mkt nature view farm
TRANSCRIPT
Natureview Farm
Tuck School of Business
Prof. Y. Jackie Luan
Marketing Management Framework
MarketingTactics(4Ps)
Situation Analysis(3Cs)
MarketingStrategy(STP)
Segmentation, Targeting, and Positioning (STP)
Product (Choose Value)
Place/Distribution(Deliver Value)
Promotion (Communicate Value)
Price(Capture Value)
Customer Analysis Competition Analysis Company Analysis
Key Discussion Points
How has Natureview succeeded so far?
Which growth option should Natureview pursue?
How can it manage the risks associated with the chosen option(s)?
Growth Options: The Ansoff Matrix
Present
New
Present New
Products
Markets / Channels
Adapted from Ansoff, Igor, Strategies for Diversification, Harvard Business Review, 35 (5), 1957.
Market Penetration
Market Development
Product
DevelopmentDiversification
Example: Supermarket, 8 oz.
Cost Selling Price Margin
Manuf.
(Natureview)
Distributor
Retailer $0.74 27%$0.54= $0.74 (1 - .27)
15%$0.54$0.46= $0.54 (1 - .15)
$0.46$0.31 33%= ($0.46-0.31)/0.46
$ Selling Price - $ Cost% Margin = $ Selling Price
Selling Prices and Margins by Product / Channel
8-oz. 32-oz. multi-pack
Supermarket Natural Foods Supermarket Natural
Foods Supermarket Natural Foods
Retailer Selling Price $0.74 $0.88 $2.70 $3.19 $2.85 $3.35Distributor Selling Price $0.54 $0.57 $1.97 $2.07 $2.08 $2.18Wholesaler Selling Price n/a $0.52 n/a $1.89 n/a $1.98
Manuf. Selling Price $0.46 $0.48 $1.68 $1.75 $1.77 $1.84
Manuf. Cost $0.31 $0.31 $0.99 $0.99 $1.15 $1.15Contribution Per Unit Sold $0.15 $0.17 $0.69 $0.76 $0.62 $0.69
% Manuf. Margin 32.5% 36.0% 40.9% 43.6% 35.0% 37.6%
1. Calculate Natureview’s Selling Prices
2. Calculate Incremental Revenues
= Manufacturer Selling Price X Incremental Volume
3. Calculate Incremental Profits
= Incremental Revenue – Incremental Cost
Steps:
Revenue and Profit under Each Option
Two Promotion Strategies: Push vs. Pull
Manufacturer Retailer Consumer
PULL strategy
PUSH strategy
Advertising; Consumer sales promotions
Trade promotions; Sales force calls
Year 1 Incremental Profits: Option 1
Plan 6 SKUs of 8 oz. yogurt to 20 supermarkets in two Regions (11 Northeast, 9 West)
Incremental Revenue: $16,070,950
Costs Advertising $1.2MM per region Slotting fees $10,000 per chain per SKU Incremental sales org. $200,000 Incremental marketing org. $120,000 Trade promotion (NE) $7,500 per chain, 4 times Trade promotion (W) $15,000 per chain, 4 times Broken commission 4% of sales
Calculation Incremental Revenue $16,070,950 Incremental Gross Profit $5,220.950 -Total Advertising ($2,400,000) -Incremental SG & A ($320,000) -Slotting fees ($1,200,000) -Trade promo costs ($870,000) -Broker’s commissions ($642,838)
Incremental Net Profit ($211,888)
Revenue and Profit Projections: Option 1
Year: 1 2 3 4 5Sales 35,000,000 42,000,000 50,400,000 60,480,000 72,576,000
Revenue 16,070,950 19,285,140 23,142,168 27,770,602 33,324,722
Less COGS (10,850,000) (13,020,000) (15,624,000) (18,748,800) (22,498,560)
Gross Profit 5,220,950 6,265,140 7,518,168 9,021,802 10,826,162
Less Broker Commissions (642,838) (771,406) (925,687) (1,110,824) (1,332,989)
Less Advertising Cost (2,400,000) (2,400,000) (2,400,000) (2,400,000) (2,400,000)
Less Trade Promotions (870,000) (870,000) (870,000) (870,000) (870,000)
Less Slotting Fees (1,200,000) 0 0 0 0
Less SG&A (320,000) (320,000) (320,000) (320,000) (320,000)
Net Profit Contribution (211,888) 1,903,734 3,002,481 4,320,978 5,903,173 NPV (196,193) 1,435,953 3,819,419 6,995,467 11,013,067
Summary of Financial Calculations (in 1000s)
Option 1(8 oz. Supermarket)
Option 2 (32 oz. Supermarket)
Option 3 (Multipack
Natural Foods)Year 1 Revenue $16,071 $9,214 $3,317
Year 1 Profit ($212) ($823) $781
Year 2 Revenue $19,285 $11,057 $3,815
NPV of Profit Over 2 Years
$1,436 $1,310 $1,608
Year 5 Revenue $33,325 $19,107 $5,802
NPV of Profit Over 5 Years
$11,013 $10,640 $4,798
Incremental Market Share
2%(Supermarket 6-8 oz.)
10.6% (Supermarket 32 oz.)
11.2 % (Natural Foods)
Which Option to Pursue?
Option 1 Option 2 Option 3
Revenue Objective Exceeds Exceeds Falls Short
SR profitability Loss Deep Loss Gain
LR sales/profits potential
HighFirst-mover
HighFirst-mover
LowMight miss the boat
Channel Partnership Highly Alienating Alienating Enhancing
Competitive Response Very Risky Risky Low
Cost to Induce Trial High Very High Low
Brand Equity Dilution Possible Possible No
Organizational capabilities Low Low High
Expanding into Supermarkets
Risks Possible Solutions
Alienating Current Partners
• Category expansion• Exclusive products• Co-Advertising; Co-promotions (e.g. “cross-ruff”)
Attracting Major Players’ Response
• Adopt “niche” positioning in supermarkets• Premium pricing: Avoid price wars• Partnership / M&A
Brand Equity Dilution
• Strengthens brand (health benefits + all natural, eco-friendly image): advertising, cause marketing, product innovation
• Maintains price premium
Lack of organizational capabilities
• Builds up its marketing function• Partnership / M&A
What Happened?
•Stonyfield Farm, Londonberry, NH
•Undertook a mix of all 3 options
•Less successful with 8-oz than 32-oz in supermarkets; ran into stiff competition but did gain foothold.
•A new multipack targeted to babies and toddlers (“Yobaby”) was a runaway success ▫50% of $200 million revenue in 2007
What Happened? (cont.)
•New products introduced a year earlier in natural foods stores than supermarkets.
•Competitors attempted supermarket entry with mixed results; Stonyfield is typically the single organic yogurt.
•Acquired by Groupe Danone in 2001.
Lessons
•The distribution channel is not just a conduit; also customers with their own needs.
•Channel expansion is an attractive growth strategy but can be risky.
•Different channel choices often have different financial impact (i.e., gross margin, revenue, cost, profit; short-run & long-run).
•Strategic impact is often more challenging to gauge and manage (e.g., channel conflicts; brand equity dilution; competitive reaction; organizational capabilities)