Case Study

Lets start…

About the company1989

• Founded and manufactured in Cabot, Vermont• First enter market 8-oz and 32-oz with plain and vanilla flavor• Use natural ingredient with longer average shelf-life of 50 days

1999• Company revenue growth from $ 100,000 to $13 million• Fruit on the bottom yogurt

2000• Expand to 12 yogurt flavors & multipack yogurt (for children)

The 4P’S• Natural yogurt (organic)• 8 –oz. size with 12 flavors• 32-oz. size with 4 flavors

• Affordable according to it’s channel

Product Price

Place PromotionNatural food channelWholesale clubNational retailer channelConvenience and drug store

It’s natural flavor with high quality and great taste growth in the national distribution and natural food channelLow-cost guerilla marketing

MARKET SHARE BY PACKAGING SEGMENT

74%9%

8%9%

8-oz. cup smaller Children's multipacks32-oz. cups Others

MARKET SHARE BY REGION

26%

22%25%

27%

Northwest Midwest Southwest West

Dannon33%

Yoplait24%

Others23%

Private Label15%

Columbo5% Natureview

Farm24%

Brown Cow15%

Horizon Organic

19%

White Wave7%

Others35%

MARKET SHARE BY BRAND

Supermarket Natural Market

StrengthStrong brandNo artificial thickeners usedUnique, smooth and creamy texture of yogurt

Usage of natural ingredientsLonger shelf life and low cost

Weakness

No alternative financing availableLacks potential of taking higher risks and costsDoubt on sales team’s ability

Strong relationships with leading natural foods retailers

Opportunity

Accumulation of cash by Horizon from IPO

Being dropped out of traditional channel

Threats

Natural Food Channel

Supermarket Food Channel

Manufacturing Cost

8-oz. cup $ 0.88 $ 0.74 $0.31

32-oz. cup $ 3.19 $ 2.70 $0.99

4-oz. cup multipack

$ 3.35 $ 2.85 $1.15

Retail Prices By channel

Which one to choose??

OPTION 1: Expand 6 SKUs of the 8-oz into eastern and western supermarket regions

PROS:• 8-oz have highest

incremental demand• High potential to

increase revenue

• First mover as organic yogurt brand to enter supermarket channel

CONS:• 8-oz have highest

incremental demand• High potential to

increase revenue

• First mover as organic yogurt brand to enter supermarket channel

Supermarket channel margin analysis

Channel Selling price

Margin Cost price

Retailer $0.74 27% $0.74 x 73% = $0.54

Distributor $0.54 15% $0.54 x 85% = $0.46

Natureview $0.46 ($0.46/$0.31)/$0.46 =33%

$0.31

Projection income statement2000 2001

Unit Sales 35 000 000 35 000 000 x (1+20%) = 42 000 000

Revenue Growth $ 35 000 000 x $ 0.74 = $ 25 900 000

42 000 000 x 0.74 = $ 31 080 000

Projected Revenue $ 13 000 000 + 25 900 000 = $ 38, 900 000

$ 13 000 000 + 31 080 000 = $ 44, 080 000

Cost 35 000 000 x $ 0.31 = $ 10 850 000 42 000 000 x 0.31 = $ 13 020 000Gross Profit $ 28, 050 000 $ 31, 060 000ExpensesAdvertisement $ 1 200 000 x 2 region = $ 2,400

000$ 2,400 000

SG&A $ 320 000 $ 640 000Slotting Fee 6 x $ 10 000 x 20 retails = 1200

000Broker’s Fee $ 16 100 000 x 0.04 = $ 644 000 $ 19 320 000 x 0.04 = $ 772 800Net Profit $ 23, 486 000 $ 27, 247 200

OPTION 2:Expand 4 SKUs of the 32-oz size nationally into supermarket regions

PROS:• Generate higher profit

margin than 8-oz size• Strong competitive

advantage: longer shelf life

• Lower promotion expenses

CONS:• Doubt on claim of new users

would readily “enter the brand” via a multi-use size

• Doubt on sales team’s ability to achieve full national distribution in 12 months

