11/16/2009

SUBMITTED TO DONNA GEARY | BY MAHMOUD ISSA

MRK526MT CASE ANALYSIS-NATUREVIEW FARM

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TABLE OF CONTENT PAGE EXECUTIVE SUMMERY 3

THE PROBLEM 4,5

CHANNEL ANALYSES 6,7

SITUATION ANALYSES 7,8

FINANCIAL ANALYSES 9

ORGANIZATIONAL OBJECTIVES 9

ALTERNATIVES/ OPTIONS 10-16

RECOMMENDATION 17

IMPLEMENTATION PLAN 18

BIBLIOGRAPGHY 19

3

Executive Summery

The Problem

Natureviews main problem is that they have to make strategic marketing decisions

to grow revenues to $20,000,000 from their current $13,000,000 before the end of the 2001

fiscal year.

Channel Analyses

Supermarket channel offers more potential for sales and revenue but also is very costly due to technology

and slotting fee requirements and is also risk filled due to many unknown variables. However despite the risk, this

channel provides the most exposure and market base. The Nature foods channel offers less risk, but only serves

niche market of organic food purchasing consumers. It is cheaper to invest and is expected to grow by 20% annually

Organizational Objectives

Grow revenues to $20,000,000 from their current $13,000,000 before the end of the 2001 fiscal year

Alternatives/Options

Option 1: Expand into the supermarket channel with 6 SKUs of 8oz yogurt in two regions

Option 2: Expand into the supermarket channel with 4 SKUs of 32oz yogurt in all regions

Option 3: Introduce 2 SKU of children multi pack into natural foods channel

Recommendation - Option 3 due to:

Low risk factors

Low cost

Take advantage of current relationships and growth of nature foods channel

Implementation Plan

Approval 1st

week

Meet with R&D, brokers, sales, retailers 2nd

week – 3rd

week

Product test and approval 4th

week

Product and promotion launch 2nd

month

First status report 6th

month

Final yearend report 12th

month

Strength

Long product shelf life

Reputation of high quality, taste and natural

ingredients

Strong relationship with nature store retailers

Opportunities

Organic food market expected to grow to $13.3

billion in 2003

Nature store channel sales up 20%

12.5% growth in 4oz multipack

Increase in consumer interest in organic foods

Weaknesses

Small manufacture, low funds and revenue

Relies on brokers that may not be adequate for

supermarket channel

Current marketing strategy based only on nature

store channel

Threats

Competition(both in regular yogurt and organic

yogurt)

Increasing nature store channel demands on

logistics or technology

Increasingly price sensitive consumers due to

economical slowdown

4

The Problem

Natureview Farm I was established in 1989 and since then in a span of just 10 years,

Natureview farms has increased their annual revenues from $100,000 to $13,000,000. This

growth was largely due to creating a tasty, flavourful, organic yogurt that niche consumers crave.

In fact Natureview has been known for their reputation of high quality, natural ingredients,

flavourful texture and great taste. Since Natureview is a small company, they had limited cash

assets. So in 1997, Natureview open their doors to venture capital firms in order to receive funds

that were desperately needed.

About 3 years after Natureview began being funded by venture capital, they were

troubled to learn that the venture capital firm had to withdraw and cash out their investment,

leaving Natureview Farms with a lack strategic funding. In order to get funded with another

venture capital firm and continue marketing efforts to maintain their leading 24% market share,

Natureview Farms needed to become valuated by other possible venture capital investment

firms. This means that they had to raise their revenue to $20,000,000 per year or they will have

no choice but to consider being part of an acquisition.

Natureviews main problem is that they have to make strategic marketing decisions

to grow revenues to $20,000,000 from their current $13,000,000 before the end of the 2001

fiscal year. This is about a 54% increase, with will seems quite tough considering that

Natureview Farms only has 12 months to do so in a market that serves a specific niche of

intelligent, high income, price flexible consumers who want organic all natural products with no

artificial growth hormones or any other types unnatural ingredients.

In order to solve this problem, Natureview must make numerous strategic marketing

decisions. The main decision would be whether Natureview should expand their product’s

distribution through the supermarket channel within the northeast, southeast, midwest and west

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regions of the United States. Natureview also could also follow the status quo route and remain

in the nature food stores channel where they enjoyed 10 years of success that found them on top

with 24% market share. To make an informed marketing decision, Natureview must first

vigorously analyse each channel and their qualities.

