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Natureview farm

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Natureview Farm Case
Natureview Farm Case
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Natureview farm

  1. 1. Natureview Farm Harvard Business School Case
  2. 2. Brief synopsis of Natureview Farm Natureview Farm, established in 1989, is a manufacturer and marketer of refrigerated cup yogurt. It was reported as a $13 million company in 1999. The yogurt is made up of natural ingredients and with unique, smooth and creamy texture.
  3. 3. Key Persons • Barry Landers - CEO • Jim Wagner – CFO • Walter Bellini – VP Sales • Jack Gottlieb – VP Operations • Kelly Riley – Assistant Marketing Director • Christine Walker – VP Marketing
  4. 4. Situation Analysis Natureview Farm is a well established yogurt company. It aims to increase its revenue to over 50% by the end of 2001 A proper path and action plan needs to be devised by Christine Walker – VP Marketing
  5. 5. Numerous Points of view have been discussed in a meeting with the executive personals. The final decision of picking one of the three options needs to be formulated. All possible aspects including the consumers, the suppliers and the distributors’ interests needs to be kept in mind.
  6. 6. Key Objectives To increase the revenue by 50% within 22 months Consider if Natureview should expand into the supermarket channel Decide on one of the 3 suggested options – 2 of which include expansion to the supermarket. Keep the channels of production in mind and ensure minimum damage by any decision. Formulate a coherent point of view and an action plan
  7. 7. Analysis of the 3 options
  8. 8. Option 1 To expand six SKUs of 8 oz. product line to 1 or 2 selected supermarket channel regions.
  9. 9. Option 1 Basis: Eight-ounce cups represented the largest dollar and unit share of the refrigerated yogurt market, providing significant revenue potential. Substantiation: (1/3)
  10. 10. Option 1 Basis: Natureview, the leading natural foods brand of refrigerated yogurt, was uniquely positioned to capitalize on the growing trend in natural and organic foods in supermarkets. Substantiation: Other similar brands had been successful. Two such brands—Silk Soymilk and Amy’s Organic Foods—had increased revenues by over 200% within two years of entering supermarkets. (2/3)
  11. 11. Option 1 Basis: Supermarket retailers would likely authorize only one organic yogurt brand. The first brand to enter the channel could therefore have a significant first-mover advantage. Natureview’s competitors are soon to expand in the supermarket channel. Substantiation: Industry experts were predicting unit volume growth of organic yogurt at supermarkets of 20% per year from 2001 to 2006. (3/3)
  12. 12. Option 1 Risks: Highest level of competitive trade promotion, quaternary promotions and marketing spending on 8oz. Size. •Expenses sum up to $12,640,000 20% increase in yogurt sales in supermarket from 2001 but we need before it •Is this the correct step for this objective. Is Natureview ready for this big step??
  13. 13. Expenditure Calculations Field Expenses ($ Annually) Comprehensive advertising plan 12,000,000 SG&A 320,000 Incremental SG&A 200,000 Additional marketing staff 120,000 Total 12,640,000
  14. 14. Expected Income Statement Expected Units produced 3,50,00,000 Average retail price per unit 0.74 Expected revenue 25900000 % increase of revenue 99.23 Expenses 12640000 Cost of production 16317000 Total Expenses 28957000 Total Expected Income -3,057,000LOSS!
  15. 15. Option 2 Expand four SKUs of the 32-oz. size nationally
  16. 16. Option 2 Basis: 32-oz. cups currently generated an above-average gross profit margin for Natureview Substantiation: Stated 43.6% margin vs. 36.0% for the 8-oz. line (1/3)
  17. 17. Option 2 Basis: Less competition in this size. Advantage of longer shelf life. Substantiation: Natureview’s brand had achieved a 45% share of this size segment in the natural foods channel. The management team felt that the company could sell approximately 5.5 million incremental units in the first year. (2/3)
  18. 18. Option 2 Basis: Promotional expenses would be lower—the 32-oz. size was promoted only twice a year. However the slotting prices are high Substantiation: For a 32-oz. expansion, marketing expenses would be significantly lower as well—only 10% of what was projected for the 8-oz. size in each region, representing $120,000 per region per year i.e. $12,000. (3/3)
  19. 19. Option 1 Risks: The management team doubted that new users would readily “enter the brand” via a multi-use size. •Expansion option would increase SG&A by $160,000 plus slotting costs. Concern about the sales team’s ability to achieve full national distribution in just 12 months. •Competition with Dannon’s Bright Vista and the organic yogurt of the Supermarkets. Is Natureview ready for this big step??
  20. 20. Expenditure Calculations SG&A 1,60,000 Marketing 12000 Administration/Freight 22,10,000 Sales 15,60,000 Research & Development 3,90,000 Slotting cost 12,80,000 Advertising 7,50,000 Expenses 63,62,000
