natureview farm - hbr case study
TRANSCRIPT
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Case Study
Published By:Harvard Business Review
Natureview Farm
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Analyzed And Presented By
Shomik Biswas
Jadavpur University
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Brief History
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Brief History
Founded in 1989 in Cabot, Vermont.
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Brief History
Founded in 1989 in Cabot, Vermont.
Manufactures and markets refrigerated cup yogurt.
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Brief History
Founded in 1989 in Cabot, Vermont
Manufactures and markets refrigerated cup yogurt.
Carved a niche using natural ingredients and special processes.
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Current Situation 2000
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Current Situation 2000
In 10 years its revenues had grown from $10,000 to $13 Million.
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Current Situation 2000
In 10 years its revenues had grown from $10,000 to $13 Million.
Grew from 2 cup sizes and 2 flavors to 3 cup sizes, multipacks and 12 flavors.
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Current Situation 2000
In 10 years its revenues had grown from $10,000 to $13 Million.
Grew from 2 cup sizes and 2 flavors to 3 cup sizes, multipacks and 12 flavors.
Has strong relationship with the leading natural foods retailers, including the chains Whole Foods and Wildoats.
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HOW IS IT DIFFEREN
T
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HOW IS IT DIFFEREN
T
Natural Ing.; special process; give yogurt its uniqueness; no artificial
thickeners.
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HOW IS IT DIFFEREN
T
Uses milk from cows untreated
with rGBH.
Natural Ing.; special process; give yogurt its uniqueness; no artificial
thickeners.
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HOW IS IT DIFFEREN
T
Hence, has a larger shelf
life.
Uses milk from cows untreated
with rGBH.
Natural Ing.; special process; give yogurt its uniqueness; no artificial
thickeners.
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HOW IS IT DIFFEREN
T
Hence, has a larger shelf
life.
Uses milk from cows untreated
with rGBH.
Natural Ing.; special process; give yogurt its uniqueness; no artificial
thickeners.
Emphasizes on Natural Ingredients.
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HOW IS IT DIFFEREN
T
Hence, has a larger shelf
life.
Uses milk from cows untreated
with rGBH.
Natural Ing.; special process; give yogurt its uniqueness; no artificial
thickeners.
Emphasizes on Natural Ingredients.
Strong Reputation for high quality and great taste.
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HOW IS IT DIFFEREN
T
Hence, has a larger shelf
life.
Uses milk from cows untreated
with rGBH.
Natural Ing.; special process; give yogurt its uniqueness; no artificial
thickeners.
Emphasizes on Natural Ingredients.
Strong Reputation for high quality and great taste.
The company grew quickly to national distribution
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HOW IS IT DIFFEREN
T
Hence, has a larger shelf
life.
Uses milk from cows untreated
with rGBH.
Natural Ing.; special process; give yogurt its uniqueness; no artificial
thickeners.
Emphasizes on Natural Ingredients.
Strong Reputation for high quality and great taste.
The company grew quickly to national distribution
And shared leadership
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HOW IS IT DIFFEREN
T
Hence, has a larger shelf
life.
Uses milk from cows untreated
with rGBH.
Natural Ing.; special process; give yogurt its uniqueness; no artificial
thickeners.
Emphasizes on Natural Ingredients.
Strong Reputation for high quality and great taste.
The company grew quickly to national distribution
And shared leadership
Aided by ‘Guerilla
Marketing’
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Challenges
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Challenges
Strategize how to grow revenues by over 50% before the end of 2001.
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Challenges
Strategize how to grow revenues by over 50% before the end of 2001.
Should Natureview Farm expand into the Supermarket Channel in order to meet its revenue goal.
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Why ?
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Why ?
Despite its growth since 1989, the company struggled to maintain a consistent level of profitability.
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Why ?
Despite its growth since 1989, the company struggled to maintain a consistent level of profitability.
Jim Wagner (CFO) had developed financial controls to bring steady profitability.
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Why ?
Despite its growth since 1989, the company struggled to maintain a consistent level of profitability.
Jim Wagner (CFO) had developed financial controls to bring steady profitability.
In ‘97, an equity infusion with a
VC firm was arranged
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Why ?
Despite its growth since 1989, the company struggled to maintain a consistent level of profitability.
Jim Wagner (CFO) had developed financial controls to bring steady profitability.
In ‘97, an equity infusion with a
VC firm was arranged
VC Firm cashed out
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Why ?
Despite its growth since 1989, the company struggled to maintain a consistent level of profitability.
Jim Wagner (CFO) had developed financial controls to bring steady profitability.
In ‘97, an equity infusion with a
VC firm was arranged
VC Firm cashed out
Now, the management
had to find another investor
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Why ?
Despite its growth since 1989, the company struggled to maintain a consistent level of profitability.
Jim Wagner (CFO) had developed financial controls to bring steady profitability.
