Ben & Jerry's: Japan: Strategic Decision by an Emergent Global MarketerAuthor(s): James M. HagenSource: Journal of International Marketing, Vol. 8, No. 2 (2000), pp. 98-110Published by: American Marketing AssociationStable URL: http://www.jstor.org/stable/25048809 .Accessed: 16/05/2011 12:02

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Educator Insights: Ben & Jerry's?Japan: Strategic Decision

by an Emergent Global Marketer

ABSTRACT Marketing students thrive on identifying an ideal foreign market

for a product and devising a plan to launch and promote the

product. As elegant as the plans may be, though, resources are

constrained, and firms that are just emerging in the global mar

ketplace may have a correspondingly constrained range of op tions available. The decision of Ben & Jerry's whether to enter the Japanese market?and if so, how?illustrates the strategic

thinking behind such a constrained decision, focusing on an in

creasingly feasible option of partnering with a single retailer for the market entry. The case covers a wide spectrum of strategic issues faced by a branded consumer goods manufacturer in the

early stages of venturing beyond its domestic market. Students can assume the role of the chief executive officer in (1) balanc

ing the attraction of a potentially strong market against the mission and resources of the firm, (2) balancing the lack of resources (both financial and managerial) for a company controlled brand-building strategy against the apparent haz

ards in granting brand development rights to a licensee, (3) making the best of the increasing consolidation and strength of the retailer sector, and (4) developing trust with a local partner.

James M. Hagen

The Japan Entry Decision

It was fall of 1997, and Perry Odak was just entering his tenth month as chief executive officer (CEO) of the famous ice cream company named for its offbeat founders, Ben & Jerry's. Far from company headquarters in Vermont, he was setting down his chopsticks in a quiet Tokyo restaurant to give full attention to the staff he had brought with him: the company's newly appointed head of international, the head of produc tion, and a trusted expert on Japan. The question on the table for this group was whether to enter the Japanese market by

granting a countrywide license to an enterprising Japanese American, to enter the market by giving a convenience store

chain exclusive rights to carry Ben & Jerry's products in all of its 7000 stores, or to pass on trying to enter the Japanese mar

ket for the upcoming summer 1998 season. The decision was

not isolated; rather, those involved had to consider the very history and mission of this well-known company.

Submitted July 1999

Revised December 1999

January 2000

? Journal of International Marketing Vol. 8, No. 2, 2000, pp. 98-110

ISSN 1069-031X

Company Background Brooklyn schoolmates Ben Cohen and Jerry Greenfield started their ice cream company in a defunct gas station in

Burlington, Vt., in 1978, when both were in their mid-20s.

The combination of their anticorporate style, the high fat

98

content of their ice cream, the addition of chunky ingredi ents, and catchy flavor names, such as Cherry Garcia, found a

following. In addition to selling by the scoop, they began sell

ing pints over the counter, and the business grew. The com

pany went public in 1984 and came to be traded over the counter with the symbol BJICA.

Cohen and Greenfield determined that their company would be socially responsible, and as part of its objective of "caring capitalism," Ben & Jerry's committed to giving 7.5% of pretax profits to causes such as the Center for Better Living, which assisted the homeless. The company's mission statement was

organized into three objectives: social, economic (serving shareholders and employees), and product (producing prod ucts of the finest quality).

Indeed, the product Cohen and Greenfield were selling was ex

ceptionally rich (at least 12% butterfat, compared with

approximately 6%-10% for most ice creams). It was also very

dense, which was achieved by a low overrun (low ratio of air to

cream in the finished product). This richness and density qual ified it as a super premium ice cream. H?agen-Dazs, the only

major competitor in the super premium market, promoted a so

phisticated image, whereas Ben & Jerry's emphasized the off beat. The company had eschewed advertising, gaining invaluable publicity from the press, which could not resist re

porting on the unusual company and its funky, caring image.