  21. 21. Expected income statement Expected Units produced 55,00,000 Average retail price per unit 2.7 Expected revenue 14850000 Total revenue 27850000 % increase of revenue 14.23 Expenses 63,62,000 Cost of production 17545500 Total Expenses 2,39,07,500 Total Expected Income 39,42,500 50% required
  22. 22. Option 3 To introduce two SKUs of a children’s multi- pack into the natural foods channel
  23. 23. Option 3 Basis: Yogurt was an important product to natural foods retailers from both a revenue and a profit standpoint. Substantiation: The company already had strong relationships with the leading natural foods channel retailers, and expansion into the supermarket channel could potentially affect these relationships. (1/5)
  24. 24. Option 2 Basis: Fear that Natureview does not have the necessary resources or skill-set to sell effectively to and through supermarkets. Substantiation: Recent conversations with reliable Natureview’s brokers (2/5)
  25. 25. Option 2 Basis: Natureview Farm’s all-natural ingredients would provide the perfect positioning from which to launch its own children’s multi-pack product offering into their core sales channel. Substantiation: The sales team was confident that they could achieve distribution for the two SKUs plus good sales. (3/5)
  26. 26. Option 2 Basis: The natural foods channel was growing almost seven times faster than the supermarket channel, and Natureview was developing several new products that could further boost sales performance in this highly successful channel. Substantiation: The five-year projected unit growth CAGR of yogurt in the natural foods channel was projected to be 15%, according to industry market research (4/5)
  27. 27. Option 2 Basis: Stronger Profit Contributions and most attractive finances. Substantiation: Total projected yearly revenue could be 10% of natural food channel category dollar sales. Gross profitably would be 37.6%. Sales and marketing costs were lower. Potential incremental unit volume at 1.8 million. (5/5)
  28. 28. Option 3 Risks: R&D and Operations would need to develop the multipack product •This could cause delay Retailers were likely to demand more and more as they grew, much like those that feared from supermarkets. •But this would happen after a while.
  29. 29. Why Option 3? The leadership of Natureview was the result of its strong brand value. The emphasis on natural ingredients and its strong reputation for high quality and great taste was the reason it grew. Consumers were increasingly interested in natural and organic foods, well-managed natural foods retailers were thriving. Yogurt was important to retailers as stores earned a higher margin on yogurt than on any other dairy product revenues.
  30. 30. Yogurt sales through supermarkets had grown an average of 3% per year, while sales through natural food stores had grown 20% per year. Natureview Farm had developed strong relationships with leading natural foods retailers The organic foods market, worth $6.5 billion in 1999, was predicted to grow to $13.3 billion in 2003. There is sever competition from well-established giants in supermarket channel.
  31. 31. The per year sales of multipacks are growing at +12.5% are high in demand There is still a lot of scope for expansion in the natural foods channel. Natureview can try to cover the remaining 76% of the yogurt market share.
  32. 32. Expansion in the supermarket channel where we have no experience will not be best suited to increase the revenue 50% in a short period of 22 months. No additional SG&A costs to introduce the multipack product supermarkets’ emphasis on sales promotion and price was inconsistent with the premium brand positioning Fear that Natureview’s marketing department was unprepared to handle the demands on resources, staffing that entering the supermarket channel would impose and the distribution.
  33. 33. Current Revenue
  34. 34. Expected Income Statement Expenses: Amount Total expected revenue $ 19,030,000 Cost of goods sold $ 11,988,900 Cost of the complimentary cases 2.5% of the product line’s manufacturer sales = 0.025 * $6,030,000 = $150,750 Marketing expenses $250,000 + $390,000 = $640000 Administration/Freight $ 2,210,000 Sales $ 1,560,000 Research & Development $ 400,000 Net Income $2,080,350
  35. 35. How Objective 3 helps achieve target Current Revenue 13000000 Revenue by incremented sales 6030000 Total Expected Revenue 19030000 % Increase in first 12 months 46.38461538 Gross Profitability of the line 37.60% Profit 7155280 % Sales increment of multipacks per year 12.5 Slaes in next 10 months 753750 Revenue by incremented sales 6783750 Total Expected Revenue by end of 2011 19783750 % Increase revenue by 2011 end 52.18269231 (% Sale increment per year of yogurt in natural store is 20% which can also
  36. 36. Conclusion Option 3 not only helps achieve our target but also helps keep up our core brand values which are – high quality, great taste & natural ingredients. We are rightly directed towards the target consumers who are the sufficiently earning groups. The demand for healthy foods and products with natural ingredients is booming.
  37. 37. Created by Rutvi Choksi, NIT Surat, during a marketing internship under Prof. Sameer Mathur, IIM Lucknow.

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