Luxury payroll tax of 5 percent to 20 percent for each employee earning over 1000 per month, of which there were four at Carvel Beijing. Therefore, Fang must consider ways to reduce labor cost. Finally, Carvel Beijing was a foreign joint venture in China encouraged employees to expect relatively higher wages than domestic companies offer. 2.2 Corporate Assessment 2.2.1 Evaluation of current performance In 1994, Carvel Beijing operated at a net loss of nearly 1,070,000. Phil Fang did not anitcipate reaching break-even sales until 1996, and the companys slow start in 1995 jeopardized even that prediction. The major problem is the slow sales growth and slow customer attachment to the high margin cakes. The companys poor cash flow forced it to reconsider the growth strategy. However, in February 1995 the negative cash flow totaled 4,00,000. Sales growth continued to be a major problem for the new franchise. The causes of the slow sales were still unable to identify with any real certainty. The sales were actually increasing both in gross and relative terms. However the true potential for the operation remained unclear. It was agreed that slow sales and negative cash flow limited the companys option to growth the business. Analysis of the accounting information confirmed the difficulty the retail stores had on covering their costs. Conversely, the success of Chang An and Parkson stores confirmed the fact that Carvel could produce a profit in Beijing.

Part of the problem centered on the lack of any centralized cost accounting and transfer pricing systems. This lack of accurate and centralized information hampered efforts to determine cause of high costs. therefore, improving the internal and corporate reporting of information is one the goals to be achieved.

2.2.2 Description of product performance By offering the Lil Love and the Piece of Cake along with the other products that already exist in the United States market, Carvel would have to market thirteen different products within several different product categories. To a Beijing market that is relatively indifferent to brand names, products, or pricing in the ice cream industry at this time, Carvel would face many problems marketing themselves and their products. In order to effectively offer the correct products to consumers, Carvel must place itself on a product positioning chart and compare itself to competition in the Beijing market. Several criteria must be analyzed in order to compare Carvel to their competitorsBaskin-Robbins and Haagen-Dazs. In order to see how customers think and feel about Carvel products and the competitors products, we have to take into consideration the pricing, quality, and size of the products offered. Exhibit 2 represents a product positioning analysis of Carvel and its competitors. With this chart, Carvel can have a better understanding of how to differentiate themselves from their competition. Carvel can take the opportunity to focus on the positioning of the company and decide which products should be offered in the Beijing market. By looking at the product-positioning chart (Exhibit 1), Carvel should take several items into consideration when effectively deciding which products to offer to the Beijing market. Carvel has several more products (in blue) in comparison to its competitors, Baskin-Robbins (in red) and Haagen-Dazs (in yellow). First, Carvel offers too many products to a market that is generally unaware of the industry. Secondly, by eliminating several products that Carvel offers in the Beijing market, the company would have the ability to focus on the desires of the target market. Lastly, not only should Carvel eliminate some of its products, but also Carvel should rename some of its products. By renaming several products, Carvel would take into consideration the culture of the Chinese population and how that culture differs from American customers. The Chinese culture holds strong beliefs toward several animals and insignias. By applying some of these animals that represent great myths and stories, Carvel will adapt to the Chinese market, thus position Carvel in a favorable manner toward Beijing customers. Currently, by offering the thirteen cakes that Wang has proposed, Carvel would have nine more cakes than the closest competitor in the Beijing market, Baskin-Robbins. Haagen-Dazs currently only offers three cakes that are comparable to Carvel cakes. By looking at the product-comparison chart (Exhibit 1), it can be seen that Carvel has several products that directly compete with each other in price and size. In a market that is unaware of the product categories, this is not an advantageous situation for Carvel. Too many choices are being given to customers for products that range between $10.00 and $13.00 (U.S.) and are comparably the same in size and weight. Although this may not be a bad business practice in the United States, Carvel is over-saturating the Beijing market with too many products. This can have adverse effects on the profitability of Carvel. Carvels competitors offer a limited variety of products, each in different size and pricing categories. Carvel also needs to decrease its number of products in order to increase sales and profits.