By the late 1980s, the company had three production plants, and its ice cream had become available in every one of the United States. The 1990s saw sales increase from $77 million to $174 million in 1997. The future was not encouraging, though, as profit peaked in 1993 ($7 million) and even went into negative territory in 1994. Although Ben & Jerry's un

questionably held the second-largest market share (at 34%

compared with H?agen-Dazs's 44%) of the U.S. super pre mium market, that share was declining. This posed a threat

to the very survival of the company and to the continuation of its social responsibility activities. It was time to make a

change from entrepreneurial leadership to professional man

agement. In 1996, Bob Holland, a former consultant with

McKenzie Corporation, took the presidency, bringing a small cadre of fellow consultants with him. Holland's relationship

with the board did not work out, and Perry Odak was brought in as the new CEO in 1997.

Odak was recruited away from a consultancy assignment at

the U.S. Repeating Arms Company, which he had been in

strumental in turning around from its decline into red ink. This endeavor followed his experience in diverse positions, which ranged from senior vice president of worldwide oper ations of Armour-Dial Inc. to president of Atari Consumer

Educator Insights: Ben & Jerry's?Japan 99

Products, along with several consultancies and entrepreneur ial activities, including the start-up team and management of

Jovan, a fragrance and cosmetic company. Ben & Jerry's hired Odak as a professional manager who thrived on challenges.

The Domestic Market for

Super Premium Ice Cream

In 1997, almost 10% of U.S. milk production went into ice cream, a $3.34 billion market for store sales. Although Ben &

Jerry's had just 3.6% of the market (the biggest share of the

market, at 30.2%, came from the retailers' private labels

products), the company's competitive strength was its super

premium ice cream. Its share in that category was 34% (com

pared with 44% for H?agen-Dazs) of the $361 million of su

permarket sales. Both companies derived additional sales from sorbets, frozen yogurts, and novelties. H?agen-Dazs had

pioneered the super premium category back in 1961, when Reuben Mattus founded the company in New Jersey. The

company was later acquired by the giant food company Pills

bury, which in turn was bought in 1989 by the U.K. liquor and food giant Grand Metropolitan, which itself later com bined with Guinness to form Diageo.

There are considerable economies of scale in ice cream pro duction. Market leader H?agen-Dazs had just two plants in the United States, whereas Ben & Jerry's had three. Even with

relatively few plants, Ben & Jerry's was operating at approxi

mately half of plant capacity in 1997. The two companies had achieved national distribution, primarily selling their

product in supermarkets and convenience stores. Also, Ben &

Jerry's had 163 scoop shops, compared with 230 for H?agen Dazs. Prices for Ben & Jerry's and H?agen-Dazs ranged from

$2.89 to $3.15 per pint, often more than twice the price of

conventional and premium ice cream products. Considering that Ben & Jerry's was already available in all fifty U.S. states, it was apparent that future growth would have to come from

new products or from new (non-U.S.) markets.

Ben & Jerry's International Sales

Ben & Jerry's was intentionally slow to embrace foreign mar

kets. Cohen was opposed to growth for growth's sake, so the

company's few adventures overseas were limited to oppor tunistic arrangements that came along primarily through his

friends. Meanwhile, H?agen-Dazs had no such hesitation. By 1997, H?agen-Dazs was in 28 countries and had 850 scoop

shops around the world. Its non-U.S. sales were an estimated

$700 million, compared with approximately $400 million in domestic sales. Ben & Jerry's, in contrast, had foreign sales of

just $6 million and total sales of $174 million. In terms of non-U.S. super premium ice cream sales, H?agen-Dazs and

Ben & Jerry's were still the leading brands, but H?agen-Dazs was trouncing Ben & Jerry's.

Ben & Jerry's made its first foreign entry in 1986, when the

company gave a Canadian firm all Canadian rights for the

200 James M. Hagen

manufacture and sale of ice cream through a licensing agree ment. High Canadian tariffs and quotas made export into that market impractical, and the business did not thrive. In 1992, Ben & Jerry's repurchased the license, and as of 1997, there were just four scoop shops in Quebec. In the next foreign en

try, Avi Zinger, a friend of Cohen's, was given a license, in

cluding manufacturing rights, for the Israel market in 1988. His 1997 sales totaled approximately $5 million, but the only revenue accruing to Ben & Jerry's Homemade Inc. was licens

ing income, and this amount was negligible.

