NATUREVIEW FARMCASE STUDY

BREIF CASES HARVARD BUSINESS SCHOOL

BACKGROUND

1989

FOUNDED IN 1989.

MANUFACTURED AND MARKETED CUP YOUGURT UNDER BRAND NAME: NATUREVIEW.

REVENUE GENERATED: LESS THAN $100,000.

ENTERED MARKET WITH 8-oz AND 32-oz CUP SIZE OF YOUGURT IN TWO FLAVORS: VANILLA AND PLAIN

1999

REVENUE GENERATED: $13 MILLION.

ADDED FLAVORS TO BOTH CUP SIZES OF PRODUCT.

DEVELOPED “FRUIT AT THE BOTTOM” YOUGURT PRODUCT IN 8-oz CUP SIZE.

2000 INTRODUCED 12 REFRIGERETED YOUGURT

FLAVOURS IN 8-oz SIZE CUP.

INTRODUCED FOUR FLAVORS IN 32-oz SIZE YOUGURT CUP.

STARTED EXPLORING MULTIPACK PRODUCTS.

OBJECTIVE

TO MAKE STRATEGIC DECISIONS TO GROW REVENUE BY OVER 50% (FROM $13 MILLION TO $20 MILLION)CURRENT $13, BEFORE END OF 2001

THE FOUR Ps

PRODUCT

PRICE

PLACE

PROMOTION

PRODUCT NATUREVIEW YOGURT RECIPE USED NATURAL

INGRIDIENTS.

SPECIAL PROCESS GAVE THE NATUREVIEW YOGURT UNIQUE SMOOTH TEXTURE.

NO ARTIFICIAL THICKENERS ARE USED.

USED MILK FROM COWS UNTREATED WITH ARTIFICIAL GROWTH HORMONE.

AVERAGE SHELF LIFE IS 50 DAYS.

PRICE

NATURAL FOODS CHANNEL

MANUFACTURING COST

AVERAGE RETAIL PRICE

TOTAL COST

8-oz CUP $ 0.31 $ 0.88 $ 1.19

32-oz CUP $ 0.99 $ 3.19 $ 4.18

4-oz CUP MULTIPACK $ 1.15 $ 3.35 $ 4.50

SUPERMARKET CHANNEL

MANUFACTURING COST

AVERAGE RETAIL PRICE

TOTAL COST

8-oz CUP $ 0.31 $ 0.74 $ 1.05

32-oz Cup $ 0.99 $ 2.70 $ 3.69

4-oz CUP MULTIPACK $ 1.15 $ 2.85 $ 4.00

PLACE

SUPERMARKET CHANNEL

MARGIN

MAUFACTURER -

DISTRIBUTOR 15%

RETAILER 27%

CONSUMER -

NATURAL FOODS CHANNEL

MARGIN

MANUFACTURER

-

NATURAL FOODS WHOLESALER

7%

NATURAL FOODS DISTRIBUTOR

9%

RETAILER 35%CUSTOMER -

PROMOTION LOW COST GUERILLA MARKETING

NATURAL FLAVOR ,HIGH QUALITY AND GOOD TASTE OF NATUREVIEW YOGURT

CHOICES

1. EXPAND 6 SKUs OF 8-oz PRODUCT LINE IN NORTHEAST AND WEST SUPERMARKET REGION

2. EXPAND 4 SKUs OF 32-oz PRODUCT LINE IN SUPERMARKET NATIONALLY

3. INTRODUCE 2 SKUs OF CHILDREN’S MULTIPACK IN NATURAL FOODS CHANNEL

OPTION 1 ANALYSIS

EXPAND 6 SKUs OF 8-oz PRODUCT LINE IN NORTHEAST AND WEST SUPERMARKET REGION

PROS

ADDING THESE PRODUCTS IN SUPERMARKETS WOULD ATTRATC HIGHER-INCOME ,LESS PRICE-SENSITIVE CUSTOMERS.

UNIT VOLUME GROWTH OF ORGANIC YOGURT AT SUPERMARKETS IS 20% PER YEAR FROM 2001 TO 2006.

HIGHEST INCREMENTAL DEMAND.

CONS

WOULD REQUIRE QUATERLY TRADE AND GOOD PROMOTION STRATEGY

ADVERTISING PLAN COST IS $1.2 MILLION PER YEAR PER REGION

SG&A WOULS INCREASE BY $320,000 ANNUALLY

DIRECT COMPETITION WITH NATIONAL YOGURT BRANDS

INCOME FORECAST

2000 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 = $ 13 020 000

Gross Profit $ 28, 050 000 $ 31, 060 000 EXPENSES

Advertisement $ 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 000

Broker’s Fee $ 16 100 000 x 0.04 = $ 644 000 $ 19 320 000 x 0.04 = $ 772 800 PROFIT

Net Profit $ 23, 486 000 $ 27, 247 200

OPTION 2 ANALYSIS

EXPAND 4 SKUs OF 32-oz PRODUCT LINE IN SUPERMARKET NATIONALLY

PROS

HIGHER AVERAGE GROSS PROFIT MARGIN 8-oz SIZE

longer SHELF LIFE AND LOWER MARKETING EXPENSES

CONS

DOUBT ON SALES TEAM ABILITY TO ACHIEVE FULL NATIONAL DISTRIBUTION IN 12 MONTHS

WOULD INCREASE SG&A EXPENSE BY $160,000

2000 2001

Unit sales 5,500,000 5,500,000

Revenues 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 5445000

Gross profit 9,405,000 22,405,000

EXPENSES

Slotting fee 4 x 10000 x 64 = 2,560,000 0

SG & A 160,000 160,000

Marketing 120000 x 4 = 480000 480,000

Broker's fee (4% revenues) 367,400 367,400

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

INCOME FORECAST

OPTION 3 ANALYSIS

INTRODUCE 2 SKUs OF CHILDREN’S MULTIPACK IN NATURAL FOODS CHANNEL

PROS

Perfect positioning for new multi-pack product

Long term the financial potential was very attractive

The sales team was confident that they could achieve distribution for the two SKUs.

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

CONSCan not achieve the target

objective of Natureview farm

There were many potential conflicts and other uncertain factors that the manager could not determine.

INCOME FORECAST

2000 2001Unit 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 17,554,000

EXPENSES

Marketing 250,000 250,000

Complementary cases 6,030,000 x 2.5% = 150,750 6,934,500 x 2.5% = 173,363

Net profit 16,559,250 17,130,637

CONCLUSIONDecision Parameter Option 1 Option 2 Option 3Revenue Objective Exceeds Exceeds Falls Short Short Term Profits No No YesLong Term Profits High High LowCompetitive Response Very Risky Risky LowOrganizational capabilities

Low Low High

ACCORDING TO OBTAINED DECISION MATRIX CHOOSING OPTION 1 WOULD BE RIGHT DECISION.

CREATED BY SHIPRA SINGH (NIT, SURAT)DURING AN INTERNSHIP UNDER THE GUIDANCE OF PROF. SAMEER MATHUR, IIM LUCKNOW.