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First in Food Inc. Case Study

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Autor:   •  July 9, 2018  •  Case Study  •  642 Words (3 Pages)  •  36 Views

Page 1 of 3

BACKGROUND AND PROBLEM DEFINITION

First in Show Pet Foods, Inc. a major dog food producer is contemplating to penetrate Boston, Massachusetts with their newly developed product called Show Circuit, made of 85% fresh meat and 15% fortified cereal. Now, they must select an advertising model and marketing approach to penetrate the new market in consultation with the advertising consulting firm Marketing Momentum Unlimited.

MARKET ANALYSIS

The market seems very optimistic. Dog food sales is almost $10 billion at manufacturer’s price. Previous research points to three major categories of dog food like Dry, Canned and Treats, however no mention of frozen foods which indicates a huge untapped potential for frozen food. Trends regarding human behavior like growing number of pet owners, people spending more than $20 billion on their pets and demand for premium natural dog foods augur well for the company. However, this comes with added risk and liability. The market already has 50 food manufacturers with 250 brand. Further, only 5 companies dominate the market with 75% share. The established companies are very aggressive with their promotions. Some of them use 2% of their net sales for advertisement. Other aspects include food broker and supermarket margins being 7% and minimum 22% respectively. Also, Supermarket accounts for almost 36% of the sale volume.

STRATEGY ALTERNATIVES

Dog owners, though price sensitive are careful regarding their Dog’s health. So, if we rely on the data given with Exhibit 2 of case study and trust food brokers, we can safely assume 5$ for 15 Oz. Besides all competing products have certain disadvantages which should be leveraged on while pricing the product as a premiere product.

  1. When Ad budget is $7,00,000

Pros- Competing with established companies on equal foothold in terms of promotion.

          High Sale volume.

Cons- High units of Breakeven.

          Low on Profits.

As per Exhibits 2, this will cause an immediate expenditure of huge amount. Besides it sets the expectation for sales to be 1,177,988.44 with a huge breakeven unit of 19633. But, chances of better sales volume is always there which brings a larger margin and best possible scenario to get 15% return on sales.

  1. When AD budget is $5,00,000

Pros- Less risky.

         Significant market share.

         Low breakeven and high profit.

Cons- risky when competitors going aggressive with promotions.

As per Exhibits 3, the market share here seems to be low but quite significant enough to reach breakeven and retain profits. This may not be a final plan but this alternative is decent to penetrate a dense market with lower risk where you have decent profits.

         

CONCLUSION & RECOMMENDATION

From exhibits 2 & 3, we arrive that a mere spending of $200000 extra on advertisement will not guarantee market share. Rather it increases risks in a dense market and lowers the profitability of the company. I will suggest First in Show Pet Foods, Inc. should go with an Advertisement budget of $5, 00,000 only. This seems to be less risky but still they will be able to gain a significant market share which is very important for product identification. Besides the breakeven is also achievable with decent profits.

Exhibits 1:

Market Share

Sale of Dog food

$10,000,000,000

Boston Dog population

1.20%

Supermarket share

36%

Market Share

$43,200,000

Exhibits 2:

Total AD budget

$700,000

Cost to Consumer- 15 Oz

$5

Cost to customer ( 1 Cases- 12 tubes)

$60

Retailer Margin (22% Margin)

$13

Cost to Retailer

$47

Broker Margin (7% Margin)

$3

Cost to Broker

$44

Variable Cost of Manufacturing

$7.87

cost of manufacturing

$36

Break- Even Quantity

19633

Break- Even Cost

$854,513

Net Sales

$1,177,988.44

Profit

$323,475.63

Market Share

2.73%

Exhibit 3:

Total AD budget

$500,000

Cost to Consumer- 15 Oz

$5

Cost to customer ( 1 Cases- 12 tubes)

$60

Retailer Margin (22% Margin)

$13

Cost to Retailer

$47

Broker Margin (7% Margin)

$3

Cost to Broker

$44

Variable Cost of Manufacturing

$7.87

cost of manufacturing

$36

Break- Even Quantity

14024

Break- Even Cost

$610,366.30

Net Sales

$841,420.32

Profit

$231,054.02

Market Share

1.95%

...

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