The company's most famous foray abroad was to Karelia,

Russia, in 1990. This was a joint venture that grew out of Co

hen's travel to Karelia as part of a sister-state delegation from Vermont in 1988. Ben & Jerry's had a 50% ownership share,

contributing equipment and know-how to the venture,

whereas the local partners provided the facilities for the fac

tory and for two scoop shops. After considerable delays, the

shops opened in July 1992. Although the operation had

grown, Ben & Jerry's terminated the joint venture in 1996,

giving its equity and equipment at no cost to its Russian part ners. Ben & Jerry's management believed that the attention re

quired of it to keep the partnership going was too demanding given the likely benefit to the company. The remaining oper ation no longer uses the Ben & Jerry's name, though it does continue to make ice cream.

In 1994, after much discussion, the consensus at Ben & Jerry's

headquarters in Vermont was that the company was not ready to move into international markets strategically (rather than

just opportunistically). Nevertheless, the company shipped a container of product to Sainsbury, an upscale supermarket chain in the United Kingdom, in response to a request from a

Sainsbury executive whom Cohen had met at a meeting of the Social Venture Network. This launch lacked any considera tion of pricing or knowledge of what kind of packaging and

ingredients were acceptable in the market. A distributor was

eventually engaged, though, and by 1997 annual U.K. sales

had reached $4 million.

In 1995, the company made a rather halting entry into France.

The company sent off a container of product to Auchan, an

other major retailer to which Cohen was introduced through Social Venture Network ties. As global protests grew over French nuclear testing, though, there were discussions in the

company about withdrawing from the French market and

protesting the French government's actions. If this were not

awkward enough, there was no marketing plan, no promo tional support, and no attempt to address French labeling laws. French sales in 1997 were just over $1 million. Ben &

Jerry's entry into the Benelux market was also without strate

gic planning. In this case, a wealthy individual who had ad

Educator Insights: Ben & Jerry's?Japan

mired the company's social mission asked to open scoop shops, with partial ownership by the Human Rights Watch.

By 1997, there were three scoop shops in Holland. Sales to taled a mere $287,000, but there were prospects for future store sales.

In short, Ben & Jerry's fell into several foreign markets oppor

tunistically, not as part of a strategic plan. The company had

never developed a conventional marketing plan in the United States, and it lacked the commitment and managerial resources to put together a marketing campaign for entering the foreign markets. As a result, by 1997 Ben & Jerry's inter

national sales were just 3% of total sales. Although the com

pany had nearly caught up with H?agen-Dazs in U.S. market

share, H?agen-Dazs was light-years ahead in the non-U.S.

markets. Given declining profits and domestic market share at Ben & Jerry's, it seemed to be time to give serious attention to international market opportunities.

Opportunities in Japan

In the 1994-96 period, when Ben & Jerry's was having its first taste of a professional CEO, it struggled with the prospects of

strategically targeting a foreign market and developing a mar

keting plan for its fledgling overseas operations. In particular, the company made inquiries about opportunities in Japan, the world's second-largest ice cream market, with annual

sales (including food service) of approximately $4.5 billion. The market was not only big but also daunting. Japan was known to have a highly complex distribution system driven

by manufacturers, its barriers to foreign products were high, and the distance for shipping a frozen product was immense.

Ben & Jerry's would be a late entrant, more than ten years af

ter H?agen-Dazs gained a foothold in the market. In addition, there were at least six Japanese ice cream manufacturers sell

ing a super premium product there.

Despite the challenges of entering Japan, that market had sev eral compelling features. Japanese consumers were known

for demanding high-quality products with great varieties of

styles and flavors (a hallmark of Ben & Jerry's), and it seemed that a dietary shift the country was undergoing toward more

animal products was still under way. By 1994, Japan's 42

kilogram annual per capita consumption of milk was less

than half that in the United States (103 kg.), and cheese con

sumption was approximately one-tenth that in the United States. Incomes in Japan had increased dramatically since

the 1950s, so animal-based food products and home refriger ators had become affordable to the population.

