Executive summary Natureview Farm was established in 1989 as the brand of refrigerated cup yogurt. After 10 years, it was able to increase its revenue by 129%, which is from $100,000 up to 13 million. However Natureview had difficulty in maintaining its consistent level of profitability which lead firm to financial problem. To solve this problem Natureview needed VC to fund investments. VC would grant the fund only if Natureview could accomplish the goal: growing its revenue to $20 million before the end of 2001.
Still there are many barriers that the firm had to deal with before reaching the goal some of which are as the followings. Firstly, the current channel partners could not fulfill the objective with this time constraint. Secondly, Natureview did not implement the right channel design strategy to respond to the market. Lastly, how firm protect its premium brand if they decide to get into supermarkets To this problem, the solution is divided into three main parts. First, the selection of option number 1 mixed with option number 3.
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Second, Natureview should negotiate on the product display, price set and promotion prior to the launch to supermarket. Third, Naturview comes up with strategies in managing the relationship and conflict among channels. Goal Defense Natureview had to achieve this goal because it needed VC to support its financing to operate the business by generating significant revenue growth. If the firm could not make it, VC would not grant the fund leading Natureview to face extremely difficult financial circumstance. Therefore, in this case, it will discuss only on how to generate more overall revenue rather than profit or cash flow.
The main objective is to grow revenues by over 50% within two years or 2001. There are some factors which induce the company to fulfill the objective some of which are changing trends, consumer behaviors, and financial support from VC. Firstly, since consumers tend to be more health conscious on their diet, they consume more organic products. Thereby, the trend of yogurt sales for natural food stores had growth pretty high accounted for 20% per year comparing with supermarkets expansion 3% on average per year.
This trend perfectly fits with the positioning and image of Natureview including the product itself which is purely made from natural ingredients, so this would facilitate the firm to reach the goal faster. Secondly, the potential consumers particularly at natural food stores tended to have higher purchasing power and high education rather than the typical supermarket shoppers. Lastly, to attain the financial support from VC, management team of this firm has to come up with the right strategy to complete the goal as fast as possible so that Natureview would not suffer with financial crisis later on.
Problem Defend The existing channels cannot provide an optimal solution to the company It is not possible to reach the objective which generates $20 million at the end of 2001 if Natureview remains its current strategy. Without implementing any other new strategies or options, the company would gain only $18. 72 million which is not adequate to achieve the goal. (The calculation is referred from appendix A. ) Therefore, the firm must choose one of those three options or integrate them in order to come up with the new strategy to meet the objective.
Natureview did not respond to the actual need of the market demand and the firm did not implement the right channel design strategy Referring from the case, it was about 46% of organic food consumers purchase organic products at a supermarket following by 29% went to natural food stores, and 25% of consumers shopped at a small food stores. Moreover, a key barrier of 67% U. S. households do not make a purchase because of its price, and 58% of consumers would buy more if the price is less expensive.
As you can see, the company did not use the channel design as they placed the products only in natural food stores, but the majority of customers go buy organic products at a supermarket. Even though natural food stores had a higher sales growth compare with supermarkets, supermarkets generally generate more revenue in this industry. In addition, the products selling at natural food stores are sometimes too high for many households. Since there are various criteria before customers make a decision to buy yogurt, 70% of yogurt buyers concern on package type/size, taste, flavor, price, freshness, and ingredients.
Natureview could meet many of those criteria, but there are some consumers, accounted for 44%, need for a wider range of selection or flavors of organic foods which the firm had to take it into a consideration as well as pricing strategy otherwise Natureview would not be able to meet the goal that easily. Natureview would have difficulties to manage its positioning and brand image if they decide to expand the business to supermarkets As the Natureview’s CEO emphasizes on relationship with customers, suppliers, and distribution partners, the management team has to make the right strategies choices regarding the revenue growth objective.
Entering business to new distribution channel like a supermarket might form conflicts some of which are price differentiation and relationship with existing channel members: natural food retailers. Let’s discuss about price differentiation first. As the shorter distribution channel of supermarkets could be able to cut down the cost of the products to end consumers compare with natural food channel which has more channel members who mark up more margin for each level that is why they sell the products at the higher price.
