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S market after its successful enter to refrigerated Pasta and Sauces market in 1987. Nestle was accustomed to taking risks. Prior to launch of Contadina pasta and sauces, Nestle did the following: acquired a small company at a premium ensuring first-mover status invested heavily in distribution to avoid spoilage rates U.S market was undeveloped in 1987 utilized brokers to sell the products as opposed to conventional salesforce Prior to the launch of Contadina Pizza, however, a thorough check of business viability was in order. 1. Characters NRFC: Nestle Refrigerated Food Company, 100% subsidiary of Nestle Mr. Cunliffe: President of NRFC, hired in 1987 Carnation Co: a food company purchased by Nestle in 1985, put under NRFC Contadina: Carnation¶s existing brand name for an Italian food product line Lambert¶s Pasta & Cheeses: NY based incumbent local fresh pasta company purchased by Nestle in 1987 MRD: market research dept in Nestle helping its subsidiary¶s new product development BASES: A market research company Nestle frequently uses in new product launch Kraft: Major competitor of Nestle 2. Time Line 1987: Nestle purchased Lambert¶s and started survey of refrigerated pasta national market. 1988: Entered refrigerated pasta market using ³Contadina´ brand name, $75M retail sales. 1989: Refrigerated pasta successfully recorded $ 150M retail sales. 1990: Nestle is contemplating introduction of refrigerated pizza product. 3. Basic Market Research Procedure in Nestle (6 ± sometimes 7 ± step process) Nestle¶s new product launch generally proceeds with following steps: 1. Idea Generation 2. Concept Screening/ Refine the idea by an initial market survey by MRD 3. Product Development including trial launch of prototype product 4. Determine the potential sales volume using BASES survey (Test market is conducted additionally when little capital investment is required) 5. Evaluate commercial activity 6. Track the performance, after-launch survey to measure product success 4. Refrigerated Food ± is either fresh or processed Unique feature of refrigerated food market are: Requires little planning and preparation Shorter shelf lives of 12-90 days High quality standard required U.S market was undeveloped in 1987 5. Entry to Refrigerated Pasta Market Determined to be a first-mover in the Pasta & sauce market, Nestle purchased Lambert in 1987 for a whopping $56M (sales at the time of purchase were $15M)
4 M (No of target customer)x 34. Gourmet Cook. Health Activist. Pasta Dinner. 34% margin for retailers as for price and product variety. In total.9M (excellent product). see exhibit 10 & 11) BASES utilized a technique it called PASS (positioning analysis and segmentation summary) Positioning of ³High quality´ as a ³light meal/side dish´ would best capture both light/heavy pasta consumers Brand positioning also did not differ amongst the 4 psychographic segments (Shopper. but seeing as the product was perishable. survey recommended market entry.. Uninvolved) Manufacturing & distribution Replaced the old manufacturing facilities with a single factory.Lambert owned high quality recipes and packaging technology (enabled 40-day product life. instead of using in-house sales force. against industry norm. Nestle felt that Contadina would get a ³larger share of sales time´ as dollar values were high on Contadina products Sold pasta and sauce separately to enhance quality and to reduce ³high price shock´. see table on page 10 LAUNCH Strategy: to capitalize on Lambert¶s assets (recipes & technology) and distribute the first . which already had strong image of authentic Italian products. and only available at specialty stores Branding: Utilized ³Contadina Fresh´.5% (trial rate)x48% (awareness rate)x70% (availability rate) x 1 (purchase unit per customer)= 9M (unit) Estimated repeat volume= 9M (No of trial customer) x (repeat rate) x (frequency) x (purchase unit per customer) = 8.5M (in case of mediocre product)-13. the distribution system needed to be highly efficient ± Goal was to meet a 10 day turnaround. Fresh pasta was considered to be of superior quality. Positioning: (based on BASES market survey. With profit threshold of 20M. usually it was 2-3 days). Superior. Market Potential: (based on BASES market survey. existing brand name of Carnation Co. at a premium price. to outpace competitors in product development. to pursue efficiency in production Established a centralized production = good idea. see exhibit 4-9) Three possible positioning: Homemade. Superior is favorable No one brand is dominant.9M unit. Sauce market survey showed similar result supporting product introduction. sales volume would be 17. High intent to purchase fresh pasta & sauce in customer.5M-22. and excellent packaging and positioning. Estimated trial volume=77. Cross loading distribution system with other products reduced distribution cost Sales activity Utilized outside brokers who had experience selling refrigerated food.
see exhibit 13-15) Size: 12´ according to the consumer preference.9% (trial rate)x 37% (awareness rate)x 58% (availability rate) x 1. Possible entry to Pizza market Contadina contemplated a Pizza product. Competitor¶s move Di Giorno.3% (trial rate)x 37% (awareness rate)x 58% (availability rate) x 1. Price: $6.2M (unit). Restaurant market has strong incumbent industry leader such as Pizza hut.8M. of which delivery counted for 75%.7M Estimated repeat volume= 6.1M (No of trial customer) x 22% (repeat rate) x 2. 6.5 M (No of target customer)x 31. (5.4*66%=$4.2) (b) Pizza & topping (Pizza part) Estimated trial volume=95.6M Estimated repeat volume= 5. Concept test 2: (to determine whether to add ³topping option´ based on BASES survey. Kraft was expected to enter the market within 6 months Concept test 1: (to determine the basic product concept based on MRD survey. will NRFC be risking their first-mover advantage status to Kraft? (Rumors are flying that Kraft is testing a refrigerated pizza product) Features of pizza market are: $18. Pasta accounted for 80% of sales volume. (factory dollar sales/unit = $6. cheese.0 (frequency) x 1. Promoted the product with bigger promotion activity than Nestle did. 1988: successfully established as market leader with $75M in retail sales ($150M by 1990). (Topping part) . Kraft¶s brand. entered the market in 1989 with 90-day shelf life.5 M (No of target customer)x 24.30 Product concept: Pizza kit (separate crust.0 (purchase unit per customer) = 2. pre-assembled product has disadvantage in production.1 (purchase unit per customer)= 5.40. 88% of pizza sold by restaurants (include delivery).nationally branded refrigerated pasta and sauce product. This is less than threshold of $45M. see exhibit 16-24) (a) Pizza only Estimated trial volume=95.4M (No of trial customer) x 22% (repeat rate) x 2. NRFC chose Pizza kit concept.8M (unit). Nestle¶s sales increased as Kraft¶s heavy promotion enlarged primary demand for refrigerated pasta. Thanks to the first mover advantage. In dollar amount. however. fresh pizza for 5%. and sauce) or Preassembled pizza. frozen pizza for 16%. Both concepts showed good purchase intention of customer.2=$32. additional toppings: $1. should they launch pizza ³kit´ or a ³heat-and-eat´ pizza? If no pizza launch. 76% was consumed at home.2 (purchase unit per customer)= 7.6M+2.2M) x $4. Thus.0 (frequency) x 1.4B market.0 (purchase unit per customer) = 2. The questions they were faced with were: If pizza.
2M.5 = 5.2 + (5.2M) x $0.5) x 1.5) x 1.86 = $50.8M (estimated repeat volume) x 69% (ratio of favorable) x (50% + 25% x 0.7M (estimated trial volume) x 76% (ratio of favorable) x (50% + 25% x 0.9M +1.2M In dollar amount.9M Estimated repeat volume= 2. This is larger than threshold. Thus. Pizza & topping is better based on this survey.7M+2. (7. .8M) x $4.Estimated trial volume= 7.0 = 1.