Although H?agen-Dazs did not disclose financial data, mar ket intelligence suggested that the ice cream maker had sales in Japan of approximately $300 million, and Japan provided the highest margins of any of its markets. The retail price for

102 James M. Hagen

one pint of H?agen-Dazs was approximately $6.00, and the brand had managed to capture an estimated half of the super premium market in Japan. It entered the market as an im

ported product, and later began production in Japan at a

plant co-owned with Japanese partners. Approximately 25% of H?agen-Dazs's sales there appeared to be from scoop

shops, which were an important vehicle for introducing the

product and positioning it as high in quality. The market seemed to welcome imported ice cream, and expectations of

falling tariffs on dairy products suggested increasing oppor tunities for ice cream imports from abroad, especially consid

ering that dairy production was much more costly in Japan than in the United States.

If Ben & Jerry's could capture some of the market, it appeared that adaptations would primarily be in packaging. Desserts at the family dinner table were uncommon in Japan, and ice cream was left primarily for the snack market. Not surpris

ingly, single-serving cups had become popular, accounting for

approximately 45% of sales. By 1993, approximately a quar ter of all ice cream sales were in convenience stores, where

sales were continuing to grow, compared with 29% in super markets. H?agen-Dazs's flavors in Japan were generally the

same as its U.S. flavors, with relatively minor modification.

Educators' Note: Deciding Whether to Enter the

Japanese Market

When asked whether Ben & Jerry's should enter Japan, stu dents can readily identify several considerations, whereas

others may not be so apparent. In support of entry, the market

is strong, with excellent growth potential. That Ben & Jerry's is a relative latecomer may seem problematic, but the poten tial growth in the market lessens that concern. More impor tant, Ben & Jerry's can enter with assurance that there is a

market for its product and without needing to educate con sumers about the category. The market thrives on new intro

ductions, which suggests potential for Ben & Jerry's to chip away at H?agen-Dazs's share. Although a micro look at mar

kets in Japan may be positive, the students could be encour

aged to undertake enough research to gain an impression of

the Japanese economy at the time. July 1997 was when the Thai currency depreciated, which sent a ripple effect of fi nancial crisis through the Asian economies. The Japanese economy had already been languishing, and there was no

sign of recovery. On the positive side, small, affordable luxu

ries can do well in times when major luxuries move beyond the reach of consumers.

Is it better to fix the markets you are already in before going to a new market? Perhaps, but a counterargument is that it may be easier to build from scratch than try to undo and fix past

mistakes. Potential market sizes again are an issue here, and

the potential in Japan vastly exceeds that in any other single export country. One question that looms large is whether Ben

Educator Insights: Ben & Jerry's?Japan 103

& Jerry's had the financial or managerial resources to develop and nurture the Japanese market properly. The company's past experience has shown that markets do not develop by themselves. It would take the time of top management as well as staff in Japan to garner a meaningful share of the market.

The market slippage in the mid-1990s had already suggested that the company could no longer rely on free publicity to build demand for its products. In particular, the Ben & Jerry's brand was unlikely to generate sufficient publicity in Japan to launch successfully without advertising.

A strategic consideration, which students might not think of, is the importance of giving H?agen-Dazs serious competition in this huge market where the company was reportedly earn

ing its highest margins?margins that could fuel attacks

against Ben & Jerry's back in the United States and anywhere in the world. By staying out of Japan, Ben & Jerry's had been

giving H?agen-Dazs a tremendous source of profits.

Students may already have studied alternative modes of for

eign market entry, including export on the one hand or over

seas production by licensing, contract production, or foreign direct investment on the other hand. In the present case, Ben & Jerry's is concerned about its excess capacity and has so far

restricted its milk supply to Vermont. Attention for class dis cussion can focus quickly on the export alternative. As the

product would be exported from the United States, there would be the risk of negative exchange rate movements that

could make exports to Japan no longer feasible. Similarly, commodity risk was also a serious concern, in that the price of milk could rise in the United States, which would hurt Ben & Jerry's relative to competitors with production in Japan.