For example, natural food retailer margin was 35% and retailer margin in supermarket was 27% which is 8% different. Besides, price differentiation could affect the positioning of Natureview as it is a premium brand selling only in natural food stores with a high price shifting to sell in supermarkets with a lower price as well as intense promotions. Consumers might perceive the lower price under the identical products is the lower quality which might damage its premium brand. Another possible conflict that might occur is the relationship with the current distribution partners.
Selling the products into supermarkets might spoil the relationship with natural food stores who are long-term partners because the price of yogurt that supermarkets offer to end customers is at least 15% cheaper than the price selling in natural food retailers. And this might lead to a negative effect in 13 million that firm should get together with the growth of two year, which calculate to be 18. 72 million in the year 2001. Solution Defense According to appendix B, the three options provide feasible solutions to reach the objective.
The calculation is proved by first calculating the growth of 13 million in next 2 year summed with total revenue from incremental units. The expected revenue in option 1, 2, 3 is 29. 88 million, 23. 02 million, and 21. 51 million respectively. Therefore, all the options pass the first criteria of selection. According to appendix D, it shows all pros and cons for each option. It seems like option1 and option 3 are quite pragmatic. * The first option__to expand six SKUs of the 8-oz product line into the regional supermarkets__was generated the highest revenue.
Because 8-oz has a lot higher share with 74%, which is the best selling product size and placing the products at the eyes level in the supermarkets could get higher awareness and exposure to the product which help the brand reach new potential customers. On the other hand, Natureview must consider drawbacks which could create big troubles to the firm if implement this option. By entering into the supermarkets which are totally new marketplace for the company, so they do not have know-how to deal business with this new channel member who has very high demanding such as intense promotion, slotting fee, and some other services from the firm.
Moreover, not only big investments are required which is very risky because the firm has to confront with aggressive competitors with huge pocket like Dannon and Yoplait who are willing to invest $60 million in annually promotion, but Natureview is also leaving their niche market, and this somehow affects the positioning and brand image toward end consumers. Even though this option gives the highest revenue, the company would face high risk in implementing. (Appendix D) * The third option__to introduce two SKUs of a children’s multi-pack into the natural food channel__was attractive in terms of highest growth of multipack with 12. %, fastest growing channel. And it was the least cons among those three options. Besides, Natureview did not have to pay SG&A and pay less promotional expenses. The most important was the company could remain its relationship with natural food channel who is a long-term customer. The proposal of option 4 Above all examining those three options reveals that they could lead firm to its goal but the result would be even worse if the firm fail to do so except option3.
Since each option places Natureview into the completely new market in which they have no experiences in. Basically, the success of Natureview is coming from natural food channel such as Whole Foods and Wild Oats. Therefore, to operate long-term business in this industry the fourth option which remains good relationship with the current channel members as well as expand business into the new market, supermarket by introducing new product lines with a lower price under the Natuview Farm brand as a good signature for high quality and the freshness of its product.
The CEO of Natureview really had put lots of consideration on natural food channel because they are the main drive for the company to be successful until today. Thus, the fourth option suggests the company invest more in order to increase the current 24% market share in natural food stores to 50% including new potential market like schools or sport events only in prime areas. Since the natural foods channel was growing almost seven times faster than the supermarket channel, and Natureview was developing a variety of new products that could further boost sales performance in this highly successful channel.
Basically, the fourth option is quite similar to the third option but the additional suggestion is to introduce two SKUs of a children’s multi-pack into both natural food stores and small health food stores accounted for 29% and 25% respectively. These two numbers are the percentage of consumers who normally purchase their organic products. As you can see, if Natureview could display the products with these partners, it would capture more target customers, and they tend to have higher purchasing power and less price sensitive compare with supermarket shoppers.
Thereby, Natureview could retain its brand identity and maintain long-term relationship with their natural food channel. Furthermore, this option proposes the firm to expand business into the two potential regional supermarkets as they generate the highest yogurt sales, however; the firm needs to come up with a new sub-brand to sell in supermarkets which offers a lower price to respond to market; 67% of U. S. household do not buy because of high price and 58% would buy more if it is less expensive.