• The 32-oz. expansion option would increase SG&A expense by $160,000

Channel Selling price

Margin Cost price

Retailer $2.70 27% $2.70 x 73% = $0.1.97

Distributor $1.97 15% $0.54 x 85% = $1.67

Natureview $1.67 ($1.67/$0..99)/$1.67 =41%

$0.99

Supermarket channel margin analysis

2000 2001Unit sales 5,500,000 5,500,000Revenues growth 550000 x 2.70 = 14,850,000 14,850,000

Projected revenue 14850000 + 13000000 = 27,850,000

27,850,000

Cost 5500000 x 0.99 = 5445000 5445000Gross profit 9,405,000 22,405,000Expense:Slotting fee 4 x 10000 x 64 = 2,560,000 0

SG & A 160,000 160,000Marketing 120000 x 4 = 480000 480,000Broker's fee (4% revenues) 367,400 367,400

Net profit 18,837,600 21,397,600

Projection income statement

OPTION 3:Introduce two SKUs of a children multipack into the natural foods channel

PROS:• The sales team was

confident that they could achieve distribution for the two SKUs.

• The financial potential was very attractive.

• The natural foods channel was growing almost seven times faster than the supermarket.

CONS:• There were many potential

conflicts and other uncertain factors that the manager could not determine

• Can not achieve the target objective of Natureview farm

Nature Food Channel Margin Analysis

Channel Selling Price

Margin Cost Price

Retailer $3.35 35% $3.35 x 65% = $2.18

Distributor $2.18 9% $2.18 x 91% = $1.98

Nature foods wholesalers

$1.98 7% $1.98 x 93% = $1.84

Natureview $1.84 ($1.84 - $1.15) / $1.84=38%

$1.15

Projection income statement2000 2001

Unit sales 1,800,000 1,800,000 x 1.15 = 2,070,000

Revenue growth 1,800,000 x 3.35 = 6,030,000 2,070,000 x 3.35 = 6,934,500

Revenue projection 6,030,000 + 13,000,000 = 19,030,000

6,934,500 + 13,000,000 = 19,934,500

Cost 1,800,000 x 1.15 = 2,070,000 2,070,000 x 1.15 = 2,380,500

Gross profit 16,960,000 17,554,000Expense:Marketing 250,000 250,000Complementary cases 6,030,000 x 2.5% = 150,750 6,934,500 x 2.5% = 173,363Net profit 16,559,250 17,130,637

Comparison Of Options for year 2001

Option Option 1 Option 2 Option 3Gross Margin 33% 41% 38%Unit sales 42, 000 000 5,500,000 2,070,000Revenue projection 44, 080 000 27,850,000 19,934,500Cost $ 13 020 000 $ 5 445 000 $ 2,380,500Gross profit $ 31, 060 000 22,405,000 17,554,000Expense:SG & A $ 640, 000 160,000 0Marketing $ 2, 400, 000 480,000 250,000Broker's fee (4% revenues) $ 772, 800 367,400 0

Complementary cases 0 0 173,363Net profit $ 27, 247, 200 $ 21,397,600 $ 17,130,637

Decision Matrix

Option 1 Option 2 Option 3

Exceeds Exceeds Falls Short

No No Gain

High High Low

Highly Alienating Alienating Enhancing

Very Risky Risky Low

High Very High Low

Possible Possible No

Low Low High

Decision Parameter

Revenue Objective

Short Term Profits

Long Term Profits

Channel Partners

Competitive Response

Cost to Induce Trial

Brand Equity Dilution

Organizational capabilities

FINAL DECISION

Reach beyond the target objective of 20 million revenue by end of 2001 with projected of $31,060,000

8 oz yogurt is the highest demand

In supermarket, can expose to more range of customers

Will have the first mover advantages of natural product to enter supermarket

A bit risky but in a long term will generate revenues of 200%

OPTION 1!!!

CreditsWebsites• www.google.com• www.hbr.org• www.youtube.com

DisclaimerThis presentation was made by Pranjal Dixit IIT Kanpur during a marketing intern under

Prof. Sameer Mathur IIM Lucknow.(See www.IIMInternship.com)