Natureview Farm

Background & Problem Definition

Natureview Farm is a small yogurt manufacturer with annual revenues of $13

million. It produces three different size cups – 8 oz. cup, 32 oz. and 4 oz. cup

multipack. However, Natureview’s goal is to increase its annual revenue to $20

million in two years. With a solid relationship with its current, successful strategy in

the natural foods channel it is considering expanding into the supermarket channel.

Conversely, it does not want to hurt the company brand it has created as a

premium yogurt brand in the natural foods market and betray those loyal, natural

foods customers who made their business what it is today.

Alternatives

In the case, Natureview is considering three options to expand its operations to

reach its $20 million annual goal:

1. Expand six SKUs of the 8-oz. product line into one or two selected

supermarkets. The reasons behind this option are:

a. Eight-ounce cups represent the largest dollar and unit share of the

refrigerated yogurt market, providing significant revenue potential.

b. Other natural food brands had successfully expanded their distribution

into the supermarket channel. As a leading natural foods brand for

yogurt, they can capitalize on the growing trend in natural and organic

foods in supermarkets.

c. A major Natureview competitor plans to expand into the supermarket

channel. Supermarket retailers would likely only have one organic

yogurt brand. Therefore, there is a first-mover advantage.

 2. Expand four SKUs of the 32-oz. size nationally. The reasons behind this option

are:

a. Currently generated an above-average gross profit margin for

Natureview (43.6% vs. 36.0% for the 8-oz. line).

b. Fewer competitive offerings in this size and Natureview had a strong

competitive advantage in their product’s longer shelf life.

c. Although slotting expenses would be higher, promotional expenses

would be lower since the 32-oz. size was promoted only twice a year.

3. Introduce two SKUs of a children’s multi-pack into natural foods channel. The

reasons behind this option are:

a. Company had strong relationships with leading natural food channel

retailers, and expansion into supermarket channel could potentially

jeopardize the relationship.

b. Distribution targets were very achievable for the two SKUs.

c. Gross profitability of the line would be 37.6% while expenses would be

lower; quite attractive. This option may even yield the strongest profit

contribution of all strategies taken into consideration.

d. Natural foods channel was growing seven times faster than the

supermarket channel.

Critical Issues

For each of the alternatives provided above, these are the issues that need to be

encountered respectively:

1. It has the highest level of competitive trading promotion and marketing

spending. It would require quarterly trade promotions and a meaning

marketing budget. It would also cost Natureview $1.2 M per region per year.
 Its SGA would also increase by $320,000 annually. Therefore, it would be a

costly approach. Also, to achieve its target, Natureview needed to take

advantage of its relationships with the top 11 supermarket retail chains in the

Northeast and the top 9 chains in the West and occupy majority of the retail

space.

2. The difficulty was that new users would not readily “enter the brand” and

adopt a multi-size product. Furthermore, to achieve full national distribution

within 12 months it would be a difficult task in of itself. Natureview would

need to hire more sales personnel who had experience selling to more

sophisticated supermarket channels and establish relationships with the

supermarket brokers. This would increase SGA expense costs by $160,000.

To add to the complexity of the decision, a competitor was rumoured to be

launching a line called Bright Vista, which would directly compete with

Natureview. Moreover, supermarkets were considering launching their own

private-label versions of organic yogurt. Therefore, launching the 32-oz. has

its issues of being less noticed in a myriad of different products available.

3. Introducing the multi-packs requires R&D and Operations costs. It also

conflicts with the premium brand positioning it had worked hard to establish

due to supermarkets’ emphasis on sales promotions and inconsistent prices.

There were also fears that Natureview’s marketing department was

unprepared to handle the demands on resources and staffing that entering

the supermarket channel would impose. Supermarket distributors were more

demanding in logistics and technology than what Natureview was familiar

with. However, it is thought that soon, natural foods channel would embark

on similar demands.
Conclusion

After reviewing all the alternatives and its issues and benefits, I found that moving

into supermarkets could have both positive and negative repercussions. Refraining

to expand into supermarkets could put Natureview at a competitive disadvantage,

considering there are rumours of Natureview’s competitors expanding into

supermarket channels.

Supermarkets are potentially a huge market for organic yogurt, considering 97%

of all yogurts were purchased through this channel and 46% of organic food

consumers shop at supermarkets. Two natural food companies have already

entered supermarkets and in doing so have increased their revenues by over 200%.

Executing a first mover strategy would be crucial if this plan were to be

implemented in order to gain brand equity from new consumers who are

transitioning into the organic food market. Furthermore, because price inhibits

58% of consumers from buying organic products, Natureview would have to execute

a competitive pricing strategy against non-organic yogurts. However, the expenses

associated with it (i.e. the trade promotions and SGAs) are quite expensive to take

in. The goal is to obtain an increase in revenues by at least $7M. Costs incurred

would be at least $2.7M annually just expanding into two regions. Therefore, if

Natureview would expand to all four regions, they would incur $5.2M in just

marketing and SGAs. It is quite an expensive approach, especially since there is the

fear that your current customers may disown your brand and look for others. You’ll

be charging less per unit and you lose the distinctive brand value that’s associated

with your brand, which is a premium yogurt manufacturer.

Alternatively, my recommendation would be to introduce the multi-packs for

children. Your current 8-oz. product is a cash cow; leave it that way. The method to
expand would be to enter a product development strategy and use the same

channels for distribution. You’ve built a strong relationship with natural food

retailers; continue it by product differentiating. Implement the multi-packs as an

option for consumers in the natural food retailers and continue to keep the premium

price brand positioning. The last thing you want to do is enter a price war; therefore,

keep the same channel distribution you are using but instead, introduce new

products through product differentiation.

 MGTC14 Week 2 Reflections

What I learned from the Invisalign case in our class discussion is that there are
many issues that a company needs to take into consideration such as their sales
and distribution strategy. Customizing your sales strategy to get the most out of
your clients by providing incentives contingent on their performance after the sale
is critical to a sales force’s longevity. The debate over whether to go with
incentivizing the traditional dentists to implement this system or keep it with
orthodontists was an interesting one. My view on this would be that orthodontists
and dentists work hand-in-hand together for when there are patients within that
target market that fit the criteria to receive the Invisalign. Incentivize the dentists
by providing them a referral fee and reduce the sales force staff. A great point
made in the discussion (I believe Shirley made this point) is that Invisalign should
focus on its orthodontist’s list of those who are in the middle between avid users
and others who don’t use it at all. This is where you can develop the orthodontist to
readily promote the use of Invisalign. It’s really a case of figuring out how to get the
best value out of the relationship between the dentists and orthodontists. Their
commitment to making this work will generate more sales for Invisalign.

My contribution to the class discussion was that I summarized the case. I also
wanted to mention that implementing the system to dentists would be a very poor
decision as it firstly alienates your current orthodontists who use the system
already. It does eliminate one stakeholder in the production chain (the
orthodontists), which is not a positive situation you have developed with your
orthodontists who have adopted this system.