If Natureview could capture these two groups, the firm would be able to gain more coverage by offering only two flavors: plain and vanilla: of 32-oz cups which generate more average gross profit margin for Natureview and fewer rivals offer in this size including spending less budget on marketing program as 32-oz requires less frequency of trade promotion. Moreover, the marketing campaign to promote this new sub-brand should focus more on core value of Natureview Farm: freshness and premium quality: and promote on its value size to respond to the price sensitive consumers.
However some conflict might occur since supermarkets are very powerful. Natureview should manage power they have with this member. (Reward power and legitimate power to both parties) Therefore, this would protect its premium brand of Natureview as well as holding strong relationship with natural foods channel. To sum up, Natureview should implement the fourth option which combines small advantage points from one of each option to form the new efficient business strategies to reach the goal Appendix A * Expected Revenue without implement any option Revenue| 1999| 2 yrs growth| 2001| | 13 million| $ 13 | 120%*2yrs| $18. 2| | | | | | | | Appendix B * 2 years growth Channel Partners| | Growth| Revenue| | Supermarket| $13*2yrs*3%growth| . 78| $13. 78| | Natural Food Stores| $13*2yrs* 20%growth | 5. 2| $18. 2| | Revenue/unit| Channel Partners| Margin| Cost| Selling Price/unit| | Option1| Distributor| 15%| 0. 85| 0. 46| | | Retailer| 27%| 0. 73| 0. 54| | | Customer| —| —| 0. 74| | | | | | | Revenue/unit| Channel Partners| Margin| Cost| Selling Price/unit| | Option2| Distributor| 15%| 0. 85| 1. 68| | | Retailer| 27%| 0. 73| 1. 97| | Customer| —| —| 2. 7| | Revenue/unit| Channel Partners| Margin| Cost| Selling Price/unit| | Option3| Wholesaler| 7%| 0. 93| 1. 84| | | Distributor| 9%| 0. 91| 1. 98| | | Retailer| 35%| 0. 65| 2. 18| | | Customer| —| —| 3. 35| | Option| 2 yrs Growth| Rev/unit| Incremental unit| Total Rev| Expected Rev 2001| 1| 13. 78| 0. 46| 35| 16. 1| $29. 88M. | 2| 13. 78| 1. 68| 5. 5| 9. 24| $23. 02M. | 3| 18. 2| 1. 84| 1. 8| 3. 31| $21. 51M. | Appendix C * Additional Expenses Option| Cost| $| 1| Trade Promotion| 2,400,000| | SG&A| 200,000| | Staff| Highest cost 120,000| | Total| 2,720,000| Option| Cost| $| | Marketing| 480,000| | SG&A| 160,000| | Total| 640,000| Option| Cost| $| 3| Complimentary| 87,813| | Marketing| 250,000| | Total| 337,813| Appendix D * Pros and Cons of each option Option| Pros| Cons| 1| Highest Rev. | Conflict w/ current channel partners| | 8-oz is best selling SKU 74%| Supermarket choose only 1 brand in| | Coverage highest share of 2 regions: (Northeast 26%, western 27%) | Aggressive competitors| | Gain first mover advantage| High risk * High promotion cost(4 times/yr) * SG&A Increase by 320,000( 200,000(sale staff require in 2 region + 120,000 additional mtk. taff))| | Get wider space at the eyes level| | | Benchmark of other organic brandsEx. Silk Soymilk | | Option| Pros| Cons| 2| Less Investment| Less attention| | Less Competition| Conflict with current channel partners| | Less SKU| Higher expense : * Need to hire sale personnel who had experience selling in super mtk. (160,000)| | Product display: bottom shelf| Direct competitor: (Bright Vista) organic yogurt) introduce by Dannon & private label from supermarket (Vertical competition. )| | Gain first mover advantage| 32 oz= lowest share 8%| Promotional cost/region is lower * Promote only twice a yr. * 120,000 per region| | Option| Pros| Cons| 3| Multipack highest growth: 12. 5 % 7 times faster than supermtk. | Effect LT growth (unable to expand)| | Maintain strong relationship w/ current partners| Loss Fist mover advantage| | High income (highest share in natural store )| | | Protect image & positioning| | | High significant growth channel| | | Lowest investment (comparing to 2 above) * sale and marketing expense lower * marketing expense= 250,000 * no additional SG&A cost| |