In ‘97, an equity infusion with a
VC firm was arranged
VC Firm cashed out
Now, the management
had to find another investor
Or position itself for acquisition
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Hence, increasing revenues was critical in order to attain the highest possible valuation
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Hence, increasing revenues was critical in order to attain the highest possible valuation
So, Jim proposed the management that the revenue needed to grow
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Hence, increasing revenues was critical in order to attain the highest possible valuation
So, Jim proposed the management that the revenue needed to grow
From $13 Million to $20 Million by 2002
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Hence, increasing revenues was critical in order to attain the highest possible valuation
So, Jim proposed the management that the revenue needed to grow
From $13 Million to $20 Million by 2002
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Barry Landers (CEO) made the management aware that this immediate pressure would eventually help Natureview Farm
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Barry Landers (CEO) made the management aware that this immediate pressure would eventually help Natureview Farm
To get to the size that it aspires to reach
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Barry Landers (CEO) made the management aware that this immediate pressure would eventually help Natureview Farm
To get to the size that it aspires to reach
The unconventional route taken thus far was the key to their future growth
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Barry Landers (CEO) made the management aware that this immediate pressure would eventually help Natureview Farm
To get to the size that it aspires to reach
The unconventional route taken thus far was the key to their future growth
As this strategy resonated with the customers, suppliers and the distribution partners
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The refrigerated yogurt category
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The refrigerated yogurt category
And The Yogurt market
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Yogurt Sales Distribution Channels
Dominant Channels Other channels
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Yogurt Sales Distribution Channels
Dominant Channels Other channels
97
3
%Sales
Super-marketsNatural Food Stores
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Yogurt Sales Distribution Channels
Dominant Channels Other channels
97
3
%Sales
Super-marketsNatural Food Stores
Warehouse Clubs
Drug Stores
Mass Merchandisers
Convenience Stores
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Natureview Farm didn’t enter these channels as they offered limited revenue generation potential
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Natureview Farm didn’t enter these channels as they offered limited revenue generation potential
Its products were not a strong fit
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Natureview Farm didn’t enter these channels as they offered limited revenue generation potential
Its products were not a strong fit
For the narrow product offering afforded to consumers through these channels
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Natureview Farm didn’t enter these channels as they offered limited revenue generation potential
Its products were not a strong fit
For the narrow product offering afforded to consumers through these channels
Volume requirements were prohibitive in certain channels
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Supe
rmark
ets
Natural
Food
Store
s0
1020304050
4625 29
Organic Food Con-sumers Bought From
Organic Food Con-sumers Bought From
020406080
7429
Organic Dairy Products Bought By
Organic Dairy Prod-ucts Bought By
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020406080
67 58 44
Consumer And Household Survey
Consumer And Household Survey
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Factors which affect
yogurt purchase
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Factors which affect
yogurt purchaseIngredients
Price
Flavor
Taste
Package Type/Size
Organic or Not
Freshness
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74
98 9
Distribution Accord-ing To Cup Size
8 oz. or SmallerKid Mul-tipack32 oz.4th Qtr
26
2225
27
Market Share By Region
NortheastMidwestSoutheastWest
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Consumer Distribution
6, 8 oz. Pack Kid Pack 32 oz. Pack
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Consumer Distribution
6, 8 oz. Pack Kid Pack 32 oz. Pack
Targeted at Women
All flavors is favorable
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Consumer Distribution
6, 8 oz. Pack Kid Pack 32 oz. Pack
Targeted at Women
All flavors is favorable
Targeted Kids and Moms
Contains 6-4oz., 8-2 oz.
cups
All flavors is favorable
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Consumer Distribution
6, 8 oz. Pack Kid Pack 32 oz. Pack
Targeted at Women
All flavors is favorable
Targeted Kids and Moms
Contains 6-4oz., 8-2 oz.
cups
All flavors is favorable
For Heavy Consumer
Used for various dish preparations
Plain and Vanilla favorable
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The sales and Distribution process
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The sales and Distribution process
Supermarket channel V. Natural Food store
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Supermarket
Channels
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Supermarket
Channels
If Natureview chose to expand into the supermarket channel, it would depend on its Broker’s knowledge of promotional and merchandising requirements.
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Supermarket
Channels
If Natureview chose to expand into the supermarket channel, it would depend on its Broker’s knowledge of promotional and merchandising requirements.
These influential brokers, representing several brands of consumer products used their relationships to arrange discussions b/w retail chains, wholesalers and manufacturers.
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The channel monitors sales trends especially of new items by region, area and store using sophisticated scanner technology.
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Relatively streamlined distribution systems allows to maintain lower prices.
The channel monitors sales trends especially of new items by region, area and store using sophisticated scanner technology.
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Relatively streamlined distribution systems allows to maintain lower prices.
The channel monitors sales trends especially of new items by region, area and store using sophisticated scanner technology.
Markup on each product by intermediaries. Typical Distribution Margin – 15% and Retailer Margin – 27%.
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Additional Costs
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Additional Costs
Refrigerated yogurt, slotting fee averaged - $10,000 per SKU per retail chain. For 8 diff. flavors in 8 oz. packs - $80,000/retail chain.
NE, MW and SE of the US, ads - $7500. In the West, same ads - $15,000 per ad per retailer.
Nationally, they cost $8000 on average.
