The company has been making use of the natural foods channel since the beginning of its operations and has gained a lot of expertise in this area. What is even more important is the level of relationships that have developed between the company and the distributors in the natural foods chain.
Good relationships are critical to maintaining efficient distribution as the channel members are motivated to promote the products of the manufacturers that they have good relations with. This indicates how damaging the effect would be if Naturview were to take their products to the supermarket chain. In fact it is hard to assess what positive benefits there could be if Natureview were to expand into the supermarket chain.
As mentioned in the case, the yoghurt market is highly concentrated and the top two competitors are controlling the game. Natureview, being relatively smaller in size, is clearly not competing with the likes of Dannon who are selling their products through the supermarket chain. Yet that is exactly the kind of situation that would arise if Natureview were to enter into the supermarket chain. The first option is promoting the 8oz packsize as the vehicle on which to launch Natureview into the supermarket chain. That would be suicidal inasmuch as that packsize is the dominant packsize in the industry.
A smaller company like Natureview attracting attention by tinkering with something as noticeable as the 8oz packsize does not make sense. The result of this course of action would be that that the giants would wake up to the fact that they have a new competitor in their midst and those giants would also find out soon enough through the usual channels that this relatively smaller sized competitor does not nearly have the level of resources that they have with which to wage a long-term price war. Given the objective to raise revenues by nearly 5%, a price war or a cut-throat competitive scenario is the last thing that the company needs.
For these reasons, it is best not to venture into the supermarket chain at the moment. What will be more conducive to generating the level of incremental revenues that the management is demanding is to go for option 3 which suggests continuing with the traditional business model which is the natural foods chain.
As stated in the case, consumers who are shopping at the natural foods chain outlets have a high level of education and they put quality in front of price. And quality is one of the hallmarks of the Natureview products as the recipe based on which the yoghurt is manufactured is very unique not only in terms of flavor but also in terms of the longer shelf-life. In fact this allows Natureview to play around with its pricing strategies doing which might enable the company to achieve the new revenue target.
If the company were to distribute its products through the supermarket chain then pricing strategies would be severely limited as consumers who go to the supermarket chain stores do not constitute the upscale segment of the market. In fact they do not nearly pay as much attention to the ingredients of the foods they are buying that the natural foods chain consumers do. The quality of ingredients in the Natureview yoghurt is one of its major strengths. Yet, because the supermarket consumers are not as highly educated as those in natural foods chain outlets, that major strength would go completely unnoticed.
If the only task to be performed in expanding to the supermarket chain were simply transporting the goods to the required location, then there would be some justification in making the expansion. However, the supermarket official that Christine and Riley had talked to had told them to come up with a clever market plan. Clever marketing plans in the supermarket industry are nothing to be taken lightly.
They represent huge investments meaning a greatly higher level of costs which is not the company objective. In fact, at a time when incrementing revenues by 5% is the aim, higher costs are to be avoided like the proverbial plague. Natureview is courting a costing disaster in more ways than one when it is considering expansion to the supermarket chain. Natureview is a small company. It survives by keeping its distribution channels lean and by routinizing the transactions involved in distribution.
Because the company has been dealing with the natural foods chain for so long, its distribution transactions in this structure have become routinized through repeated use. This has reduced distribution costs to a substantial extent. The core element of this routinization process is the great relations between the manufacturer and the distributors. Over the years Natureview and the natural foods chain operators have come to develop an understanding in how the other operates and this has had a smoothing effect on the distribution process.
This is valuable equity that the company would be throwing away by joining the costly supermarket game. The contacts that Natureview has been building all this time in the natural foods chain would be none too pleased when they come to know that they are being abandoned in favor of the supermarket option. This would have a negative effect on employee morale as well.
As mentioned before, Natureview is a small company and cannot afford to compete with the big boys in the industry which is exactly what they would be doing in expanding to the supermarket chain. However, intense competitive rivalry at a time when the company needs to boost revenues by a big margin is not the only problem that arises from the supermarket chain.
There is also the unfamiliar marketing territory the tricks of the trade in which the management cannot be expected to pick up overnight. It would take them some time to work out the rules of the game by which time it might be the end of the year 2001. Even when the management has the techniques in the palm of its hand, the next essential step would be to retrain the sales personnel or even recruit new personnel.
These are costs that a small company like Natureview is well advised not to venture into. These are costs that would be avoided if the company were to stick to the five-level distribution structure characteristic of the natural foods chain. In this aspect as well, the natural foods chain has a competitive edge over the supermarket chain from Natureview’s point of view.
Because the natural foods chain has a larger number of levels in its distribution structure (five) as opposed to the supermarket chain which has four levels, Natureview can afford to maintain fewer contact lines than would be the case in the supermarket chain industry. In the case of the supermarket chain distributors, Natureview would have to distribute to a wide number of distributors whereas in the case of the natural foods chain, it has to distribute only to the few natural foods wholesalers. This reduces costs.
The biggest pro in favor of the natural foods chain is that the consumers there are not price sensitive. So this should be the distribution channel of choice for Natureview in the way forward. In reaching the 20 million revenue target, the company could raise the price of its products, particularly that of 8oz packsize, while at the same time promote the distinctive nature of the ingredients of its yoghurt. This strategy of pricing would not work in the supermarket chain.
Of course the fact that the supermarket chain is exhibiting positive growth is a tantalizing trend. But it is hardly to be expected that a new kid on the block like Natureview would be able to take advantage of that when there are so many large competitors already ensconced there. The supermarket chain is hardly a level playing field for a small company like Natureview.
Given the pros and cons so far considered, the third option is clearly the best option. However there is an element in option 2 which could be combined with the multi-pack introducing option 3 to create another fourth option which is that the management could consider strategies to enhance penetration of the 32oz packsize more. Of course that was the strategy suggested in option 2 but the means of implementing the strategy there was to go national through the supermarket chain.
This course of action would attract the notice of the giants. Instead what should be done is to stay with the natural foods chain and ask the existing intermediaries which whom the management has a very good relationship to promote the 32 oz packsize more.
This packsize is more profitable than the 8oz one and thus enhanced sales of this packsize would improve the company’s bottom line to a significant percentage. It is possible the intermediaries would not have to be provided any of the usual financial incentives in view of the good relationship that has developed over the years between Natureview and the natural foods chain operators. However if any such were required, gains would be substantial if the company could seduce the consumers away from the 8oz packsize to the bigger packsize.
There could be sales incentives in the form of free multipacks for children. Inasmuch as greater market share by the 32oz packsize would enhance company profitability to a substantial extent, this is a fourth option that the management should consider.
Kotler, Philip., and Gary Armstrong. Principles of Marketing. Prentice Hall. 2005.
Peter, J. Paul., and James H Donnelly. Marketing Mangement. McGraw Hill/Irwin. 2004.