Natureview Farm (1)

Natureview Farm Harvard Business School Case

Prof. Prem P. Dewani, & Prof Sameer Mathur Faculty Marketing: IIM Lucknow

Case Overview 1.How has Natureview succeeded in natural food channel?

Natureview Farm: HBS Case

Case Overview 1.How has Natureview succeeded in natural food channel?


Case Overview 2. What are the two primary types of growth strategies under consideration by Natureview?

Prof. Prem Prakash Dewani

Case Overview 3. How do the three options compared financially in terms of yearly revenue, gross margin required investment, and profit potential?


Case Overview 4. If the venture capitalist extended their deadline for meeting the $ 20 million revenue target by 12 to 18 months, would that change your recommended action plan?


Lead Questions 5. What are the strategic advantages and risks of each option? What channel management and conflict issues are involved?


Lead Questions 6. What action plan should the company pursue? What changes in the current marketing mix, sales, brand, and channel partner arrangements do you recommend in order to implement the action plan?


Case Overview If you forecast each option for two years and five years out, does your recommendation change? Assume a unit sales growth of 20 % per annum for the super market options, 15 percent, unit sales growth rate p.a. for nature foods and an 8 percent discount rate Prof. Prem Prakash Dewani

Learning Objective of the CASE To explore potential risk and rewards associated with a company’s choice of channel and how these channel conflicts can potentially be managed


Learning Objective of the CASE To understand the key issues related to consumer product market development and product development growth strategies.


Learning Objective of the CASE To develop understanding of margin economics across distribution channel.


Key Issue Immediate ‘GO / NO GO’ entry

into the supermarket Channel? WHY?


Situation Analysis 1989 - Founded – Revenue $100 K. Yogurt products . Introduced 2 Flavors 1996 – Jim Wagner Hired to steady profits 1997 - CFO Jim Wagner got VC capital Infused capital in 1999 Today Feb 2000. Annual Revenue was $13 million in 1999. Total 12 Flavors in 8 Oz and 4 Flavors 32 Oz

VC to cash out at the end of 2001. Revenue needs to grow to 20 million Natureview Farm: HBS Case

How has Natureview succeeded in natural food channel?

Naturefarm attempts to convert a commodity based product to a valuable product differentiating in terms of (Organic, longer shelf life product, no additives and preservative ( Natural) product. What is the Positioning of the Product Prof. Prem Prakash Dewani


Consumer behavior of the segment: willing to pay more (higher prices) for the products they perceive as ‘healthier’


Positioning Natureview’s refrigerated yoghurt brand is positioned as ‘All Natural’ (without any

artificial colorings, flavorings and stabilizers).


Positioning Shelf-life of the product is 50 days against 30 days for competitive products


Positioning # 1 Brand position in the natural foods channel (24 % market share (= $13

million Natureview Revenue / $54 Million dollar size of total natural foods yoghurt market)) Natureview Farm: HBS Case


The business where personal relationships, word of mouth/ guerilla marketing helps in building the ‘Brand’


Problem Statement Which Channel and Product SKU Combination to be used to derive sales volumes and trade up consumers from lower value brands, while retaining or building brand equity


Distribution Channel Natural Foods Channel

Supermarket Channel

Manufacturer

Manufacturer

Wholesaler

Wholesaler

Distributors Retailer Customer

Retailer Customer


Market Channel Strategy • Supermarket channel players / prices (8 Oz Yoghurt). Brokerage fee 4 % sales

MSP $0.46

RPP $0.54

RSP $0.74

• Smaller in size but experiencing 20 % growth rate

• Number of intermediaries (One more as compared to supermarket)

Natureview 32.5 % Gross Margins

Distributor 15 % Margins

• Differences in terms of investments and

Retail Store 27 % Margins

• Larger in size as compared to NF channel

expertise required for success

Brokerage fee 4 % sales

• Growth rate is 3 % • Number of intermediaries are lesser as against NF.

