These new manufacturers must pay a $10,slotting fee channel also requires each manufacture to contribute funds a minimum of every 3 months for cooperative weekly trade promotions that average $8,000 nationally per ad, per retailer chain. This fee is in addition to any advertising expenditures that the manufacture may have. If the manufacture product continuously does not make a profit for the retailers, it can be pulled from the channel. The Manufacture would then have to repay the slotting fee when applying for re-entry. Because of the multiple fees and uncertainty, this channel provides the most risk for smaller manufacture but also provides a high level of potential.
Nature Stores Channel Unlike the supermarket chain, the nature store channel is friendly to small manufactures whose funds are lacking. The only one-time SKU fee for new manufactures in this channel is a allocation of one complementary case of product for every new SKU in the first year. This would usually equate to being less than the supermarket channel slotting fee. Along with this fee, manufactures will often use sales brokers to attract retailers. These brokers charge about 4% of manufacture sales in the yogurt category. In this channels distribution, there are 5 steps a product goes through. First the product is manufactured by the manufacture and then is sold to natural foods wholesalers.
Then it is sold to distributors who do bulk breaking and then sell and deliver to the retailers who sell to the final consumer. Generally in this channel, prices are usually higher since the niche target consumers are less price sensitive. An z and a jazz cup of yogurt go for $0. 8 and $3. 19, while a z cumulating can sell for $3. 35. Even though this channel is small and generally more expensive it is growing 7 times faster than the supermarket and offers continued potential for small manufactures such as Nature view. Strength On huge strength for Interview Farms is their products shelf life. Because Inattentiveness organic, natural ingredients with now growth hormones, their yogurt stays fresh up to 50 days.
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This is huge considering that the completion's product only stays fresh for 30 days. This means there will be less product loss and thus the cost f goods sold will be lower. Interview also has a strong reputation based on quality, taste and natural ingredients. This will help Interview when introducing any new product consumers will be more willing to try it. This reputation is one of the reasons why Interview has strong relationships with nature store retailers. This relationship entitles Interview to be able to work with the retailers to try and sell the product more efficiently and thus increase profit and most likely sales. Weakness Interview is a small manufacture.
It has limited funds to which it can use to emigrating decisions. Thus, marketers for Interview must take this in mind when creating strategic marketing plan. Also because Interview is small, their revenues are generally low. This affects Interviews abilities to attain valuation amongst venture capital firms. Noteworthiness of Interview is that their current strategy is not very flexible. It is based for denature store channel. Thus if Interview decides to expand to the supermarket channel, they williwaw to revise their entire marketing strategy. Opportunity The organic food market is expected to grow tremendously over the next few years due congressing consumer interest.
This will create new opportunities for product line extensions rooter new product launches. The rise to organic foods is also why Interview an opportunity to disadvantage of this and expand their product offering and thus revenues. Threats Competition is by far Interviews biggest threat. Companies such as Horizon Organic and Brown Cow in the nature store channel are competing directly with Interview to gain a strangle hold in the organic yogurt industry. There is also competition from national brands such as Daemon and Haploid who are rumored to be launching their own organic yogurt. Another huge threat is the possibility of nature store channel retailers increasing the demand on logistics and technology criteria.
If these retailers begin demanding the use of scanning devices and automated inventory tracking systems, Interview will be hard-pressed to find the funds necessary to facilitate those demands. Financial Analyses Interviews revenues are not that bad since they do hove 24%market share to lead their competitors. However the advertising and sales expenses seem to be a little when compared to the gross profit. This is the main reason why the final net income is Just 2%of revenue. If Interview wants to gain more profits they will have to find ways to reduce expenses or increase revenue, which is the logical option since Interview wants to increase revenues to $20 million by the end of 2001. Organizational Objectives 2001 fiscal year This objective is largely due to necessity.
Interview farms must be able to meet this objective if they can attain validation for venture capital firms to invest and infuse them with funds that can be used toward strategic investments. If this objective was not met Interview would have no choice but to consider being part of an acquisition. Alternatives/Options regions Option 1 is that Interview expands into the supermarket channel with 6 SKU of theist product size. This expansion will cover the west and the northeast regions. Expansion in to the west region will include the top 9 retail chains, while the northeast region will include the topple retail chains. This will equate to 20 total retail chains.
