OrganicKidz: Marketing Strategy
LETTER OF TRANSMITTAL
Date: September 20, 2009
Subject: Regarding Costco’s offer to supply stainless steel baby bottles Dear Ms Jane Walter,
With reference to the above mentioned subject, please find my report enclosed. The report contains an analysis of the situation, problem statement, a list of the options available, the criteria for evaluating these options and a final recommendation with the proposed plan of action. I recommend you to delay the Costco offer for now and prepare a new design for them. Yours sincerely,
Change in consumer preference away from polycarbonate baby bottles has opened an opportunity to create a market for stainless steel bottles. Having already seized the first mover advantage, OrganicKidz faces a dilemma to accept the proposal to sell bottles through Costco or not. The options available are: to accept or reject the offer or to create a new design to be sold only to Costco. They are weighed against the possibility of backlash from existing customers, realization of higher sales growth and lesser future risk in terms of distribution. The option to create a new design scores high on all three criterions and hence has been recommended.
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CRITERIA FOR EVALUATION7
EVALUATION OF OPTIONS7
Popularity of a new product line always attracts many bidders and OrganicKidz has been approached by one such. Early success of stainless steel baby bottles as BPA-free and shatter proof alternative to polycarbonate (PCB) ones, which commanded a whopping 95% market share till early 2008, has prompted Costco to approach OrganicKidz to let it sell their product. Even though the baby bottle market was mature, it was looking for a safe alternative to PCB which can be construed from the huge response the stainless steel bottle received at the “ABC Kids Expo” even without any sample to display. Visit from retail majors and specialty stores distributors from half a dozen countries further establishes its future growth prospect. Bestowed with several industry awards, the product has established its quality too. There has been substantial effort to maintain the premium image of the narrow-necked baby bottle by making it available at only specialty stores. To cater to the demand from mass merchandisers an altogether new line of baby bottles – wide-mouthed versions was designed with price range $15 to $18 as against $19.99 to $24.99 for narrow-necked one. It was a great strategy to minimize the conflict of interest as they cater to two very different market segments. The narrow-necked design has met with immediate success in the very first year of its launch with sales of about 6000 bottle for $65000. Distribution also expanded to 12 countries from the initial of 5. The market share in a $500 million industry might still be low but the growth looks positive with the sales expected to hit $100,000 mark by the year end. With the prospect of greater sales in the future looking bright, Costco has approached the firm with a proposal to let it sell the bottles through its warehouse stores. Costco earns profits on the investing cash due to timing difference of cash receivables and payables whereas current distributors earn profits by charging margins on end consumers. This approach enables Costco to keep the sales prices low which in the current case can be as low as $10 for low end bottle whose sales price for OrganicKidz on an average is $9.45. Such low price might force mass merchandisers and specialty stores to lower their price and operate on lower margin which might not be a feasible business option for them. Contingent on the success of first...