Natural Food Channel MSP $0.48

Natureview 36 % Gross Margins


DPP $0.52

NF W Seller 7 % Margins

RPP $0.57

NF Distributor 9% Margins

RSP $0.88

NF Retail Store 35 % Margins

Market Typology The Yogurt Market 32-oz. cups 8% Children’s

Natural Foods Channel 3%

Channel Market Share

Other 9%

multipacks 9%

8-oz. cups and smaller 74%


Supermarket 97%

Distribution Channel Natural Foods Channel Natureview Farm 24%

Others 35%

Supermarket Channel Columbo 5%

Brown Cow 15%

Private Label 15%

Dannon 33%

Horizon Organic 19% White Wave 7%

Others 23% Yoplait 24%


Supermarket Channel 0%

History and Current Revenue Challenge

NF has successfully grown from $ 100,000 to $ 13 million since its founding (10 years) (the compounding annual growth rate 62.7 %)



This has been achieved by expanding the product line and achieving national distribution in the natural foods channel



Now company needs to achieve at least $ 20 million in revenue in 2001 With this growth rate, it is not possible …. What are additional options to come out of present problem….?? Natureview Farm: HBS Case

Growth strategies under consideration by NF Option 1 and 2 entail expanding current company products

into a new market, in the case, expanding 8 oz., and 32 oz. product line into the supermarket channel (Market development strategy) Option 3 entails developing a new product for an existing market. (Product development strategy)


Growth strategies under consideration by NF • Option 1 and 2 entail expanding

current company products into a new market, in the case, expanding 8 oz., and 32 oz. product line into the supermarket channel (Market development strategy)

????

• Option 3 entails developing a new

product for an existing market. (Product development strategy) Prof. Prem Prakash Dewani

Options for Resolving the Crisis


Find out…. How do the three options compare financially in terms of yearly revenue, gross margin, required investment, and profit potential?


Options 1 Expand the supermarket channel with 6 SKU of the 8 oz. product line. Natureview would partner with 20 supermarket chains in two geographic regions (Advocated by Walter Bellini, VP sales).


Option 2 Expand into supermarket channel with 4 SKUs of the 32 oz. product line. This would be a national expansion, involving partnerships with 64 supermarket chains in all four geographic regions of the United States (Advocated by Jack Gottlieb, VP of operations)


Option 3 Remain with the natural foods channel, but introduce a new product line, 2 SKUs of a children’s multi-pack targeted to mothers (Advocated by Kelly, Assistant Marketing Director).


Comparing the Options an Overview Option 1: (Supermarket 8 OZ)

Option 2 (Supermarket: 32-OZ)

Option 3 (Natural Foods, Children's Multipack)

Positives

Negatives

• Largest Segment • Other natural brands entered • Pre-empt competition

• Upset NF Partners • Organizational requirements • Large investment: How to pay for?

• • • •

Longer Shelf Life Higher Gross Margins Less Market Investments Less competition (8 OZ)

• Supports current fast growing channel

• More Expensive, Less Visible for consumers • Upset NF Partners • Large Investment: How to pay for?

• Miss window of opportunity (Supermarket)

• Lowest Sales / Market, Investment • Less long term $$ potential • Does not meet $ 7 K VC revenue growth

Role of Broker What if NF avoid paying the broker’s fee and ‘go direct’ sell directly to dairy buyers in

supermarkets


Role of Broker Managing marketing funds, recommending and executing trade promotions Developing sales contacts and customer

service and support


Role of Broker Lack of scale or infrastructure by NF compared to its supermarket yoghurt competitors Smaller marketing budget of NF than the larger yoghurt producers Dannon and Yuplait (Competitors) marketing spending exceeds NF sales Prof. Prem Prakash Dewani

Role of Broker NF has a smaller product portfolio so does not have much overall to offer dairy buyers NF’s success depends on the service and expertise provided by broker.


