Success Story of a Seasoning Mix Entrepreneur and his Company’s Objectives
Q1. Summarize the information presented regarding the present and proposed products. Briefly describe the company’s 2004 and 2005 objectives.
Ans. Dale Morris, being a cooking enthusiast, created a new season mix in 1993 which was based on a nutritive yeast extract and used a considerable amount of lesser salt than other seasonal mixes. This mix being very popular among family and close friends, he decided to ‘test market’ his product via a charity event and once successful, he saw an opportunity of a new saleable product. His vision however was stalled till 2002 due to lack of startup capital.
Eventually, he raised enough money (a total of $65,000) by selling 15 percent each of his stock to his mother and two work colleagues to lease machinery and setup a small production facility and bring his product to grocery stores by August of 2002. The product was an instant hit among customers. Having a sales background himself, Morris had no problems in coming up with ways to promote his product. His tasting demonstrations, similar to what he held for family and friends were a hit and attracted enough sales in seven states and to consider expanding the product line and make inroads to markets in more states as well.
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In order to expand however, Morris needed more capital. Not only was the market to be expanded, two new products had to be launched as well. This meant additional expenses in product development, production, advertising and distribution. The present product, although a low salt seasoning, does not cater to the salt free market. Thus a salt free variant is to be developed along with an MSG based flavor enhancer.
The company’s 2004 objectives are to stabilize its current markets in terms of sales and distribution and to achieve a 5 percent market share in the category of seasoned salt, a 10 percent market share in salt substitutes and a 5 percent market share in MSG based flavor enhancers. Strategy for 2004 concentrates more on existing markets. Although a 10 percent market share in the salt free category seems a bit optimistic, it is possible due to the lack of competitors in this market segment.
For 2005, the company plans to expand to eight new markets namely Los Angeles, Phoenix, Sacramento, Salt Lake City, Seattle, San Francisco, Spokane and Portland. These new markets make up 17.1 percent of total grocery sales and thus are an attractive market to tap into. Like 2004, here too 5 percent shares for the salt based seasoning, 10 percent for the salt free version and 5 percent market share for the MSG based enhancer are objectified.
The methods to be used will range from aggressive advertising to tapping into the more health conscious West Coast psyche. Price advantages will further help realize these aims for both existing and new markets. All this will be done due to the fact that the company is currently in the market expansion process and has to make unique selling propositions in order to capture a larger share of the market.
Q2. After reviewing this material, make a list of additional information which should be supplied to support the sales projections.
Ans. The sales forecasts seem to be well worked upon but that isn’t the case. The biggest blunder is that percentage aims for each new market and existing market have not be clearly specified. Only totals have been given for existing and new markets and new ones with the aims at 5 or 10 percent (as per product) being calculated based on the overall totals of each market. Since the existing markets have to be stabilized and expanded, there should e more specific information regarding each individual state in terms of market and percentage to be achieved in dollar amounts. Same should be the case for new markets as well.
The second problem with these forecasts is that although the company has outlined its financial and percentage aims in each of these markets, no specifications whatsoever have been given as to the volume and price of the product being sold there. This is essential because Nature Bros. will have to decide what packages and what volume of sales they plan on distributing in these areas. Thus sales have to be given not only in dollar amounts but in amount of units and weight per package as well.
Thirdly, the price set for each package should also be included in order to calculate how Nature Bros. will capture the market. A proper product into price figure is needed here rather than the existing dollar amounts.
Q3. Comment on objectives: Are they reasonable, optimistic, or conservative? What marketing mix would best support this growth rate?
Ans. The objectives seem to be reasonable for the current markets but are a bit too optimistic for new markets. The main reason for this is that the current markets are aware of their products. They just need to keep enhancing their advertisement efforts in order to capture a larger market share. New products too will be welcomed more openly.
New markets always show resistance to new entrants. Secondly, local home grounds are always easier to work in; it’s the new markets that always create problems especially due to the startup inertia faced by products. In order to achieve these objectives, Nature Bros. will have to go big in these new markets. They will ahev to concentrate a lot on achieving the right marketing mix so as not to expend too much and still achieve their objectives:
§ Promotion: promotional campaign launched by Nature Bros. have so far been successful in most cases. Form personal friends to tasting stalls, Morris has done well so far in achieving fame for his product. The new products however might need that extra push. First of all, they should go for more branding of the products. Customers might confuse the positioning of the existing product and leave it and the salt free version might eat away into the original products sales.
Since Nature Bros. have thus far marketed their existing product as healthy and low salt, a salt less substitute will only shed bad light on the existing seasoning mix. Thus Nature Bros. should start repositioning its existing brand and use the same in new markets. Quality should be strictly controlled and maintained at all costs.
§ Price: the pricing strategy as outlined in the plans seems to be fine for this product. One aspect that Nature Bros. have neglected however is the price demand elasticity of their product. They should test this strategy in their existing markets and see if they are in a position to charge premiums at this stage or not. This will give a fair idea as to for how long they will have to sell their products at reduced prices (how long it takes to achieve customer loyalty) and how sensitive the customers are in terms of price changes.
If a little drop in price means a considerable increase in sales then Nature Bros. can achieve their target market shares without 3040 percent price cuts as they currently plan to. On the other hand if this is not the case and customers are not too elastic, then not only discounts but extra promotion will also have to be done and this would mean leaner profit margins with additional promotion costs.
