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Natureview Farm Case Solution

Solution Id Length Case Author Case Publisher
857 813 Words (3 Pages) Karen Martinsen Fleming Harvard Business School : 2073
This solution includes: A Word File A Word File and An Excel File An Excel File

Natural food channel was slightly inelastic to price changes. It charged premium prices from the target audience which was different, from super market target audience. Target audience of Natural food chain was more health conscious and had higher purchasing power. However, prices in this chain were significantly higher, majorly due to the fact that the supply chain system involved an additional key player; wholesaler, whose margin was 7%. In this type, supply chain requires no slotting charges, as required in other options. Marketing expenses will decrease significantly.

Following questions are answered in this case study solution:

  1. What is Natureview’s current position in the natural foods channel? What is their marketing strategy?

  2.  How do the three growth options under consideration compare financially to terms of yearly revenue, gross margin, required investment, and profit potential?

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

  4.  What action should the company pursue? How can they mitigate the risks associated with the chosen strategy?

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Natureview Farm Case Analysis

Company had strong market share of around 24% in this market. It was humongous, because Company was the pioneer of yogurt cups in this market. The reputation it created overtime, along with the word of mouth resulted in a strong market share of the firm. The segment of multipack was securing 9% of market share and was growing at 12.5% per annum. 32oz secured 8% share growing at 2% per annum. Whereas, largest share belongs to 8oz pack which was around 74%.

It is evident that Company is following differentiation strategy. It is marketing its product on two key aspects; the first one is the shelf life of 50 days, which is 20 days more than the standard product. Secondly, it is not using artificial ingredients, like preservatives. The innovative process is its strength. This strategy decreases risk of spoilage and increases sales to the retailers. This strategy is pull strategy in the marketing context.

How do the three growth options under consideration compare financially to terms of yearly revenue, gross margin, required investment, and profit potential?

The analysis of financial performance shows that launching 6SKU to 20 Supermarkets in two regions is the best option, for both 2 years and 5 years. It has the highest NPV, revenues and profit margins. The financial performance of all alternatives is in the table below:

$'000

Option 1 (8 oz.)

Option 2 (32 oz.)

Option 3 (Multipack)

One Year Revenue

16,100

9,240

9,240

One Year Profit

769

370

776

Revenue after 2 Years

42,000

6,600

2,070

NPV of Profit over 2 Years

2,161

1,248

1,544

Revenue after 5 Years

33,385

19,160

5,793

NPV of Profit over 5 Years

11,300

7,598

4,686

Incremental Gross Margin

5.250

3.795

1,242

The other two options are providing conflicting results. Option 2 can be ranked no. 2 for 2 years time span. Whereas, option 3 ranks second for 5 years time span.

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

Option 1

Option 2

Option 3

Advantages

 

 

8oz cups of yogurt had largest potential for growth and covered 74% of the market.

32oz. cups had largest gross margin of around 46%. Investing more will result in higher profits.

Company had well established relationship with retailers it will adversely affect, from launching new size in super markets.

Emerging brands have experienced 200% growth in past years, in supermarket. Company has differential advantage of natural food brand.

Large competitors are not offering SKU of this size. Company had the advantage of increased shelf life.

Company was successful in different sizes of natural yogurt. It was an opportunity to launch healthy yogurt in multipack for children. Marketing expenses for this option is lowest.

Company will have first mover advantage before its competitors enter the market.

Marketing expenses would decrease by 10% as promotional efforts.

Growth rate of natural food products was 7 times fast as compared to super markets. Company needs to launch new products in this channel to boost sales.

Risks

 

 

The launch of new product in the supermarket can result in loss of share in other channels. Further it is expected to increase costs of the company.

Despite slightly higher expenses, company was not sure of covering full national distribution in 12 months, due to insufficient capacity.

The demand in the natural channel is expected to increase tremendously soon. Currently, company has not the capacity to handle it.

What action should the company pursue? How can they mitigate the risks associated with the chosen strategy?

The analysis suggests that Company should pursue option 1. Reason behind it is that 8 oz SKU has the largest share in yogurt market. First mover advantage will result in increased sales of the company.

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