Channel Analyses

Supermarket Channel

This channel consists of many supermarket chains scattered across the northeast,

southeast, midwest and west regions of the United States. The yogurt industry in this channel is

dominated by large yogurt products manufacturers such as Dannon and Yoplait who have 33 % and

24% market share respectively. In this channel there are 4 steps in the distribution table. The

manufacture sells the product to the distributor who sells the product to the retailer on its way to

the end consumer. In this channel an 8oz and a 32oz cup of yogurt go for $0.74 and $2.70, while

a 4oz cup multipack can sell for $2.85.

Compared to the nature store channel, this channel is much more technologically driven.

In fact due to channel size, most retailers require scanning devices and automated inventory

tracking systems to be used to organise the channel product flow. This technology run operation

is rather quite costly. However it is balanced by the expensive investment needed by

manufactures who want to enter this channel. These new manufactories must pay a $10,000

slotting fee for each stock keeping unit (SKU) per retailer chain in each of the four regions. This

channel also requires each manufacture to contribute funds a minimum of every 3 months for

cooperative weekly trade promotions that average $8,000 nationally per ad, per retailer chain.

This fee is in addition to any advertising expenditures that the manufacture may have.

If the manufacture product continuously does not make a profit for the retailers, it can be pulled

from the channel. The Manufacture would then have to repay the slotting fee when applying for

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re-entry. Because of the multiple fees and uncertainty, this channel provides the most risk for

smaller manufacture but also provides a high level of potential.

Nature Stores Channel

Unlike the supermarket chain, the nature store channel is friendly to small manufactures

whose funds are lacking. The only one-time SKU fee for new manufactures in this channel is a

allocation of one complementary case of product for every new SKU in the first year. This would

usually equate to being less than the supermarket channel slotting fee. Along with this fee,

manufactures will often use sales brokers to attract retailers. These brokers charge about 4% of

manufacture sales in the yogurt category.

In this channels distribution, there are 5 steps a product goes through. First the product is

manufactured by the manufacture and then is sold to natural foods wholesalers. Then it is sold to

distributers who do bulk breaking and then sell and deliver to the retailers who sell to the final

consumer.

Generally in this channel, prices are usually higher since the niche target consumers are

less price sensitive. An 8oz and a 32oz cup of yogurt go for $0.88 and $3.19, while a 4oz cup

multipack can sell for $3.35. Even though this channel is small and generally more expensive it

is growing 7 times faster than the supermarket and offers continued potential for small

manufactures such as Nature view.

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Situation Analyses

SWOT

Strength

Long product shelf life

Reputation of high quality, taste and

natural ingredients

Strong relationship with nature store

retailers

Opportunities

Organic food market expected to grow

to $13.3 billion in 2003

Nature store channel sales up 20%

12.5% growth in 4oz multipack

Increase in consumer interest in organic

foods

Weaknesses

Small manufacture, low funds and

revenue

Relies on brokers that may not be

adequate for supermarket channel

Current marketing strategy based only

on nature store channel

Threats

Competition(both in regular yogurt and

organic yogurt)

Increasing nature store channel

demands on logistics or technology

Increasingly price sensitive consumers

due to economical slowdown

Strength

On huge strength for Natureview Farms is their products shelf life. Because Natureview

uses organic, natural ingredients with now growth hormones, their yogurt stays fresh up to 50

days. This is huge considering that the completion’s product only stays fresh for 30 days. This

means there will be less product loss and thus the cost of goods sold will be lower.

Natureview also has a strong reputation based on quality, taste and natural ingredients.

This will help Natureview when introducing any new product consumers will be more willing to

try it. This reputation is one of the reasons why Natureview has strong relationships with nature

store retailers. This relationship entitles Natureview to be able to work with the retailers to try

and sell the product more efficiently and thus increase profit and most likely sales.

8

Weakness

Natureview is a small manufacture. It has limited funds to which it can use to make

marketing decisions. Thus, marketers for Natureview must take this in mind when creating a

strategic marketing plan. Also because Natureview is small, their revenues are generally low.

This affects Natureviews abilities to attain valuation amongst venture capital firms. Another

weakness of Natureview is that their current strategy is not very flexible. It is based for the

nature store channel. Thus if Natureview decides to expand to the supermarket channel, they will

have to revise their entire marketing strategy.

Opportunity

The organic food market is expected to grow tremendously over the next few years due to

increasing consumer interest. This will create new opportunities for product line extensions or

other new product launches. The rise to organic foods is also why nature food stores have rising

by 20%. The annual rise of 12.5% in 4oz multipacks give Natureview an opportunity to take

advantage of this and expand their product offering and thus revenues.

