Nicholas Gunnell

2/14/18
MKT462

Pricing and Channel - “Chicago’s Heartland Granola”

1) As much fun as granola cereal is, the actual harvesting and manufacturing of the
product sounds very interesting. Granola is a mix of various farm-grown products,
mostly oats and nuts mixed with honey. I’m sure the ingredients are brought in from
various farms who produce one or two of the main ingredients and are then combined
and packaged in a warehouse where the manufacturer bags and boxes the granola and
stores the boxes by the pallet-full to be sold. Wholesalers purchase these large
quantities of not only the granola but also tons of other brands, as well, for the
convenience of the retailer when they purchase the products, to have them all in one
space. The retailer than purchased the boxes of Heartland’s Granola (along with other
cereals if they wish) to stock their shelves and sell to the consumer.

2) In comparative pricing from Walmart (because, you know, cheap, right?) it looks like a
14oz box of Heartland’s Granola is $3.71 when compared to a 28oz box of Quakers
Granola cereal for $4.50 and Cascadian Granola 16oz for $3.28. These comparisons
would obviously place Heartland on the skim pricing of the spectrum. This is because
they are offering less of their product for a much higher price, relying on the quality of
their supply instead of the quantity.

3) Okay, let’s see if we can make this as simple as possible. Still sticking with the retailer to
be Walmart. The manufacture will collect the final product of the granola, place it
through the machinery to be boxed, possibly costing, on average, 35¢-37¢ per box and
then packaging them up in large quantities. After which, the wholesaler will purchase
these boxes at a price of $1.50-$1.75 per box who will then sell it to Walmart for a price
of around $2.00 per box. Walmart will then sell the finished Heartland’s product to the
consumers for a nice profit of $3.71 per box. Included is a table of the split of profit per
distribution.

Margin - 23.33%

Margin - .75%

Margin - 53.9%
4) So, if we were to eliminate our wholesaler who takes .50¢ of possible income our total
economic outlook would look something like this:

Considering that your manufacturer is the one that boxes your granola, a hefty job to
take on when selling the product, your overall removal of the wholesaler could increase
your profits by .50¢ (around a 13% increase of revenue) without having to place on too
much responsibility to collect the cereal from the manufacturer.

5) The main thing about the Heartland granola is the quality of their cereal. The
promotions therefore have to focus of what they cereal is about and where it comes
from. A TV promotional ad which features the various farms and farmers who grow the
ingredients for Heartland granola will debut across channels such as Travel Channel,
Lifetime, and HGTV. This promotional shoot and the consequent release of these spots
will be in the budget of around $3.2 million dollars. We sell each box of cereal for $3.71
(after initial purchase of $2.00 per box) and then with variable costs amounting to
around .65¢ per box, this leaves our total revenue at $1.06 (which is actually really
good! Go granola!). So, this is how our math will play out:
Break Even - (3.71 – 2.00) - .65 / 3,200,000 = 3,018,868
This means that for our marketing promotional budget of $3.2 million dollars, we will
need to sell 3,018,868 boxes of Heartland Granola Cereal to break even (in units).