The Ben & Jerry's case provides an opportunity to highlight that managers making market entry decisions must consider

the people involved and the very personality of the company. Social mission is of particular importance to Ben & Jerry's, and Cohen had reservations about a strategic push into a new

market for which no social mission had been identified.

Odak, in contrast, had been hired to make the company thrive, and his personal success would depend on immediate

successes in sales, profit, and stock price growth.

Focusing on Two Alternative Strategies

for Entering the

Japanese Market

Upon assuming the presidency, Odak inherited a file of notes related to Jerry Greenfield's study trip to Japan a year earlier. In a whirlwind tour, Greenfield had met with trade represen tatives and possible distributors, including Amway Japan, two Japanese dairy companies, an existing ice cream distribu

tor, the master franchiser for Japan of Domino's Pizza, and the

head of the 7-Eleven convenience store chain in Japan. Be

cause of managerial turmoil at its headquarters, though, Ben &

Jerry's had not pursued any of the options. The incomplete re

104 James M. Hagen

search file suggested that Amway was a bad fit, and one of the dairy companies was affiliated with the Mitsubishi indus trial family, which Ben & Jerry's had recently protested on account of its rain forest logging activities. There was also nervousness about partnering with possible competitors with whom the company was not familiar. Although getting on the shelves of 7-Eleven stores seemed to offer the shortest

(and least costly) distribution channel, there was anecdotal evidence that the convenience chain could be difficult to

work with because of its sheer market power, its demands for

just-in-time inventory maintenance, and the possibility of its

dropping flavors with little notice. In any event, 7-Eleven

could not be expected to promote the brand. The most viable alternative seemed to be the Japanese-American entrepreneur, Ken Yamada, who could build on the success of his American

pizza company by promoting ice cream.

In February 1997, after little more them a month on the job, Odak had many challenges more immediately pressing than the Japanese market, though that is when he paid a visit to

Japan. The visit was actually a detour to a long-scheduled va

cation trip to Thailand with his wife. Ben & Jerry's had not been represented at the recent top-to-top meeting in the

United States that Southland (the U.S. franchisers of 7-Eleven) hosted every January with its key suppliers. Ben & Jerry's was one of those suppliers. To make up for this, Odak stopped by Tokyo for a courtesy call to Mr. Iida, the President of 7-Eleven

Japan, a controlling parent company of Southland.1

Iida appeared appreciative of this courtesy call at the 7 Eleven headquarters in Tokyo, but after about ten minutes of

pleasantries, he asked Odak point blank: "Is there anyone at Ben & Jerry's who can make a marketing decision? We'd like to sell your product in Japan but don't know how to proceed or with whom." Rather taken aback at this surprisingly direct

inquiry, Odak replied that he could indeed make a decision, and he resolved to sort through the Japanese options and get back to Iida in short order. Back in Vermont, Odak installed

Angelo Pezzani (with whom he had worked years earlier at

Atari) as the new director of international for Ben & Jerry's Homemade. Pezzani would continue discussions with Ya

mada and simultaneously let Iida know that Ben & Jerry's wanted to explore options with 7-Eleven.

The Yamada Option

The Yamada proposal was for Yamada to have full control of

marketing and sales for Ben & Jerry's in Japan. He would po sition the brand, devise and orchestrate the initial launch, and take care of marketing and distribution well into the fu ture. He would earn a royalty on all sales in the market. By

giving Yamada full control of the Japanese market, Ben &

Jerry's would have instant expertise in an otherwise unfamil

iar market, as well as relief from having to address the many

Educator Insights: Ben & ferry's?Japan 105

issues involved in putting together both an entry strategy and

ongoing market management. Yamada knew frozen foods, and he had an entrepreneurial spirit and marketing savvy that was evidenced by his success in launching and building up the Domino's pizza chain in Japan. Giving up control of a

potentially major market, though, could not be taken lightly. Because Yamada would invest his time in fleshing out and

executing a marketing plan only after reaching an agreement with Ben & Jerry's, there was no specific plan available for consideration. Even if there had been, Yamada would have retained the rights to change it. For the short run, however, Yamada would expect to add selected flavors of Ben & Jerry's ice cream cups to the Domino's delivery menu, which pro

vided an opportunity to collect market data based on cus

tomer response.

