Summer+2009+Section+09-PJ+Week+6

Last Week's recap Product Innovation and Pricing


 * Place**

We had a discussion on Place which led to the discussion on Hotelling's Law. The topic of Destination Shopping was highlighted in class - we discussed how it is beneficial to have similar businesses operating side by side, this allows for increased traffic. A person will not travel as far for one particular store but if there are several "destinations," people will be more willing to travel the distance. This is also exemplified in the location of several competing companies - Home Depot and Lowe's, Best Buy and Circuit City, Wal-Mart and Target. When similar products are offered in proximity, many shoppers will exchange one product for another without thinking. Being in close proximity is beneficial for the consumer because they can get what they need from any number of places without having to go too far.

Interesting Reads on Walmart pricing/placement strategies: Walmart Pricing

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Hotelling's Law

The class discussed Hotelling's Law, which is an observation of how competing businesses make their products as close to being similar to that of their competition. Hotelling's Law is also known as the principle of minimum differentiation. the opposite of this is product differentiation. We also talked about how far will a customer travel in order to patronize a particular business.

Strategy as Ecology - Business Ecosystems - Self-contained environments (core contributors> direct suppliers and distribution channels)>(Extended Enterprises> suppliers and suppliers of my suppliers, direct customers and customers of my customers)>(Business Ecosystems>stakeholders, government agencies and regulatory,competing organizations have shared products or services)

Sustainability: The Adaptive Cycle -Potential - Connectedness - Resilience

Hariyali Kisaan Bazaar -Cycle of Ignorance and Poverty -Optimizing economies

Micro-Financing - seeking profits and helping people in need are not mutually exclusive endeavors. The opportunities in emerging markets are tremendous. We watched a [|video] on the TED website from a presentation by Jacqueline Novogratz on "patient capitalism". Ms. Novogratz talks about her experiences bringing business/marketing models to poor regions of the world to help lift people up. She outlines a very strong comparison between the effects of products on improving lives and status, whether it be in developed markets, or developing markets.

It is seems very clear and logical that only profitable business that serve peoples needs can eliminate poverty in the world. Charity alone does not create growth. Perhaps the concept wasn’t very wide spread among charities in the past as the TED video illustrated in the example of clothes donated and delivered for free in Africa that in turn destroys the local textile industry which can not compete with free clothes. Unfortunately the problem of eliminating poverty isn’t as simple as just creating small and profitable businesses that produce value for their customers. These businesses will never survive or be created in the first place if there isn’t some basic rule of law and access to a fair judicial system. What destroyed the successful bakery in Africa? Bands of marauding thugs armed with machetes. What will probably keep that innovative kid from creating a wind powered small business built on locally obtainable materials? Probably the same corrupt government, police and criminal gangs that plague the entire third world.



Top Gun decided to implement strategy #3 and then evolve it into strategy #1 while not excluding the previous strategy. This presented a solid base and allowed for continued growth in multiple markets which would achieve the goals set by Natureview. We decided that we wanted to grow the size of our product offering as well as start to offer the multipack to allow for a larger product line.

We thought that there was substantial risk involved in entering into the supermarket channel before the company was ready. With the success that Natureview had in the natural foods channel, entering into a larger, more complex channel without proper preparation could jeopardize that. This is not to say that the supermarket channel should not be pursued. It simply means that driving this company into a new channel under the strain of a tight rveneue timeline seems reckless and unwise. Instead, focussing on growing profits, adding more products and preparing the company in various ways to meet the demands of a new channel seemed preferable. We also felt it did not make sense to drive up revenues in order to pay VC's back, just to find that after repayment the company no longer appears appealing to another investor. Increasing profits and setting some of this income aside to repay VC's (through an extension, if possible) seemed a better long term plan for Natureview.

Team AsATeamWeThoughtThat decided to implement a combination of options 1 and 3 (option 3.51). We felt that option 3 should have been pursued long ago based on the appeal that all natural organic products have for parents with children and should be added to the existing product line. We did not, however, feel the company has the capacity to pursue option 1 overly aggressively and that such an action would prove too risky. Instead, we felt that Natureview should focus on marketing the 8 oz sku in the "high-end" supermarket segment in the west and northeast where the demand is higher for yogurt products and organic foods. We felt that high-end grocers would value the longer shelf life of Natureview's yogurts due to lower turnover rates, and that this limited focus would be less likely to alienate the natural foods markets in which Natureview's yogurts are the dominant brand. The case study pointed out that many grocery stores were looking to add an organic section. Moving now to put the 8 oz in these grocery stores would position them as //the// organic brand. They would be the __only__ option available to those looking to shop organic and in these higher-end stores, there would be many people in this category (not a very risky way to enter a new market, ho ho!). Examples of grocers in the "high-end" supermarket segment include Haggen (and another which is hard to make out from the picture above) in the west and Wegman's and Magruder's in the Northeast.

To clarify what was presented in class.... Team Frowny Turkey recommends going with Plan 3: expanding the current product line to include kid-sized multi-packs and tube-packed yogurt in the existing customer markets. This utilizes an existing distribution network and customer base. Team Turkey also recommended hiring a special sales team to go out and establish partnerships with those mainstream grocers who may want to establish an in-house (generic) line of organic yogurts. Partnerships like this would certainly increase Natureview's revenues, but it would allow Natureview to enter the mainstream grocery market without having to invest in slotting or regional marketing. These parterships would also allow Naturview to expand without (the risk of) alienating their existing distributors, retailers, or customers who may not appreicate seeing Natureview products in mainstream distribution channels and at a lower price point. Natureview's strategy of pursuing a generic foothold in supermarkets could be successful given its nimbleness - other companies are entrenched in producing their competing product lines at high volume, so producing a large size generic would require only a small ramp compared to putting out numerous products against other niche players.

Additionally, partnering with large grocers would be a smart fiscal decision given the upfront costs associated with introducing a new brand and SKU into the grocery outlets. By selling product to be "private" labeled, Natureview avoids upfront SKU/stocking fees, as well as any additional cost if the product does not sell as well as it is supposed to. Through this strategy, Natureview would be able to capitalize are the largest segment of sales volume, which is most important in boosting short term revenue figures over the next year. The fact that Natural Food Stores yogurt sales growing at a faster rate that regular grocery stores is irrelevant because the immediate need is to increase sales over the next year. Grocery stores hold over 90% of the current sales volume of yogurt.



Team Known Unknowns chose Option 1, to take the bull by the horns and tackle the supermarket arena. By offering the different options of organic, long lasting and healthy yogurts the team thought that this would be enough of a benefit to set it apart from the competition. There would be a considerate amount of risk involved in this venture, because of the set up costs but there had definitely been some proven success by similar companies such as Horizon Organic/Soy milks. The team emphasized the pro's outweight the cons regarding the risk involved in order to make the needed profit the executives were requiring. The team believed the only way to reach the financial goal of 20 million the company need to take the most aggressive approach. While the other option seemed good KU didn't feel they would be adequate to reach their goal.