Nature view Farm is a small yogurt manufacturer with annual revenue of $13 million. It produces three different size cups – 8 oz. cup, 32 oz. and 4 oz. cup multipack and operates through the natural foods channel. Nature view has established its brand as a premium yogurt brand in the natural foods market and is now considering expanding its operations into the supermarket channel to reach its revenue target. The company is faced with the strategic marketing decision to increase its revenues from $13 million to $20 million, almost a 54% increase, in two years before the end of the 2001. Nature view is considering following options to expand its operations to reach its revenue target of $20 million:
Option 1: Nature view expands into the supermarket channel with 6 SKUs of the8oz product size. In the supermarket channel, Dannon and Yoplait are the leading brands and control over 50 % of the market. Nature view has chosen 8oz yogurt for this option as it is the most popular yogurt cup size and offers the best potential in terms of profit. This option is expected to generate sales volume of 35 million units.
Compared to the nature store channel, this channel is much more technologically driven and most retailers require scanning devices and automated inventory tracking systems to organize the channel product flow. This technology run operation is quite costly and requires huge investment by the manufactures who want to enter this channel. The new entrants need to pay a $10,000 slotting fee for each stock keeping unit (SKU) per retailer chain, to contribute funds every 3 months for weekly trade promotions that average $8,000 nationally per ad, per retailer chain. This fee is in addition to other advertising expenditures that the manufacture plans to incur.
Secondly, if the manufacturer product continuously does not make a profit for the retailers, it can be pulled from the channel. The Manufacture would then have to repay the slotting fee when applying for...
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