Threats

Competition is by far Natureviews biggest threat. Companies such as Horizon Organic

and Brown Cow in the nature store channel are competing directly with Natureview to gain a

strangle hold in the organic yogurt industry. There is also competition from national brands such

as Dannon and Yoplait who are rumoured to be launching their own organic yogurt. Another

huge threat is the possibility of nature store channel retailers increasing the demand on logistics

and technology criteria. If these retailers begin demanding the use of scanning devices and

automated inventory tracking systems, Natureview will be hard-pressed to find the funds

necessary to facilitate those demands.

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Organizational Objectives

Grow revenues to $20,000,000 from their current $13,000,000 before the end of the 2001

fiscal year

This objective is largely due to necessity. Natureview farms must be able to meet this

objective if they can attain validation for venture capital firms to invest and infuse them with

funds that can be used toward strategic investments. If this objective was not met Natureview

would have no choice but to consider being part of an acquisition.

Revenues $ 13,000,000 100%

Cost of Goods Sold $ 8,190,000 63%

Gross Profit $ 4,810,000 37%

Expenses Advertisng/ Freight $ 2,210,000 17%

Sales $ 1,560,000 12%

Marketing $ 390,000 3%

Research & Development $ 390,000 3%

Net Income $ 260,000 2%

Natureview Farms Income Statement

(Income statement retrieved from Natureview Farm case)

Financial Analyses

Natureviews revenues are not

that bad since they do hove 24%

market share to lead their

competitors. However the

advertising and sales expenses seem

to be a little when compared to the

gross profit. This is the main reason

why the final net income is just 2%

of revenue. If Natureview wants to

gain more profits they will have to

find ways to reduce expenses or

increase revenue, which is the logical

option since Natureview wants to

increase revenues to $20 million by

the end of 2001.

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Alternatives/Options

Option 1: Expand into the supermarket channel with 6 SKUs of 8oz yogurt in two regions

Option 1 is that Natureview expands into the supermarket channel with 6 SKUs of the

8oz product size. This expansion will cover the west and the northeast regions. Expansion into

the west region will include the top 9 retail chains, while the northeast region will include the top

11 retail chains. This will equate to 20 total retail chains.

The main reason why the 8oz product was chosen for this option is because it represents a

large part of the target group. The 8oz size is the most popular and thus offers the best potential.

In fact this whole option offers great potential. Expected sales are at $25.9 million from this

option alone. By choosing this option Natureview will be able to gain a first move advantage on

their organic yogurt competitors. Getting your foot first in the door means you will have a heads

up on the market by the time the competition arrives. This is crucial for success.

This option is expected to get the most unit sales out of all the options. It is expected to

get 35 million units sold to receive revenue of $25.9 million. When that is added with

Natureview’s current revenue of $13million, it will equate to $38.9 million, well over the $20

million objective.

Advantages Disadvantages

High potential for increased revenue

Consumers in NE and W region are

most likely to purchase organic

Expected 1.5% market share after 1st

year (35 million unit sales)

High risk

High advertising cost of $1.2 million

per region per year($2.4 million total)

Expenses will increase by $320,000

($200,000 for sales staff,$120,000 for

marketing staff)

Direct competition with national

brands(Dannon, Yoplait)

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Option 1 Income Statement

Revenues $ 25,900,000 100%

Cost of Goods Sold $ 10,850,000 42%

Gross Profit $ 15,050,000 58%

Expenses Advertising/ Freight $ 2,400,000 9%

Sales $ 200,000 1%

Marketing $ 120,000 0.46%

Research & Development $ - 0%

SKU's Slotting Fee $ 1,200,000 5%

Trade Promotions $ 3,480,000 13%

Broker Fee $ 1,036,000 4%

Net Income $ 6,614,000 26%

Current Income Statement With Option 1

Revenues $ 38,900,000 100%

Cost of Goods Sold $ 19,040,000 49%

Gross Profit $ 19,860,000 51%

Expenses Advertising/ Freight $ 4,610,000 12%

Sales $ 1,760,000 5%

Marketing $ 510,000 1.3%

Research & Development $ 390,000 1%

SKU's Slotting Fee $ 1,200,000 3%

Trade Promotions $ 3,480,000 9%

Broker Fee $ 1,036,000 3%

Net Income $ 6,874,000 18%

Option 1 Financial Information

Region Information

Expense Information

Number of Regions 2

Advertising Per Region $ 1,200,000

Region 1(# of Retailers) Northeast(11)

Total Advertising $ 2,400,000

Region 2(# of Retailers) West(9)