Margin Chain for Manufacturer Selling Price (NF Yoghurt)Supermarket Channel Margin Chain for Manufacturer Selling Price (Natureview Yogurt)

Supermarket Channel Retail Price Retail Margin Retail Purchase Price (RPP) Distributor Margin Distributor Purchase Price (DPP) Manufacturer Sales Price (MSP) Cost per Unit Contribution per Unit Sold Manufacturer Gross Margin

8-oz

32-oz

Reference

$0.74 27.00% $0.54 15.00% $0.46 0.46 0.31 $0.15 32.50%

$2.70 27.00% $1.97 15.00% $1.68 1.68 0.99 $ 0.69 40.90%

Case Exhibit 3 Text - Supermarkets Text - Supermarkets

Case Exhibit 3

Manufacturer Cost = MS P * ( 1 - % Manufacturer G ross Margin) Manufacturer S elling P rice = RPP * (1 - % Distributor M argin) in Supermarket Channel Manufacturer Se lling Price = D PP * (1 - % Wholesaler M argin) in Natural Foods Channel Whole saler Se lling Price = RPP * (1- % Distributo r Marg in) in Natural Fo ods Channel Distributor S elling Price = RS P * (1 - % Retail Margin)

Implications

? 15 %

Margin Chain for Manufacturer Selling Price (NF Yoghurt):Natural Food Channel Natural Foods Channel

Retail Price Retail Margin Retail Purchase Price (RPP) Natural Foods Distributor Margin Natural Foods Distributor Purchase Price Wholesaler Margin Wholesaler Purchase Price (WPP) Manufacturer Sales Price (MSP) Cost Per Unit Contribution per Unit Sold Manufacturer Gross Margin

8-oz

$0.88 35.0% $0.57 9.0% $0.52 7.0% $0.48 0.48 0.31 $0.17 36.0%

32-oz

$3.19 35.0% $2.07 9.0% $1.89 7.0% $1.75 1.75 0.99 $0.76 43.6%

Multipack

$3.35 35.0% $2.18 9.0% $1.98 7.0% $1.84 1.84 1.15 $0.69 37.6%

Case Exhibit 3 Text - Natural Foods

Implications

Text - Natural Foods Text - Natural Foods

Case Exhibit 3

16 %

?

Market Share Analysis of yoghurt Market Mar ket Market Market dolla dollarr size size % total total Annu Annual al growth growth Referenc References es

Total refregerated yoghurt market $ 1,800,000,000 Supermarket channel $ 1 74600000 0 Naturalview channel $ 5 4000000

100 97 3

Total regreferated yoghurt market 6 oz. and 8 oz. 32 oz. Children multipack All others

$ 1,800,000,000 $ 1 33200000 0 $ 1 44000000 $ 1 62000000 $ 1 62000000

100 74 8 9 9

Toral re refreger gerated yo yoghurt ma market ket Northeast Midwest Southeast West

$ 1,80 1,800, 0,00 000, 0,00 000 0 $ 1 74600000 0 $ 5 4000000 $ 1 74600000 0 $ 5 4000000

100 100 26 22 25 27

3.5 Text Yoghurt Category 3 Te Text Yoghurt Category 20 Te Text Yoghurt Category 3.5 3 2 12.5 0.1

Channel

Size of Package

Geography

Formulae Formulae for Option 1

Gross Profit

$5.22m = 35m units * $0.15 contribution per unit

Sales Growth

$16.07m = 35m units * $0.46 MSP

Market Share

1.5% = 35m units * $0.74 RSP / 97% supermarket share * $1.8bn

Formulae for Option 2

Gross Profit

$3.77m = 5.5m units * $0.69 contribution per unit

Sales Growth

$9.21m = 5.5m units * $1.68 MSP

Market Share

10.3% = 5.5m units * $2.70 RSP / 8% 32-oz share * $1.8bn

Formulae for Option 3

Gross Profit

$1.25m = 1.8m units * $0.69 contribution per unit

Sales Growth

$3.32m = 1.8m units * $1.84 MSP

Market Share

11.2% = 1.8m units * $1.84 RSP / 3% natural foods share * $1.8bn

Option 1 (8-oz.)