§ Promotion: the promotion strategy is fine and tested in the existing markets. Their decision to advertise in cooking magazines is a good one as well. One additional aspect however would be to properly launch their product and activate their brand through a certain event or fair. A proper launch and enough publicity can do wonders for a product in any given case.
The church sale was the most successful for Morris and made him realize that a marketable product is at hand. Similarly, if ature Bros. were to contact other organizations such as churches or TV shows to use their product, this would result in a lot of publicity. This along with a few interviews to newspapers and leading cooking magazines will help a lot in creating enough hype and launching the product.
§ Distribution: this is probably the weakest link in the whole plan. There seem to be no formal plans nor strategies regarding the actual distribution of the product. Being a young company, Nature Bros. will have to carefully assess which distribution strategies are cheapest and yet most effective. Although all products will be sold at grocery stores, Nature Bros. can decide whether it will be supplying directly to these stores or use the services of a third party in the form of a distribution intermediary. More intermediaries however mean higher product selling prices and this could result in Nature Bros. not effectively achieving their pricing strategy in the new markets and thus eventually losing market share.
Q4. Evaluate the information supplied regarding a new product development and physical assets in light of the pro forma income statements Morris developed.
Ans. The case shows that new product development and physical assets are going to be beneficial in nature, primarily due to the reason that the cost of goods sold as projected by the pro forma sheet show a decline over the years. Additionally, sales increase over the years. The new product if developed can help in terms of profits eventually, since profits automatically increase with the decrease in cost of goods sold and increase in sales over the years projected. Apart from operational expenses though, research and development expenses, and depreciation expenses of physical assets would increase causing an increase in the total cost incurred by the organization apart from the cost of goods sold.
Q5. Is the capital sought appropriate for the circumstances? If more information is needed, state what it is and how it could be obtained.
Ans. The capital sought is not appropriate mainly due to two reasons. The objectives outlined in terms of market shares are too optimistic in some cases. If Nature Bros. seriously intends to achieve these objectives then they might have to expend a lot more in promotion and also further lower their prices. Secondly although promotion expenses are stated, not much has been said about other below the lien activities. It is rare that the cost of BTL activities are easily anticipated and put on paper for budgeting purposes.
The second reason is that no mention has been made of distribution channels and strategies. This whether they decide to own the channel themselves or employ third parties, in both cases additional expenses will most certainly entail.
Lastly, every firm always keeps a certain excessive amount of capital for emergencies. Since these are projections, Nature Bros. will most certainly have to attain a little more extra capital and retain it for unpredictable circumstances.
Q6. What sources should Morris approach for this amount of capital?
Ans. The product has done well in the past few years. A proper business plan and more professional projections can easily help Morris market his idea to banks as well as more serious venture capitalists in a very effective manner. The best option would be to borrow from a financial institution as opposed to selling off more equity to individuals. This is so because selling off equity might result in loss of ownership and decision power and at this stage conflicts among partners is something Nature Bros. should not risk.
The ownership once diluted would result in actually loss of control, and decision making power would be vested in the hands of the shareholders. Apart from this, Nature Bros. has become too big to rely solely on funds borrowed from family and friends and is not big enough to go public as yet. Thus the best options would be to find capital form either banks at a fixed interest rate or angel investors who are interested and more patient than other categories of venture capitalists.
These investors are interested in returns but rarely intervene in the management aspect of the business and are more accommodating as well. This source of funding or capital would help in reducing the amount of taxes that the company would have to pay, and additionally, fewer amounts would have to be given out to the shareholders as dividend. Thus any source which costs below the going interest rate and doesn’t result in selling of equity would be suitable for Nature Bros.
Q7. Based on the current balance sheet, how much equity should he give up for the investment?
The current balance sheet of the company shows several things. One of the basic aspects is the amount of assets that the company holds at this point in time. The total assets are about sixty seven thousand, and corresponding to that, the total liabilities are about fifty eight thousand. This shows that the company can cover its liabilities through the assets that it currently holds. On the other hand, the equity that the company has at this point in time is about nine thousand.
A lot of potential in terms of equity investment is seen here since the company can not only withhold the amount of liabilities but also has enough to cater to the shareholders as well in terms of its liquid assets. In this case, about half of the liabilities amount can be given up for the investment and still be able to keep a significant amount of money in the liability section.
The ball park figure is assumed in order to create a fifty-fifty balance between the liabilities and the equity side. The ideology is that the amount of figure noted would be able to create enough equity in the organization that would not jeopardize reporting and decision making in the company, and yet, be enough that it balances out the loans taken from banks and other individuals and institutions.
References:
Hisrich, R., Peters, P., & Shepard, D. (2008). Entrepreneurship. 7th Edition. Irwin:
McGraw-Hill.
Entrpreneur.com (n.d.). Retrieved February 17, 2007, from http://www.entrepreneur.com/bizstartups/index.html
U.S. Small Business Administration (n.d.). Retrieved February 17, 2007, from http://www.sba.gov/smallbusinessplanner/index.html
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Success Story of a Seasoning Mix Entrepreneur and his Company’s Objectives. (2017, Jun 18). Retrieved from https://phdessay.com/naturebros/
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