Launching New Products and Services

Professor Michal Maimaran

Fall 2016

Individual Assignment # 4:
Nestle Refrigerated Foods Case
Analysis

Q1. Using the BASES model described in Exhibit 9, forecast the estimated demand (trial
and repeat) for the two pizza options under consideration: Pizza and Toppings and Pizza
Only. Most of the data needed for the forecasting are available on pages 14, 15, and 34
(Exhibit 21). Make sure to include forecasted revenue (in US$) in your analysis.
Answer.

Volume Estimation
Option A: Pizza Kit & Toppings Option B: Pizza Only
Contadina Users Non-Users Contadina Users Non-Users
Pizza Calculations
US Households 95,500,000
Trial Penetration (%) 24% 76% 24% 76%
Trial Unit
Households 22,920,000 72,580,000 22,920,000 72,580,000
Definitely Buy 30.0% 15.0% 22.0% 12.0%
Adjustment 80% 80% 24.0% 12.0% 17.6% 9.6%
Probably Buy 57.0% 59.0% 48.0% 42.0%
Adjustment 30% 30% 17.1% 17.7% 14.4% 12.6%
Weighted Trial 41.1% 29.7% 32.0% 22.2%
Adjustment for:
Awareness 60.0% 30.0% 60.0% 30.0%
Distribution (ACV) 58.0% 58.0% 58.0% 58.0%
Adjustment Trial
Rate 14.3% 5.2% 11.1% 3.9%
2,552, 2,
Trial Households 3,278,202 3,750,789 371 803,620
Trial Transaction
Size 1.2 1.2 1.1 1.1
2,807, 3,
Trial Units 3,933,842 4,500,947 608 083,982
Option Total 8,434,789 5,891,591
 Repeat Purchase Estimation
Option A: Pizza Kit & Toppings Option B: Pizza Only
Contadina Users Non-Users Contadina Users Non-Users
Repeat Rate 22% 22% 22% 22%
Repeat Households (% of 721, 825, 561, 616,
Trial HH) 204 174 522 796
Repeat Purchases 2.0 2.0 2.0 2.0
Repeat Occasions 1,442,409 1,650,347 1,123,043 1,233,593
Repeat Purchase Units 1.0 1.0 1.0 1.0
1,442, 1,650, 1,123, 1,233,
Repeat Units 409 347 043 593

Total Units [Trial + Repeat] 5,376,251 6,151,294 3,930,652 4,317,575

11,527,545 8,248,227

Toppings Calculation
Option A: Pizza Kit & Toppings
Topping Calculations Contadina Users Non-Users
Topping Trial Rate Calculation 63% 63%
50% Buy Topping Every Time
25% Buy Topping Half the Time
Trial Pizza Units 3,933,842 4,500,947
Trial Transactions with Toppings 2,458,651 2,813,092
Trial Transaction Size 1.5 1.5
Trial Toppings Units 3,687,977 4,219,638
Repeat Toppings Calculations
Repeat Units 1,442,409 1,650,347
Repeat Toppings Trial 63% 63%
Repeat Toppings Transaction Size 1.0 1.0
Repeat Toppings Units 908,718 1,039,719
Total Toppings 4,596,694 5,259,357
Grand Total 9,856,051
 Revenue Estimation for Nestle's Refrigerated Pizza Launch
Option A: Pizza Kit & Toppings Option B: Pizza Only
Contadina Users Non-Users Contadina Users Non-Users
Total Market (Units)
Pizza 5,376,251 6,151,294 3,930,652 4,317,575
Toppings 4,596,694 5,259,357
Total Market at ($)/unit
Pizza Price per unit ($) $6.39 $34,354,243 $39,306,771 $25,116,864 $27,589,305
Toppings Price p. u. ($) $1.29 $5,929,735 $6,784,570
Revenue ($) $40,283,978 $46,091,341 $25,116,864 $27,589,305
Total Retail Market ($) $86,375,320 $52,706,169
Total Factory Market ($) $57,570,248 $35,137,446
NRFC Business
Requirement ($) $45,000,000 $45,000,000
Net ($) $12,570,248 -$9,862,554

5% Penetration
Pizza & Toppings Pizza Only
Total Trial Units 6,445,734 4,439,896
Total Retail Market $65,991,428 $39,719,312
Total Factory Market $43,994,285 $26,479,541

15% Penetration
Pizza & Toppings Pizza Only
Total Trial Units 7,492,605 5,204,552
Total Retail Market $76,709,293 $46,554,500
Total Factory Market $51,139,529 $31,036,333

The answer is likely to be between 5% and 15% (specifically, 7%), therefore performing sensitivity
analysis for 20 and 25% penetration is not required.
Q2. Based on your analysis and information from the case, would you launch the pizza?
Why or why not? If you decide to launch, at what format (pizza and toppings or pizza
only)? Why?

I would launch the pizza because of the following reasons:

 It would help Nestle exploit the market niche and give it the first mover advantage on
the refrigerated product market.
 The strong parent and umbrella brand support from Nestle would allow a differentiation
through product capability as well as lower marketing and positioning costs
 These potential reasons are buttressed by the market research data that suggested that pizza
performed well pertaining to awareness and perceptions of the customers, mainly in favor of
the Contadina users and loyal customers.

I would launch Pizza Kit with Toppings as the estimates in the first answer above were factory sales of
$57.6 million for this option as against $35.1 million for “Pizza Only” concept. Given that BASES accuracy
is within +/- 20% and the estimated breakeven point is $45 million in factory sales, the results are not
favorable for the “Pizza Only” concept, which would have to be on the very high side of the error interval
to be profitable. On the other hand, the “Pizza Kit with Toppings” was estimated to be profitable even
with the worst error. Therefore, to make it successful, I would require at least 7% market penetration to
meet basic business requirement of $45 million factory dollar sales ($45,423,334).