Ad Plan Sales Slotting fees Gross Profit Less Ad Costs Less Incremental SGA Less Slotting Fees Trade Promotion Expense Less Broker's Commissions Profit Contribution Sales Growth

Evaluation of Growth Options 6 SKU to Supermarket Reference 20 Supermarket Supermarket Chains 2 Regions $12,00,000 per region per annum text, Option 1 3,50,00,000 units per annum text, Option 1 $10,000 per Chain per SKU text, Supermarket $52,20,950 formula = units sold * $ contribution per unit -$24,00,000 2 Regions -$3,20,000 $200K sales + $120K mkt text, Option 1 -$12,00,000 20 Chains, 6 SKU per Chain

-$8,70,000

11 sup’mkts in NE, 9 in West, 4 times p.a.

-$6,42,838 4% of sales -$2,11,888 $1,60,70,950 Market Share 1.5% 2.0%

formula = MSP * units sold * 4% sales growth = MSP * units sold of supermarket yogurt sales (last year) supermarket yogurt 6-8-oz sales (last year)

Option 2 (32-oz.)

Ad Plan Sales Slotting fees Gross Profit Less Ad Costs Less Incremental SGA Less Slotting Fees Trade Promotion Expense Less Broker's Commissions Profit Contribution Sales Growth

4 SKU to Supermarket 64 Supermarket Chains 4 Regions per region per $1,20,000 annum 55,00,000 units per annum $10,000 per Chain per SKU $37,69,425 -$4,80,0004 Regions -$1,60,000Half of Option One -$25,60,00064 Chains 4 SKU 64 Chains 2x per -$10,24,000 annum -$3,68,5774% of sales -$8,23,152 $92,14,425 Market Share

text, Option 2 text, Option 2 text, Supermarket formula = units sold * $ contribution per unit text, Option 2

text, Option 2, Supermarkets formula = MSP * units sold * 4%

sales growth = MSP * units sold 10.3% of 32-oz yogurt sales nationally (last year)

Option 3 (Multipack)

Ad Plan Sales Free Cases (slotting) fee

2 -$2,50,000 18,00,000 units per annum -$82,927

Gross Profit

$12,47,073

Less Ad Costs

-$2,50,000

Less Free Cases Less Broker's Commissions Profit Contribution Sales Growth Year 1

text, Option 3

-$82,927 -$1,32,683 4% of sales

text, Option 3 2.5% of Manufacturer Sales (net of broker fees)

formula = 1.8m units sold * MSP * 2.5% formula = MSP * units sold * 4%

$7,81,463 $33,17,073 Market Share

sales growth = MSP * units sold 11.2% of natural foods channel (last year)

Results Gross Profit

Profit Contribution Sales Growth Market Share

Option 1

Option 2

Option 3

$52,20,950

$37,69,425

$12,47,073

-2,11,888 $1,60,70,950

-8,23,152 $92,14,425

7,81,463 $33,17,073

1.5% of supermarket yogurt sales

10.3% of 32 oz. national yogurt sales

11.2% of yogurt sales through natural food channel

Formulae for Option One (8-oz. to supermarket channel): $5.22 m gross profit = 35 m units sa les (from case) * $0.15 unit contribution . $16.1 m sales growth = 5 m units * $0.46 MSP

1.5% share of supermarket yogurt sales = 35 m units * $0.74 supermarket retail price / [97% supermarket share * $1.8 billion 2.0% market share of 6-8 oz. supermarket yogurt sales = 35 m units * $0.74 supermarket retail price / [97% supermarket share * $1.8 billion * 74% share for 6-8 oz.

Results Gross Profit

Profit Contribution Sales Growth Market Share

Option 1

Option 2

$52,20,950

$37,69,425

$12,47,073

-2,11,888 $1,60,70,950

-8,23,152 $92,14,425

7,81,463 $33,17,073

1.5% of supermarket yogurt sales

Option 1 Growing sales does not necessarily corresponds to growing profitably

Option 3

10.3% of 32 oz. national yogurt sales

Option 2 Growing gross profits but not net income Although meeting revenue requirements but ???