The 7-Eleven Option

To pursue the 7-Eleven option, Odak requested an April meeting with Iida in Japan to explore the options. The meet

ing would include Mr. Nakanishi, the head of frozen deserts for 7-Eleven Japan (and several of his staff members). Odak

would be accompanied by Angelo Pezzani, the new head of international for Ben & Jerry's, and Bruce Bowman, the head of operations. To work out arrangements for the meeting, Odak needed someone on the ground in Japan, and he called on Rivington Hight, an American who spoke Japanese and

had been living in Japan for much of the past 30 years. No

stranger to Odak or Pezzani, Hight had also worked for Atari in 1982, as president of Atari Japan. Similar to Odak and Pez

zani, he had held a variety of management positions and con

sultancies in the years since.

The April meeting in Japan was basically intended to lay the

groundwork for further discussion between the ice cream manufacturer and the giant retailer. It was a chance for the

critical players in each company to get together. Odak arrived at this first meeting with more questions than answers, but he

was determined that any product Ben & Jerry's might sell in

Japan would be manufactured in Vermont, where the com

pany had considerable excess capacity. The costs of labor

and raw materials were higher in Japan than in the United

States, enough so that the 23.3% tariff and cost of shipping did not seem prohibitive. Iida allowed that he would be interested in putting Ben & Jerry's products in all of 7-Eleven's 7000-plus stores in Japan, in exchange for Ben &

Jerry's making 7-Eleven its exclusive Japanese retail

outlet for a to-be-determined period of time. The introduc

tory meeting went well enough that the two companies planned subsequent meetings to explore the many details that would be critical to a successful joint effort.

As mentioned previously, ice cream was seldom consumed

as a family dessert in Japan, though it had become a popular

106 fames M. Hagen

snack item. Accordingly, Nakanishi insisted the ice cream be

packaged only in personal cups (120 ml.) and not the 473 milliliter (one pint) size that Ben & Jerry's currently packed. Meanwhile, H?agen-Dazs was being sold in both sizes in

Japan. Bowman determined that approximately $2 million worth of new equipment would be needed to produce the smaller cup. The sizes of some of the ingredient chunks

would have to be reduced so that they would not overwhelm the small cups. This would require special orders of ingredi ents to fill any 7-Eleven Japan orders. After some taste tests

by Nakanishi, it appeared that some of the existing flavors would be acceptable, though their sweetness would need to be toned down and a minor change would need to be made in one of the stabilizers.

The approach of 7-Eleven to just-in-time inventory proce dures would make delivery reliability especially key, and costs would need to be minimized. Logistics research indi cated that it would likely take at least three weeks' shipping time from one of the plants in Vermont to the warehouse in

Japan. Because of the Japanese labeling requirements, produc tion quantities would need to match the orders from 7-Eleven

carefully. After the product was packaged, it could not be shifted to another customer, nor could another customer's

product be shifted to Japan. In addition to legally mandated

changes in the packaging, 7-Eleven wanted to provide its own

design for the package art, and the design definitely would not include a photograph of Cohen and Greenfield. Nakanishi wanted conventional descriptive names and packaging that

looked more elegant (more like H?agen-Dazs's).

When it was established that it would be at least logistically possible to fill the 7-Eleven order, the question whether there

would be significant demand for the product deserved a more considered answer. Iida had said he was interested in

Ben & Jerry's ice cream because it was a new brand in Japan and its chunky characteristic made it a truly new product. He knew from direct experience that the brand was successful in the United States. Moreover, 7-Eleven had tried to get a

Japanese company to copack a chunky super premium ice

cream, but the Japanese packer was unsuccessful in its pro duction processes. Research supporting a clear market for

this novel product in Japan was scant. It seemed unlikely,

though, that 7-Eleven would commit shelf space to a product about which it had any doubt, and both Iida and Nakanishi

certainly knew their market.