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33
2423
5 15
Market Share By Brand (Supermarket)
DannonYoplaitOthersColumboPrivate Label
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Natural Foods
Channels
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Natural Foods
Channels
Typically charge higher retail prices for the same products in Supermarkets.
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Natural Foods
Channels
Typically charge higher retail prices for the same products in Supermarkets.
Distributors deliver product to individual stores, sometimes stock the shelves and track paperwork.
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Natural Foods
Channels
Typically charge higher retail prices for the same products in Supermarkets.
Distributors deliver product to individual stores, sometimes stock the shelves and track paperwork.
Intermediaries ‘Break Cases’. Typical natural foods Wholesaler Margin – 7%, Distributor Margin – 9%, Retailer Margin – 35%.
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Additional Costs
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Additional Costs
No slotting fees charged by natural food stores.
Require a 1-time allotment of 1 Free Case of product for every new SKU authorized for distribution in its 1st year.
Minimal ad fee (all region).
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24
15197
35
Market Share By Brand (Nat-ural Food Store)
Natureview FarmBrown CowHorizzon OrganicWhite Wave Others
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Analysis of the senior management team’s
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Analysis of the senior management team’s
3 options
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Option
By Walter Bellini (VP of Sales)
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Expand 6 SKUs of the 8 oz. product line into one or two
selected supermarket channel regions.
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pros
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pros
8 oz. cups represent largest dollar and unit share of market. Other natural food brands have successfully expanded to supermarkets.
Supermarkets may authorize only one organic yogurt manufacturer.
Advantage in being the first organic yogurt to move to supermarket.
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cons
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cons
Highest level of competition amongst all the product lines of yogurt.
Increase in ad cost and SG&A expenses. Little experience in dealing with supermarket chains.
High potential, but high risk and cost.
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Option
By Jack Gottlieb (VP of Operations)
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Expand 4 SKUs of the 32 oz. size nationally.
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pros
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pros
32 oz. cup generates an above average gross profit margin (43.6% Vs. 36% for 8 oz. product line).
Fewer competitive offerings in this size. Competitive advantage due to longer shelf size.
Lower promotional expenses.
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cons
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cons
Higher slotting fees due to national distribution.
National distribution will be challenging within 12 months.
Promotion and lower price at supermarkets may hurt the brand.
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Option
By Kelly Riley (Assistant Marketing Dir.)
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Introduce 2 SKUs of a children’s multipack into the natural foods
channel.
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pros
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pros
8 oz. cups represent largest dollar and unit share of market. Other natural food brands have successfully expanded to supermarkets.
Supermarkets may authorize only one organic yogurt manufacturer.
Advantage in being the first organic yogurt to move to supermarket.
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cons
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cons
Have to prolong venturing into supermarkets.
May not reach the target revenue of $20 Million by the end 2001.
Competitors have already expanded to supermarkets.
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Total Fixed Cost is the same for all the 3 Options.
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Total Fixed Cost is the same for all the 3 Options.
Total Cost = Total Fixed Cost + Ad Cost + Promotion Costs + SKU.
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Differences
Option - 1 Option - 2 Option - 3
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Differences
Option - 1 Option - 2 Option - 3
SG&A expenses increases by $320,000/yr.
$1.2 Mil/region/yr ad costs. 35 incremental
sales unit.
SKU costs.
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Differences
Option - 1 Option - 2 Option - 3
SG&A expenses increases by $320,000/yr.
$1.2 Mil/region/yr ad costs. 35 incremental
sales unit.
SG&A expenses increases by $160,000/yr.
SKU costs.
Substantially less ad budget (32 oz. promoted
only 2 times/yr).
5.5 Mil. incremental units. SKU costs.
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Differences
Option - 1 Option - 2 Option - 3
SG&A expenses increases by $320,000/yr.
$1.2 Mil/region/yr ad costs. 35 incremental
sales unit.
SG&A expenses increases by $160,000/yr.
SG&A expenses increase - $0.
Marketing expenses were estimated at
$250,000
SKU costs.
Substantially less ad budget (32 oz. promoted
only 2 times/yr).
1.8 Mil. Incremental
costs. No SKU costs.
5.5 Mil. incremental units. SKU costs.
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Best Strategical Option
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Best Strategical OptionOption - 1
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Best Strategical OptionOption - 1
Higher revenue generated
Lower slotting fee (only 2 supermarkets)
Transition to supermarkets
Advantage over competitors by expanding into supermarkets.
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Personal recommendations
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Personal recommendations
Instead of just introducing 8 oz. cups, 32 oz. cups should also be introduced in supermarkets as we’ll get :-
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Personal recommendations
Instead of just introducing 8 oz. cups, 32 oz. cups should also be introduced in supermarkets as we’ll get :-
More shelf coverage Better gross profit margin
No competition for 32 oz. cups
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Personal recommendations
Instead of just introducing 8 oz. cups, 32 oz. cups should also be introduced in supermarkets as we’ll get :-
More shelf coverage Better gross profit margin
No competition for 32 oz. cups
Which ends up combining advantages of both the product lines.
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Thank You
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Disclaimer
This Presentation was created by Shomik Biswas
During an Internship on Marketing Management Under
Prof. Sameer Mathur, IIM Lucknow