11.2% of yogurt sales through natural food channel Option 3 Not meeting the immediate requirement of revenue but growing bottom line profitability

Two and five years forecast for options Option one ($ 000s)

1

2

3

4

35

42

50.4

60.48

Incremental sales (Dollars)

16100

19320

23184

27820.8

33386.8 Units * $0.46 per unit

Less Manufacturing cost

10850

13020

15624

18748.8

22499.8Unit * $0.31 per unit

5250

6300

7560

9072

Less broker fees

644

772.8

less slotting fees

1200

0

0

0

Trade promotions

870

870

870

870

Marketing support

2400

2400

2400

2400

Incremental CG & A

320

320

320

320

Incremental sales (million units)

incremental gross margins

Incremental Profit

year

5 reference 72.58 35000 growing at 20 % P A

10887

927.36 1112.832 1335.472 sale * 4 % 0 20 chains * 6 SKU Price * # retailers per 870region * 4 times p.a. 2400 $ 1.2 mm per region p.a. 320 Fixed annual cost

-184 1937.2 3042.64 4369.168 5961.528 2 Year NPV

8% Discount Rate

$ 1.44 Million

5 Years NPV

8% Discount Rate

$ 11.01 Million

Two and five years forecast for options Option two ($ 000s)

year

1

2

3

4

5.5

6.6

7.92

9.50


9214

11.57

13269

15923


5445

6534

7841

9409

Incremental gross margins

3769

4523

5428

6514

369

442

2560

0

Trade promotions

1024

1024

1024

1024

Marketing support

480

480

480

480

480 $ 120,000 per region p.a.

Incremental CG & A

160

160

160

160

160 Fixed annual cost

Incremental Profit

823

2417

3233

4213


Less broker fees

2 Year NPV

less slotting fees % Years NPV

5 reference 11.40 5500 growing at 20 % P A 19107 Units * $1.68 per unit 11291Unit * $0.99 per unit 7816

8% 531 Discount Rate $637 1.44 Million

0

0 $ 11.01 8% Discount Rate Million

764 sale * 4 % 0 64 chains * 4 SKU Price * # retailers per 1024region * 2 times p.a.

5388

2 Year NPV

8% Discount Rate

$ 1.31 Million

5 Years NPV

8% Discount Rate

$ 10.64 Million

Two and five years forecast for options Option three ($ 000s)

year

1

2

3

4


1.80

2.07

2.38

2.74

3.15 1.8 mm growing at 15 % P A


3317

3815

4387

5045

5802 Units * $1.84 per unit


2070

2381

2738

3148

3620Unit * $1.15 per unit

Incremental gross margins

1247

1434

1649

1897

2181

133

153

175

202

Less broker fees less slotting fees

2 Year NPV

Trade promotions

% Years NPV

Marketing support Incremental CG & A Incremental Profit

5 reference

232 sale * 4 %

8% Discount Rate $ 1.44 Million

83

0

0

0

0

0

250

250

250

250

0

0

0

0

781

1032

1224

1445

$ 11.01 8% Discount 0 Rate Million 0

0 64 chains * 4 SKU Price * # retailers per 0 region * 2 times p.a. 250 $ 120,000 per region p.a. 0 Fixed annual cost 1699

2 Year NPV

8% Discount Rate

$ 1.61 Million

5 Years NPV

8% Discount Rate

$ 4.80 Million

NPV Calculations

NPV Calculations for Natureview farm year

Option 3

1

2

3

4

5

781

1032

1224

1445

1699

723.1481 884.7737 971.6507 1062.118 1156.311

4798.001

($' 000s)

One Year Revenue

Option 1 (8 Oz)

Option 2 (32-Oz) Option 3 (Multipack)

16071

9214

3317

-212

-823

781

19285

11057

3815

1436

1310

1608

Revenue after 5 years

33325

19107

5802

NPV of profits over 5 years

11013

10640

4798

One Year Profit Revenue After 2 years NPV of Profits over 2 years

•

Assumption: we assumed ‘static’ multi year economic analysis in order to simplify the analysis

Our forecast assume no competitive response function and that Natureview will continue to be able to price its products in the natural food channel at current level Natureview will not introdu ce product to additional chains (and thus not incur incremental slotting fees) over the projected five years

Analysis What are the strategic advantages and risks of each option? What channel management and conflict issues are involved?


