Natureview Farm

1. How do the three options compare financially in terms of yearly revenue, gross margin, required investment and profit potential ? Income statement

Incremental Revenue COGS Gross Profit Expenses  Sales general and administrativ e expenses(SG &A)  Marketing Expenses  Broker fee Net incremental Income

Option 1 $25,900,000

Option 2 $14,850,000

Option 3 $6,030,000

$10,850,000 $15,050,000

$5,445,000 $9,405,000

$2,070,000 $3,960,000

$320,000

$160,000

-

$4,470,000

$4,064,000

$400,750

$1,036,000 $9,224,000

$594,000 $4,587,000

$241,200 $3,318,050

Calculations

Marketing expenses  Advertisin g

Option1

Option2

Option3

$1.2*2= $2,400,000

$120,000*4 = $480,000 $10,000*4* 64= $2,560,000

$250,000+0.025*$6,030 ,000= $400,750 -



Slotting fee

$10,000*6*20= $1,200,000



Trade Promotion s (For whole year)

$7,500*4*11+$15,000 $8,000*2*6 *4*9 4= = $1,024,000 $870,000

-

$4,470,000

$400,750

Total

$4,064,000

2. What are the strategic advantages and risks of each option? What channel management and conflict issues are involved ? Advantages of Option 1:  Very High potential for increased revenue  Consumers in NE and W region are most likely to purchase organic yogurt  Expected 1.5% market share after 1year (35 million unit sales)  8 oz product line is the major market, so launching it makes sense Disadvantages of Option 1:    

High risk involved as expenses go up steeply Direct competition from national players like dannon Price war expected as competition’s basic revenue comes from 8 oz pack Less knowledge about handling super market relationships

Advantages of Option 2:    

Lesser competition as 32oz pack is not the bread and butter sales for national players Lower on average trade promotion expense Higher profit margin for 32oz versus 8oz Expected 1st year sales of 5.5 million units

Disadvantages of Option 2:   

New users may not want to purchase large 32oz quantity of product Very difficult to achieve full national distribution within one year Large SKU slotting fee of around $2.56 Mn

Advantages of Option 3:     

Take advantage of current relationships within natural food channel Low risk factors as knowledge about the product exist Low cost option Take advantage of growing natural foods channel The children’s pack is the most rapidly growing segment (12.5%) of all the other pack sizes

Disadvantages of Option 3:  

Low expected revenue Requires R&D to develop product

3. What action plan should the company pursue? What changes in the current marketing mix, sales, brand and channel partner arrangements do you recommend in order to implement the action plan? 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 wide 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.

Implementation Plan:

1st Week Gain full approval of recommendation from marketing manager and financial advisor 2nd Week Managers meet with R&D department to discuss multipack produce qualities 3rd Week Managers meet with brokers and sales staff to discuss new product sales plan 3rd Week Managers meet with retailers to discuss future launch and financial information 4th Week First production of product for testing and approval 2nd Month Official product launch and distribution; Official launch of product consumer promotion 6th Month First product income status report; Continue with plan or revise it depending on report 12th Month End of year report