Dixieland Ice Cream’s profit rate has been declining over the past three years and is below average in the industry. Management has asked you to advise them as to ways that profitability may be raised. Your investigations reveal that although there is little inefficiency in production, employee productivity is relatively low, mainly because of Dixieland’s reliance on relatively old equipment. In addition, product quality tends to vary perceptibly between batches as a result of the age of the equipment. Consumers think Dixieland’s product is “just another ice cream,” although brand name recognition is quite high. Dixieland’s ice cream is marketed in all major supermarkets and food stores, and it is priced in the middle of the range of prices found there. Their relatively low advertising budget is spent largely on joint promotions with supermarket chains when Dixieland’s ice cream is one of the products used for promotional pricing.

Dixieland’s competitors include several like itself, some small firms competing in only some of the regional markets, and a few others that specialize in higher-quality ice cream, with a creamier taste, more chunks of real fruit, and so on. These premium-price ice creams are mar¬ keted in ice cream parlors as well as in food stores generally. An ice cream parlor typically uses a single brand name ice cream and is particularly concerned with high and consistent quality. Some ice cream parlors are owned by the manufacturers and are thus not able to use another manufacturer’s product. The small firms, which market their products in only some of the food stores, accept a lower markup in an effort to achieve greater penetration of the market, but this approach causes the profit rates of most of the smaller firms to be relatively low, in turn limiting their ability to expand quickly.

(a) Discuss the competitive strategies that appear to be open to Dixieland.

(b) Based on the information given here, which strategy do you think they should adopt?

(c) What further information would you like to have before investing any money in Dixieland’s stock, given that they will follow your advice?