Broker Fee(4% of sales) $ 1,036,000

Income Information

Sales, General & Administrative

Expected unit sales 35,000,000

Sales Force $ 200,000

Price per Unit $ 0.74

Marketing Staff $ 120,000

Expected Revenue $ 25,900,000 Unit Cost

$ 0.31

Trade Promotion Information

COGS

$ 10,850,000

Cost Per Promotion Region 1 Per Retailer $ 7,500

Slotting Fee Information

Number of Retailers In Region 1 11

Cost Per Promotion Region 2 Per Retailer $ 15,000

Number of SKUs 6

Number of Retailers In Region 2 9

Single SKU Slotting Fee Per Chain $ 10,000

Total cost per promotion Region 1&2 $ 217,500

Total Slotting Fee Per Chain $ 60,000

Promotions Per Period 4

Number of Retail Chains 20

Promotions Periods Required Per Year 4

Total Slotting Fee $ 1,200,000

Total Promotions 16

Total Cost of Promotions $ 3,480,000

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This option seems to give the most potential. However it also has a lot of risks and cost

associated with it. The only way this would be a liable investment would be if some of the risks

were abolished. Otherwise this option seems to be too expensive and risky to pursue.

Option 2: Expand into the supermarket channel with 4 SKUs of 32oz yogurt in all regions

Like option 1, option 2 also has Natureview expand their product into the supermarket

channel. However unlike option 1, option 2 has Natureview expand with 4 SKUs of not 8oz but

the 32oz of yogurt. The reasoning behind this is that there will be less competition in the 32oz

category and that the profit margin for 32oz option is 63% versus 51% for the 8oz. it is expected

that a sales volume of 5.5 million units will be sold in the first year. This will bring revenues

from this option alone to $14.85 million. When added with Natureview’s current revenue of

$13million, it will equate to $27.85 million, well over the $20 million objective.

This option will expand into all for regions, with a total of 64 retail chains. The SKU

slotting fee is extremely high at $2.56 million, but on average the trade promotion will be lower

since the 32oz size will only be promoted twice a year, rather than the normal four times a year.

Advantages Disadvantages

Fewer competition

Lower on average trade promotion

expense

Higher profit margin for 32oz versus

8oz

Expected 1st year sales of 5.5 million

units

High risk

New users may not want to purchase

large 32oz quantity of product

Very difficult to achieve full national

distribution within one year

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Option 2 Financial Information

Region Information

Expense Information

Number of Regions

4

Advertising Per Region

$ -

Total # of Retailers

64

Total Advertising $ -

Broker Fee(4% of sales) $ 594,000

Income Information

Sales, General & Administrative

Expected unit sales

$ 5,500,000

Sales Force $ 160,000

Price per Unit

$ 2.70

Marketing Staff $ 120,000

Expected Revenue

$ 14,850,000

Unit Cost

$ 0.99

Trade Promotion Information

COGS

$ 5,445,000

Ave. Cost Per Promotion Per Retailer $ 8,000

Slotting Fee Information

Number of Retailers 64

Number of SKUs

4

Single SKU Slotting Fee Per Chain $ 10,000

Total Cost Per Promotion $ 512,000

Total Slotting Fee Per Chain $ 40,000

Promotions Per Period 4

Number of Retail Chains 64

Promotions Periods Required Per Year 2

Total Slotting Fee

$ 2,560,000

Total Promotions 8

Total Cost of Promotions $ 4,096,000

Option 2 Income Statement

Revenues $ 14,850,000 100%

Cost of Goods Sold $ 5,445,000 37%

Gross Profit $ 9,405,000 63%

Expenses Advertising/ Freight $ - 0%

Sales $ 160,000 1.1% Marketing $ 120,000 0.8% Research & Development $ - 0% SKU's Slotting Fee $ 2,560,000 17% Trade Promotions $ 4,096,000 28% Broker Fee $ 594,000 4%

Net Income $ 1,875,000 13%

Current Income Statement With Option 2

Revenues $ 27,850,000 100%

Cost of Goods Sold $ 13,635,000 49%

Gross Profit $ 14,215,000 51%

Expenses Advertising/ Freight $ 2,210,000 8%

Sales $ 1,720,000 6%

Marketing $ 510,000 2%

Research & Development $ 390,000 1%

SKU's Slotting Fee $ 2,560,000 9%

Trade Promotions $ 4,096,000 15%

Broker Fee $ 594,000 2%

Net Income $ 2,135,000 8%

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This option seems to be taking a differentiation approach. If this option is chosen by

Natureview, they would be one of only a few companies to offer the 32oz size of organic yogurt

in the supermarket chain. That fact that there is not many competitors is a huge advantage.

However this option is also very risky and has many unknown such as whether it is plausible to

distribute nationally within one year. For this option to be acceptable the risk and unknowns

must be dealt with.