2.3 SWOT Analysis Strengths Carvel had the best ice cream cake in Beijing and one of the best ice creams. Carvel had received positive reviews from its customers. Training and operations had progressed well and the company was ready to increase production.

Weaknesses Vaguely defined management roles and objectives hampered definitive marketing policies. Inability to source inputs locally continued to hamper the bottom line. Too many potential customers still did not know of Carvel Beijing. Opportunities Carvel was looking into involving the foreign embassy community in its sales promotions as a means of increasing both sales and potential outside business contracts. The approaching summer allowed Carvel to have a seasonal grand opening to reintroduce the brand to first time customers. Wang Mengs offer to use 6,000 New Continent vendcarts offered Carvel the opportunity to increase greatly the brands exposure at minimal cost. Threats The cash flow and sales problems threatened to scuttle the proposed business plan for 1995. The competition, including Wang Meng, were quickly realizing the potential of ice cream cakes in Beijing, and Carvels competitive advantage in this area would be challenged. The dynamic political and economic environment in China presented inherent uncertainty.

2.4 Key Issues of Carvel in Beijing z how to price the product: competitively or as premium product z how to design and position the cakes: as American products or as more traditional Chinese products z how to confront the financial problems: with short term or long term policies z how to respond to Wangs vendcart proposal z how to produce the mix: as the original American mix or as a less sweet mix more appealing to traditional Chinese tastes

3.0 Alternative Strategy Analysis I. Market-Geography Strategy -- International Market Strategy Carvel could opt for International Market Strategy. This means that going from a regional to a national market presumably opens up opportunities beyond domestic business. The international market strategy became a popular method for achieving growth objectives among large corporations in the post-World War II period. Although in the 1950s and 1960s international business was considered a means of capitalizing on a new opportunity, in todays changing economic environment it has become a matter of survival. Generally, International markets provide addition opportunities over and above domestic markets. An international market strategy requires top management commitment because a large initial investment is needed for promotion and distribution. Understanding of international markets is also important. A properly implemented international market strategy can go a long way in providing growth, market share, and profitability. II. Market-Scope Strategy -- Multimarket Strategy Instead of limiting business to one segment, a company may opt to serve several distinct segments. To implement a multimarket strategy successfully, it is necessary to choose those segments with which the company feels most comfortable and in which the company is able to avoid confronting companies that serve the entire market. The multimarket strategy can

be executed in of two ways: either by selling different products in different segments or by distributing the same product in a number of segments. If this strategy is successfully implemented, it would result in higher sales and higher market share. III. Differentiation Strategy The objective of this strategy is to incorporate differentiating features into products/service offering, which will cause buyers to prefer the companys product/service over the brands of rivals. There are several keys to success. The organization should find ways to differentiate that create value for buyers and that are not easily copied or matched by rivals another key is to have a distinctive competence. Finally, do not spend more differentiate that the price premium that differentiation will command. With successful implementation of the strategy, an organization can command a premium price for its product and or service. It will also result in increased sales. It can gain greater buyer loyalty to its brand. 4.0 Strategy and Objectives 4.1 Overall Guiding Strategy Statement I suggest that Carvel Beijing to implement the Multimarket Strategy. This is because the firm is facing wide segments of market. Especially it is in the dessert industry, it is required that it caters to different segments consumers taste. In order to be able to serve these segments well, a careful selection of segments is required. It is also best that Carvel Beijing avoid confrontation with competitors that serves the entire markets, if the firm like to implement this strategy. 4.2 Objectives Carvel Beijings main objective is to diversify the risk of serving only one market. It is seeking to serve several distinct markets. It would also like to increase its sales volume in the ice-cream cake line. As a new comer in a whole new market, Carvel Beijing would also like to capture higher market share to secure its position. In order to achieve these objectives, other substrategies have to be implemented.