Option 1: For Entering the supermarket channel with the 8-oz. size provides the company with its greatest revenue-

generating potential. (The Supermarket channel represents 97% of the refrigerated category dollar sales; the 8-oz. size is the #1 best-selling size in this channel, representing 74% of total category dollar sales). Natureview Farm: HBS Case

Option 1: For Popularity: Natural/organic products are increasingly

popular, causing supermarket retail buyers to seek product to expand natural and organic food choices for shoppers.


Option 1: For If Natureview doesn’t jump on this “first-mover” opportunity, the company may lose out to its natural foods channel competitors. There is room for only a few natural brands on the supermarket shelves.


Option 1: For The 8-oz. size is merchandised at eye level, helping to generate consumer awareness.


Option 1: Against Entering the supermarket channel will likely upset Natureview’s current channel partners— the natural foods brokers and retailers.   

Yogurt is not a loss-leader product in the dairy. It is an important product to natural foods retailers. This “backlash” could put the majority of partners off-track Natureview Farm: HBS Case

Option 1: Against Entering Supermarket channel with the 8-oz. size will be noticed by the current channel competitors, all of whom have deep pockets and can significantly outspend Natureview.


Option 1: Against Natureview’s organization,, do not have experience dealing with this channel (operations, sales, and

marketing teams).


Option 1: Against The supermarket channel brokers and retailers are much more sophisticated than their counterparts in the natural foods channel and will place much greater demands on the company.


Option 1: Against The greatest demands will be placed on the marketing department. Historically, the company’s marketing efforts have focused on packaging and public relations. Entering the supermarket channel will require the development of more professional and comprehensive marketing strategies and plans.


Option 1: Against Natureview will not be granted good shelf space in the supermarket dairy case. The company doesn’t have the scale or offer the support needed to buy eyelevel shelf space.


Option 2: For As with Option 1, entering the supermarket channel with the 32-oz. size allows the company to participate in the large supermarket channel, but with less investment than what is required for the 8-oz. size.


Option 2: For Natural/organic products are increasingly in demand causing supermarket retail buyers to move toward attracting more customers to their stores by offering more natural and organic food choices.


Option 2: For If Natureview doesn’t jump on this “first-mover” opportunity, the company may lose out to its natural foods channel competitors. There is room for only a few natural brands on the supermarket shelves.


Option 2: For The 32-oz. size has a competitive advantage because of its 50-day shelf life. (Longer shelf life is more critical for multi-use sizes than the smaller cup sizes.)


Option 2: For The 32-oz. size provides an opportunity to enter the supermarket channel “under the radar screen”—with an offering that is far less likely to trigger a competitive reaction.


Option 2: For Based on the experience with the 32 -oz. size, Natureview keeps the option open to expand the 8-oz. into the channel at a later date


Option 2: Against • Entering the supermarket channel will likely upset Natureview’s current channel partners, the natural foods brokers, and retailers. Yogurt is not a loss-leader product in the dairy case and it is an important product to natural foods retailers. This “backlash” could put the majority of Natureview’s current revenue and profit stream at risk. Natureview Farm: HBS Case

Option 2: Against

Against Option 2

• While less so than with the 8-oz. size, entering this channel with the 32-oz. size will still be noticed by the current channel competitors, all of whom have deep pockets and could significantly outspend Natureview.


Option 2: Against

Against Option 2

• Natureview’s organization, including its operations, sales, and marketing teams, do not have experience dealing with this channel. The supermarket channel brokers and retailers are much more sophisticated than their counterparts in the natural foods channel and will place much greater demands on the company.