Option 3: Introduce 2 SKU of children multi pack into natural foods channel

In this option, Natureview will not expand into the supermarket channel. Instead

Natureview will introduce a new line of products for children in the nature foods channel. They

will introduce 2 SKUs of 4oz multipacks. The multipack market was identified earlier in this

analyses because of its annual growth rate of 12.5%. Even thought multipacks are only 9% of

total organic yogurt sales, the tremendous growth rate give this market a huge amount of

potential without much risk. This is a huge reason why this option is valuable. Another reasons is

that cost will be done since SKU slotting fees will no longer be changed.

There will be a required allocation of one complementary case of product for every new

SKU in the first year. This would usually equate to being less than the supermarket channel

slotting fee. This option will also require a broker fee of 4%. Total revenues with this option will

be about 6 million with 1.8 million units sold at a price $3.35 per unit. These figures are less than

the other options but are based on a low risk plan.

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Advantages Disadvantages

Take advantage of current relationships

within nature foods channel

Low risk factors

Natureview positioned nicely for option

Low cost

Take advantage of growing natural

foods channel

Low expected revenue

Requires R&D to develop product

Option 3 Financial Information

Income Information

Expense Information

Expected unit sales

1,800,000

Price per Unit $ 3.35

Total Advertising $ -

Expected Revenue $ 6,030,000

Broker Fee(4% of sales) $ 241,200

Unit Cost $ 1.15

COGS $ 2,070,000

Sales, General & Administrative

Slotting Fee Information

Sales Force $ -

Marketing Staff $ 250,000

Number Of SKUs 2

Total Cost Of Complementary Cases $ 150,750

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This option is by far the most conservative of the three. It presents the least amount of

risk because the basis of this option is to stick with what is known. Natureview knows the natural

foods channel. They know the distributors, retailers, consumers and anyone in between. There

are very few unknown variables. However because there is so few risk involved, reward is also

few. The revenues from this options is the lowest of the three options. Combined with the current

$13 million revenue, it equates to just over $19 million. This is under the objective of $20

million. This must be taken in consideration when choosing the recommendation.

Option 3 Income Statement

Revenues

$6,030,000 100%

Cost of Goods Sold

$2,070,000 34%

Gross Profit

$3,960,000 66%

Expenses Advertising/ Freight $ - 0%

Sales $ - 0% Marketing $ 250,000 4.1% Research & Development $ - 0% Cost Of Complementary Cases $ 150,750 2.5% Broker Fee $ 241,200 4%

Net Income

$3,318,050 55%

Current Income Statement With Option 3

Revenues

$19,030,000 100%

Cost of Goods Sold

$10,260,000 54%

Gross Profit $ 8,770,000 46%

Expenses Advertising/ Freight $ 2,210,000 12%

Sales $ 1,560,000 8%

Marketing $ 640,000 3%

Research & Development $ 390,000 2%

Cost Of Complementary Cases $ 150,750 1%

Broker Fee $ 241,200 1%

Net Income $ 3,578,050 19%

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Recommendation

After careful review and thorough analyses of the problem, situation and available

options, It is recommended that Natureview Farms chooses the third option. The reason why this

option was chosen was because it offered very few risk and had a vide variety of known

variables. It also took advantage of the growing nature food channel and the multipack market

segment. This option also did not require an entire marketing strategy change. It used the same

distributors, retailers and consumers.

However, because this option ends up being $1 million short of the objective, it is highly

encouraged that Natureview Farms invest more funds in marketing the launch of children’s

multipack. Natureview must ensure that they can increase the expected revenues by $1 million or

more in order to meet or beat the objective of $20 million. Perhaps a more intensive concentrated

promotion plan would yield $1million or more in extra revenue. If this option is followed with

the suggested revisions, it has the potential to increase Natureview’s success tremendously.

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Implementation Plan

Implementation Time Frame

Gain full approval of recommendation from

marketing manager and financial advisor

1st week

Managers meet with R&D department to

discuss multipack produce qualities

2nd

week

Managers meets with brokers and sales staff to

discuss new product sales plan

3rd

week

Managers meet with retailers to discuss future

launch and financial information

3rd

week

First production of product for testing and

approval

4th

week

Official product launch and distribution

Official launce of product consumer

promotions

2nd

month

First product income status report

Continue with plan or revise it depending on

report

6th

month

End of year report 12th

month

19

Bibliography

All statistical and strategically information in this report was retrieved from the following

source:

Fleming, Karen. "Natureview Farm". Brief Cases. Boston : Harvard Business Publishing , 2007.