The main reason why the z product was chosen for this option is because it represents a large part of the target group. The z size is the most popular and thus offers the best potential. In fact this whole option offers great potential. Expected sales are at $25. 9 million from this option alone. By choosing this option Interview will be able to gain a first move advantage on their organic yogurt competitors. Getting your foot first in the door means you will have a heads up on the market by the time the competition arrives. This is crucial for success. This option is expected to get the most unit sales out of all the options. It is expected to get 35 million units sold to receive revenue of $25. 9 million.
When that is added with Interviews current revenue of $million, it will equate to $38. 9 million, well over the $million objective. Advantages Sigh potential for increased revenue Consumers in EN and W region rearmost likely to purchase organic Expected 1. 5% market share after 1st year (35 million unit sales) Disadvantages Sigh risk will increase by for sales staff,$120,OHO formatting staff Direct competition with national brands (Daemon, Haploid) This option seems to give the most potential. However it also has a lot of risks and cost associated with it. The only way this would be a liable investment would be if some of the risks were abolished. Otherwise this option seems to be too expensive and risky to pursue.
Option 2: Expand into the supermarket channel with 4 SKU of jazz yogurt in all regions Like option 1, option 2 also has Interview expand their product into the supermarket channel. However unlike option 1, option 2 has Interview expand with 4 SKU of not z but the jazz of yogurt. The reasoning behind this is that there will be less competition in the category's and that the profit margin for jazz option is 63% versus 51% for the z. It is expected that a sales volume of 5. 5 million units will be sold in the first year. This will bring revenues from this opt ion alone to $14. 85 lion. When added with Interviews current revenue of $million, it will equate to $27. 85 million, well over the $20 million objective.
This option will expand into all for regions, with a total of 64 retail chains. The SKU slotting fee is extremely high at $2. 56 million, but on average the trade promotion will be lower since the jazz size will only be promoted twice a year, rather than the normal four times a year. Advantages Fewer competition Lower on average trade promotion expense Cougher profit margin for jazz versus Expected 1st year sales of 5. 5 million units Disadvantages None users may not want to purchase large jazz quantity of product Every difficult to achieve full national distribution within one year This option seems to be taking a differentiation approach.
If this option is chosen by Interview, they would be one of only a few companies to offer the jazz size of organic yogurt in the supermarket chain. That fact that there is not many competitors is a huge advantage. However this option is also very risky and has many unknown such as whether it is plausible to distribute nationally within one year. For this option to be acceptable the risk and unknowns must be dealt with. Option 3: Introduce 2 SKU of children multi pack into natural foods channel In this option, Interview will not expand into the supermarket channel. Instead Interview will introduce a new line of products for children in the nature foods channel.
They will introduce 2 SKU off's multicasts. The multipart market was identified earlier in this analyses because of its annual growth rate of 12. 5%. Even thought multicasts are only 9% of total organic yogurt sales, the tremendous growth rate give this market a huge amount of potential without much risk. This is a huge reason why this option is valuable. Another reasons s that cost will be done since SKU slotting fees will no longer be changed. There will be a required allocation of one complementary case of product for every new SKU in the first year. This would usually equate to being less than the supermarket channel slotting fee. This option will also require a broker fee of 4%.
Total revenues with this option will be about 6 million with 1. 8 million units sold at a price $3. 35 per unit. take advantage of current relationships within nature foods channel Low risk factors Interview positioned nicely for option Low cost take advantage of growing natural foods channel Low expected revenue Requires R;D to develop product This option is by far the most conservative of the three. It presents the least amount of risk because the basis of this option is to stick with what is known. Interview knows the natural foods channel. They know the distributors, retailers, consumers and anyone in between. There are very few unknown variables.
However because there is so few risk involved, reward is also few. The revenues from this options is the lowest of the three options. Combined with the current$13 million revenue, it equates to Just over $19 million. This is under the objective of $million. This must e taken in consideration when choosing the recommendation. Recommendation After careful review and thorough analyses of the problem, situation and available options, It is recommended that Interview Farms chooses the third option. The reason why this option was chosen was because it offered very few risk and had a vide variety of known variables. It also took advantage of the growing nature food channel and the multipart 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 Interview Farms invest more funds in marketing the launch of children's multipart. Interview 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 $1 million or more in extra revenue. If this option is followed with the suggested revisions, it has the potential to increase Interviews success tremendously.
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