Option 2: Against

Against Option 2

• The 32-oz. size appeals to frequent yogurt consumers and is sold at a much higher price point than the 8-oz. size ($2.70 vs. $0.74/cup, respectively). This may make it difficult to attract these users to the Natureview brand.


Option 2: Against

Against Option 2

• The 32-oz. size is merchandised “in the well” (the lowest, least visible shelf in the refrigerated case)—making it potentially more difficult to generate awareness of the brand at the point of sale.


Against Option 2

Option 3: For

• Introducing a children’s multipack product offering into the natural foods channel will be eagerly accepted by the company’s current retailers. This segment is the fastestgrowing segment of the total refrigerated yogurt category, and a truly natural product does not currently exist. • The natural foods channel is growing at +20%/year. Natureview can continue to generate strong growth while it grows along with this “rising star” channel. Natureview Farm: HBS Case

Against Option 2

Option 3: For

• Natureview needs to jump into the children’s multipack segment before its natural brand competitors do. • This option will meet the required revenue performance with significantly less investment and risk than entering the supermarket channel.


Option 3: Against

Against Option 2

• Even though it is a faster-growing channel, the natural foods channel is significantly smaller than the supermarket channel. A focus on the natural foods channel would “cap” Natureview’s long-term revenue potential


Option 3: Against

Against Option 2

• Natureview’s natural brand competitors are rumoured to be considering a move into the supermarket channel as well. If one or more natural brand competitors enter(s) the supermarket channel, this could close the window on Natureview’s opportunity, either temporarily or permanently


Option 3: Against

Against Option 2

• Even though they are currently relatively unsophisticated, the natural foods retailers are quickly gaining knowledge and are beginning to implement supermarket-type sales systems, such as retail scanners. As this channel continues to develop, it is very likely natural foods retailers will place demands similar to the supermarket channel retailers on Natureview. Natureview therefore would only delay, not avoid, the necessity of developing its organizational abilities. Natureview Farm: HBS Case

What action plan should the company pursue?

Option 1 Key risks are • Alienating the company’s current channel partners • Attracting the attention of the deep pocketed supermarket brand competitors • The lack of organizational experience and / or abilities to successfully service and market to this channel


Action Plan option 1 risk 1 • Promotion: Working with current channel partners to develop consumer promotions that support the brand in the channel. • Product: Price its yogurt a few cents higher in the supermarket channel compared to the MSRP in the natural foods channel. This will give supermarkets a larger margin and will reinforce the product’s quality positioning. However, given the higher price point, there is a risk that sales volume would drop. • Natureview could research the other natural food brands that have already successfully entered the supermarket channel and learn from their successes. Natureview Farm: HBS Case

Action Plan option 1 risk 2 • Positioning: Natureview must clearly position its brand as a “niche” brand to attract consumers who embrace its natural and environmental mission. This will reduce the brand’s direct competitiveness to the larger supermarket brands, increasing Natureview’s likelihood of success and decreasing the likelihood of

triggering deep-pocket marketing wars;

• Merger/Acquisition: The Company could approach one of its supermarket brand competitors about a potential merger or acquisition of the Natureview brand by that competitor; • Working Capital: The Company must ensure that it will have access to the necessary working capital to finance required sales and marketing investment.


Action Plan option 1 risk 3 • Marketing Organization: Christine must immediately determine what changes will be required to the marketing organization in order to provide the necessary experience and expertise to market to the supermarket channel partners and the supermarket consumers. • Marketing Intermediaries: On a related note, Christine will need to determine if she has the right team of marketing intermediaries (ad agency, web site developer, etc.) to create and execute the marketing tactics necessary to drive awareness and trial of the brand in the supermarket channel, without negatively impacting the brand image among its current natural foods consumer base. Natureview Farm: HBS Case

What action plan should the company pursue? • Option 2 • Key risks are 1. Alienating the company’s current channel partners 2. Attracting the attention of the deep pocket supermarket brand competitors and 3. The lack of organizational experience and /or abilities to successfully service and market to this channel 4. 32 oz size is merchandized n the bottom well of the refrigerated yoghurt case, significantly affecting brand visibility Natureview Farm: HBS Case

Action Plan option 2 risk 1 • Promotion: Working with current channel partners to develop consumer promotions that support the brand in the channel • Product: Price its yogurt a few cents higher in the supermarket channel compared to the MSRP in the natural foods channel. This will give supermarkets a larger margin and will reinforce the product’s quality positioning. However, given the higher price point, there is a risk that sales volume would drop.