4.3 Substrategies 4.3.1 Product/Service Strategy Product Repositioning Strategy This strategy is used to review the current positioning of the product and its marketing mix and seeking a new position for it that seems more appropriate. Repositioning is required if a competitive entry is positioned next to the brand, creating an adverse effect on its share of the market; consumer preferences change; new customer preference clusters with promising opportunities are discovered; or a mistake is made in the original positioning. The objectives of this strategy are to increase the life of the product and to correct an original positioning mistake. It would be necessary for Carvel to reposition itself against its competitors in Beijing. This is due to that different market in different countries has different factors that requires Carvel to reposition to suite various market. 4.3.2 Pricing Strategy Penetration Pricing Strategy Penetration pricing is the strategy of entering the market with low initial price so that a greater share of the market can be captured. As Carvel enters into the Beijing market, it should adopt this pricing strategy to discourage competition from entering the market and by gaining a cost advantage through realizing economies of scale. If this strategy is successfully implemented, Carvel Beijing will have high sales volume and large market share. There will also be low margin on sales and lower unit costs relative to competition due to economies of scale. 4.3.3 Promotion Strategy Promotion Mix Strategy Determination of judicious mix of different types of promotion. It concerns the allocation of effort among the three different methods of promotion, advertising, personal selling and sales promotion. When using this strategy, there are several factors that need to be considered: product factors, market factors, customer factor, budget factor, marketing mix factor, environmental factors. As Carvel is the new entrant in the Beijing market, therefore all these factors are very important for it

to reach the target market. Promotional blending requires consideration of large number of variables, as mentioned above. Unfortunately, it is difficult to assign quantitative values to the effect that these variables have on promotion. Thus, decision about promotional blending must necessarily be made subjectively. 5.0 Control Having control is essential to guide the process of developing and marketing Carvel Beijing successfully. To control on its sales, cost and profit volume. It will reflect the firms efficiency. The sales managers should ensure its target must be achieved within a given budget. This would avoid over spending on unnecessary items. To control the cost of raw materials, cost of distribution and advertising. The greater the cost, the lower the profit margin. Maintaining its advertising cost as well as selling and administrative cost at a constant rate would help to budget in expenses. Quality control is very important for Carvel Beijing as constant and stable performance of the product will create confidence and brand loyalty if the products are able to meet the consumers needs. Quality assurance is very important in cakes n ice-creams products.

6.0 Summary of Major Support Activities The sales or marketing department is where the company interacts with its customers. The management personnel must ensure its employees to conduct research on the market constantly. By carrying out survey to understand the changing needs of consumers, analyse and evaluate the outcome. Apart from that, marketers should report the sales volume monthly to their manager as well as keep their customers records. This information is potentially useful for forecaster. The human resource department should be careful in selecting employees. Employing workers who are willing to learn and apply their training knowledge to the stores. Besides, the management personnel needs to monitor the employees performance closely to make sure the quality of the service provided can be maintained. For Carvel Beijing, investment in service meant investment in people. To replicate its high-service quality positioning, Carvel Beijing need to consider the HR issues involved when setting up retail outlets in other countries. For example, the recruitment, selection, and training local employees might require modifications to its formula for success in its markets due to differences in culture, education, and technology of the new countries. Labor regulations would also affect HR policies such as compensation and providing welfare. Financial status is another area to be monitored, without stable finance it would be very risky to venture a business. Purpose of the financial status to allocate budgets appropriately for different activities required. With the usage of the Information Technology system, it has made the management accountant job much easier, such as preparing reports that provide information on staff matters such as absenteeism, because it is useful for forecasting the production capacity. The accounts department should keep a statistic on current operations such as the orders received, orders dispatch and orders on hand. Such information is needed to fulfil the legal requirement to present accounts. The IT system has also made things easier for warehousing and logistics. The R&D department should always conduct experiments on ice-cream flavour, taste and ingredients used. Skillful and creative experts should be employed to help further enhance the quality of the ice creams.