Educators' Note: Selecting a Market Entry Strategy

The most obvious benefit of entering Japan through 7-Eleven was immediate placement in the freezer compartments of

more than 7000 convenience stores in that country. In the

early 1990s, the convenience store share of the ice cream

market had increased, and it appeared that these stores now

Educator Insights: Ben & ferry's?Japan 107

accounted for at least 40% of super premium ice cream sales

in Japan. Equally positive was the fact that 7-Eleven had taken advantage of its size and its state-of-the-art logistics

systems by buying product directly from suppliers, avoiding the several layers of middlemen that stood between most

suppliers and Japanese retailers. These cost savings could

make the product more affordable and allow a wider margin to protect against such risks as currency fluctuation.

On the negative side, if the product were introduced to the market through a convenience store and it were just one of

many brands there, would it be able to build its own brand

capital in Japan as H?agen-Dazs had? Would the product es

sentially become a store brand? Without brand capital, it could be difficult to distribute the product beyond the 7 Eleven chain. Would committing to one huge retail chain be a case of putting too many eggs in one basket? A falling-out between Ben & Jerry's and 7-Eleven Japan could leave the ice cream maker with nothing in Japan. Even during discussions

with Ben & Jerry's, the retailer was known to be terminating its supply agreement with the French ice cream manufac

turer Rolland because of allegedly inadequate sales. Presum

ably, 7-Eleven could similarly cut off Ben & Jerry's at some

future date.

A further danger that might extend beyond the Japanese bor ders was that a significant change in product names and

package design could confuse consumers on a global basis

and begin to erode the equity already built up in the brand. As it happened, this problem was somewhat attenuated be cause Ben & Jerry's packaging in the United States was al

ready moving in the same direction.

In going into a partnership, it is critical that both sides win, and Ben & Jerry's crew gave careful thought to what motiva

tion, if any, 7-Eleven might have beyond the desire to offer a new product to lure more customers into its stores. After all,

Ben & Jerry's would not be new forever. A skeptic might worry that 7-Eleven's interest in bringing Ben & Jerry's to

Japan was that 7-Eleven's combined U.S. and Japanese opera tions would become so important to Ben & Jerry's (potentially accounting for a substantial portion of its sales) that 7-Eleven could in some fashion control the ice cream maker. Alterna

tively, 7-Eleven's reliance on H?agen-Dazs, which captivated over half of Japan's super premium market, might be consid

ered. Would 7-Eleven not be in a better position to bargain with H?agen-Dazs if that brand were being challenged by close competitor? The distribution channel from H?agen

Dazs to 7-Eleven was not as direct as that from Ben & Jerry's, so there would be the opportunity of higher margins if sales could be shifted from H?agen-Dazs to Ben & Jerry's. Also, the

possibility remained that introduction of a new strong brand

James M. Hagen

would help build the category, and super premium was a

high-margin category.

Proceeding Toward a Decision Point

Although Yamada was still very much a contender through the summer of 1997, one big issue dominated discussions

with him: Would he truly earn a margin on all sales in Japan for some number of years into the future? Yamada would not be able to develop his marketing plan until he received his license, and without a plan it was difficult to discuss any specifics. With prospects of a direct sale to 7-Eleven, the Ya

mada option was seeming less attractive to Ben & Jerry's. However, the 7-Eleven option provided little more than im mediate (and possibly temporary) placement on a lot of store

shelves.

Through many communications and meetings during the summer of 1997, several issues were discussed and resolved.

For example, 7-Eleven would require only a six-month exclu

sive right to Ben & Jerry's, and even that would be only for the specific flavors being sold to 7-Eleven. Because of its rel

atively small size and inability to cover a loss, Ben & Jerry's was asking for sale terms that would transfer title (and all

risk) for the product at the plant gate. It also was asking for 12 weeks lead time on any order to allow for sourcing of ingre dients as well as efficient production scheduling and ship ping. It appeared that these requests would not be too burdensome for 7-Eleven. The sensitive issue of price was in

tentionally left until late in the discussions. H?agen-Dazs was being sold for 250 yen per 120-milliliter cup, and 7 Eleven wanted to position Ben & Jerry's at a slightly lower

price point. This was problematic for Odak, who had been

working to position the product as equal or superior in qual ity to H?agen-Dazs.

