Today, these products are spread across all 25 districts of Sir Lankan including North and East and have been able to reach a million liters in sales per month since of late. Their focus on food safety, quality and the highest management raciest including environmental sustainability has made Cargill Magic ice cream, the only dairy production plant in the country with comprehensive ISO certification. After a careful study, it was identified that Sir Lankan ice cream industry falls under Oligopoly. There are few firms in this industry with either homogeneous or differentiated products.
There are strong entry barriers in the market. Ice cream has a relatively inelastic demand. That is, changes in the price of ice cream have a relatively small effect on the quantity of the ice cream demanded. Since ice cream is popular fast food item among all types of consumers and is priced at an average price, there are no significant changes in demand for its price changes. Rivalry in the ice cream market is somewhat high. This is evident by intensive price competition within each of the individual categories.
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The rivalry is decreased to a great extent by the amount of product differentiation. If we are to further analyze the Sir Lankan market structure for ice cream category, it can be specified as a ‘Duopoly. Duopoly is “a specific type of oligopoly where only two producers exist in one market. (http:// en. Wisped. Org/wick/Duopoly). In reality, this definition is generally used where only two firms have dominant control over a market. Accordingly, the two dominant players in the Sir Lankan ice cream market are Cargill Magic (Cargill Ceylon Limited) and Elephant House (Ceylon Cold Stores PL). . 0 Product Differentiation Cargill Magic Ice Cream is a highly differentiated product. Even though ice cream products in the dairy industry are used to be homogeneous in general, Cargill has made its ice cream unique from that of the competitors mainly through their innovation and marketing strategies. This successful product differentiation has created a huge competitive advantage for Cargill. Based on two main factors, we can identify how Cargill Magic ice cream products have been differentiated. Real Factors Factors like flavor, size, quality, convenience can be taken under this.
From the initial three ice cream flavors – vanilla, chocolate and strawberry, that were in the Sir Lankan market, Cargill has brought in to 44 flavors and varieties through its products. As such, they have given variation to the customer to try out different experiences by boning away from the more traditional ice cream segment. In terms of quality, they use the best of local ingredients. They have a separate range for the health conscious consumers including sugar free ice cream. Cargill Magic is unique for being purely fresh milk based and it is free of any vegetable oil or fat.
They have ice cream for every age group, in different sizes. Accordingly, the sizes of ice cream tubs, cups and cones in various volumes have been designed as per the company’s segmentation on customer age – Adults/Teenagers/Kids and on income level – Upper class/Middle class/Lower class. Artificial Factors Factors like packaging, brand name, persuasive advertising can be considered under this. Cargill use creativity and powerful communication in marketing Cargill magic ice cream. They are using persuasive advertising strategies to differentiate their products and to create a good brand image among consumers.
One such best example is choosing the world class cricketer, Sancta Assyria as their Brand Ambassador and using him to promote Cargill Magic ice cream across the country. This was one of the contributing factors to the huge sales and financial gains they dad lately. The packaging of the products is done quite nicely and distinctively. The use of multi color wrappers, designs and logos is in line with the magical experience and sensational feeling that Cargill is hoping to offer through their Cargill Magic ice cream range. 2. Barriers to Entry There can be several strong barriers to entry that a new comer would face, with regard to ice cream product category in the dairy industry. They are as follows. Economies of scale Both the main two ice cream suppliers of Sir Lankan – Cargill and Ceylon Cold Stores are large scale producers. For example, Cargill produce around eight million liters per annum. Thus, low cost of production and other gains enjoyed by those two players due to being large, established and dominant in the market, the new entrants find E. O. S as a major entry barrier.
Production facilities and cheaper resources New entrants face higher absolute costs since existing players have access to cheaper resources, production facilities with high capacity, farm lands, state of the art machinery, technical know etc. Distribution network Ice cream as a fast food item needs a well-established, broad network of buyers and extensive distributing facilities. Cargill for example has around 30,000 general trade outlets and 138 Food City super market outlets. Also, it has a network of more than 5,000 dairy farmers who supply fresh milk.
For a new comer, apart from the limited access to above major distribution channels, the limited shelf space in super markets is also a critical entry barrier. International accreditations Cargill is the only diary company in Sir Lankan which has ISO certification for areas like Quality Management, Environmental Management and Food Safety Management systems. These international accreditations have placed a major difficulty on the new entrants to be in par with the high standards of the existing players.
Advertising Since the existing two major players are huge companies, their scale of advertising is also very large. Hence, the new entrant has to spend more on advertising which will be too costly for him and he is not in a position to enjoy various economies of scale of advertising as well. 3. 0 Market Power of the Supplier Market Power is the ability of a firm to raise price without losing all its sales. As previously mentioned, ice cream has an inelastic demand. Hence, even if the prices are increased, there will not be a significant change in the quantity demanded and consumed.
As such, the degree of market power of supplier is great. Furthermore, ice cream has few close substitutes; more precisely, only two dominant players in the Sir Lankan context. Again the elasticity of demand will be lesser since customers do not have much option to move on to another similar product due to price changes. In such instances, the supplier – Cargill has more market power. The other important determinant of market power is barriers to entry. As clearly explained above, there re strong entry barriers in the ice cream category.