Action Plan option 2 risk 2 • Positioning: Natureview must clearly position its brand as a “niche” brand to attract consumers who resonate to its natural and environmental mission. This will reduce the brand’s direct competitiveness to the larger supermarket brands, increasing Natureview’s likelihood of success and decreasing the likelihood of triggering deep- pocket marketing wars • Merger/Acquisition: The Company could approach one of its supermarket brand competitors about a potential merger or acquisition of the Natureview brand by that competitor; • Working Capital: The Company must ensure that it will have access to the necessary working capital to finance the necessary sales and marketing investments. Natureview Farm: HBS Case

Action Plan option 2 risk 3 • Marketing Organization: Christine must immediately determine what changes will be required to the marketing organization in order to provide the necessary experience and expertise to market to the supermarket channel partners and the supermarket consumers • Marketing Intermediaries: On a related note, Christine will need to determine if she has the right team of marketing intermediaries (ad agency, agency, web site developer, etc.) to create and execute the marketing tactics necessary to drive awareness and trial of the brand in the supermarket channel without negatively impacting the brand image among its current natural foods consumer base Natureview Farm: HBS Case

Action Plan option 2 risk 4 retailers to change placement • Placement: Work with the supermarket retailers of the 32-oz. size in the yogurt case from the well to a lower shelf;

• Promotion: Utilize in-store promotional vehicles and programs to target 32-oz. users (such as Catalina, which issues coupons to consumers based on their purchases scanned at the retail checkout) and Floor graphics (in-store posters placed on the floor of the retail aisle in front of the sponsoring brand).


What action plan should the company pursue? • Option 3 • Key risks are • Missing the window of opportunity to enter the supermarket channel due to competitive preemption, Natureview’ss long term revenue potentially limiting Natureview’ growth potential


Action Plan • Wait and See: Natureview can wait and see if any of its natural foods competitors enter the supermarket channel, and if so, if they do so successfully. Natureview might still have an opportunity to expand into this channel in the future and/or determine that it made the best decision not to enter the channel; • Product: The Company could develop additional new products to generate revenue in the channel; • Merger/Acquisition: Natureview could merge with and/or acquire other natural foods brands to increase its revenue performance in the channel. Natureview Farm: HBS Case

Summary • Case illustrates: • Challenges associated with developing a channel expansion strategy and the interrelationships of a company’s products, financial, and sales and marketing investments • Attempting to increase the revenue via entry into a fundamentally different retail distribution channel. Risk and Opportunities inherent in the decision • Changing skills required to adjust to new opportunities and changing market conditions. Natureview Farm: HBS Case

Summary Decision Matrix Decision Parameter

Option 1

Option 2

Option 3

Revenue Objective

Exceeds

Exceeds

Falls Short

Short Term Profits

No

No

Gain

Long Term Profits

High

High

Low

Channel Partners

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

Adopted from Jaju et al., 2012

Analysis

Aligning Company, Customers, and Channel

Company Product and Value Proposition

Channel Go to Market Strategies

Customers Target Market


Synchronization

• Potential cost of misalignment • • • •

Time, money, and morale ‘Fuzzy’ segmentation

Stranded assets along the channel chain Dilution of value proposition and positioning

• Requirements for Effective Alignment • • • •

Common vision of target segments Shared principles of channel management Effective channel partnerships The will and skill to change Prof. Prem Prakash Dewani

Natureview Farm (1)

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