The retailer thought it could sell at least six cups per day at each store, which would be the minimum to justify contin

uing to stock Ben & Jerry's. Looking at the size of 7-Eleven's ice cream freezer cases suggested that this would require that

approximately 10% of 7-Eleven's cup ice cream sales be of

Ben & Jerry's products. Ben & Jerry's was as yet unknown in

Japan, and it did not have the budget for a marketing cam

paign there. Sales would have to rely primarily on promo tional efforts by 7-Eleven, but the company was making no

specific commitment to such efforts.

It would be a long evening meal as Odak, Pezzani, Bowman,

and Hight gave their final thoughts to the decision before them. Not only had Odak promised Iida that he could make a

decision, but Yamada needed an answer to his proposal as

well. In any event, Ben & Jerry's needed to proceed with one

plan or another if it was going to have any Japanese sales in its 1998 income statement.

Educator Insights: Ben & Jerry's?Japan 109

Educators' Note: Building Trust

By now, the student should understand that several issues were discussed and provisionally worked out between 7 Eleven and Ben & Jerry's during the summer. This process of

working together also let the two sides become comfortable with each other so that by the end of the summer they could feel enough mutual trust to consider entering into an agree

ment with the other. All contracts are incomplete, and 7

Eleven would have to rely on Ben & Jerry's to (among other

things) cooperate logistically and get the product produced and shipped on time. Ben & Jerry's would have to rely on 7

Eleven to not pull the product after the first shipment. In ad dition, 7-Eleven had not committed to any promotion except

minimal point-of-purchase displays. Ben & Jerry's specific

promotion commitment was for nothing more than a visit by Cohen or Greenfield sometime during the promotion.

Odak noted that it was important that the two sides avoid the

potentially divisive topic of price and margin/splitting until the end of negotiations, when they had already become fa

miliar with each other. Throughout the summer discussions, there were opportunities for each side to show faith in the

other, another trust-building exercise. In late summer, Odak

told 7-Eleven he had ordered the $2 million of special pack ing machinery in anticipation of working out a deal in time for the 1998 season. Such opportunities were lacking in dis cussions with Yamada, though in the Yamada case, trust

would be even more important. Giving up control of a brand for a potentially huge market would perhaps be even more difficult for Ben & Jerry's than for many other consumer food

manufacturers. The brand embodied many unique qualities (caring, social mission, fun, funkiness, and even Cohen and

Greenfield themselves) that would be difficult for a licensee to maintain and build on.

The Author

James M. Hagen is assistant

professor of business manage ment at Cornell University.

ACKNOWLEDGMENTS

The author gratefully acknowledges research assistance from Jose Gobbee

and the generous contribution

of Perry Odak, chief executive

officer of Ben & Jerry's, for his time

and that of company staff members.

Some of the names in the case have

been changed for purposes of

privacy. The full case (with optional

teaching notes) on which this article

is based is available as Ben &

Jerry's?Japan (case #9A99A037) from Ivey Publishing at the Richard

Ivey School of Business,

University of Western Ontario

(e-mail: cases@ivey.uwo.ca).

Notes 1. A brief explanation of the relationship between the Japan

ese 7-Eleven organization and the U.S. 7-Eleven organiza tion is in order. The convenience stores originated in

Texas in 1927 as a retail concept of Southland Corpora tion, which had been in the ice business. Southland began using the 7-Eleven banner in the 1950s, because the stores would be open from 7 a.m. to 11 p.m. The business grew

through company-owned and franchised stores. South

land gave a master franchise for Japan to the Ito Yokado

Company, a large supermarket operator there, which in

turn established 7-Eleven Japan to conduct the 7-Eleven

business in Japan through company-owned and fran chised stores. In the 1980s, Southland was in financial

distress, and Ito Yokado, along with its subsidiary, 7

Eleven Japan, bailed out Southland, acquiring a control

ling interest in the company. In this light, Odak's dinner with Iida in Japan constituted a sort of executive summit between Ben & Jerry's and its largest customer.

110 James M. Hagen