Clarification of Issues
After meeting with representatives from Marketing Ventures Unlimited there were several unanswered questions.
Market Segmentation
As a frozen pet food and one of the first organic dog foods it will be considered a premium product. This represents a focused target market but it is questionable whether the market is large enough to be profitable.
Positioning / Target Market Strategy
Show Circuit will be marketed as a high-quality food as it has been exclusively sold to owners of show dogs. The target market is to single and married couples between the ages of 21 and 50 years of age with an income greater than $25,000. It would make more sense to target specific markets that identify with the core competencies that Show Circuit exhibits -
Distribution Strategy (Food Brokers)
Currently, TPF is selling to kennels through selected pet stores. Their sales channel has been established without advertising and is based on a generally professional market of breeders. Securing distribution in supermarkets represents the greatest challenge for TPF as it is difficult to convince supermarkets to give up a proven product's space, for an unproven, untested product. However, there have already been inroads with a frozen dog treat called Frosty Paws, which has already gained freezer space next to ice cream in Boston area supermarkets.
Offering higher profit margins than 22% to the frozen food buyers may facilitate the freeing up of grocery shelf space.
Price Strategy
Based on the request of a 15% return on sales, a 7% mark up to the food brokers and a 22% retail markup the following prices would be set at manufacturer’s price of $7.32, Food Brokers Price at $7.83 and the Retail Price of $9.55. If it turns out that an increased margin for retailers is needed, e.g. 25%, then perhaps pricing at $9.79. This pricing would have TPF considerably cheaper than Mighty Dog, Butcher’s Burger, Purina ONE and both the treats. It puts TPF more middle of the road with pricing.
Financial Feasibility
In order for TPF to break even attaining a 15% return on sales in the introductory year, they would have to garner over 50% of the market with the $600,000 budget and $30,000 slotting fee. If TPF chose the $400,000 budget, with the $30,000 slotting fee, they would have to get 35% of the market. Although, the $400,000 option seems more realistic, I believe it would be out of reach within the first year. I do not believe that they would achieve such a high objective, therefore they should do more market analysis before investing this money.
Exhibit A – The Numbers
Setting Price
Current Boston Area Supermarket Price Comparison
Sales by Category Analysis
Broken down by category…
Broken down by Dog Food Manufacturers in Boston Supermarkets…
Expenditure Levels Based on Two Programs
Total spending for advertising in the dog food industry is about 2% of sales. Since Ralston Purina is spending $470 million per year, exclusive of major product launches, we can estimate their sales to be approximately $23.5 billion.
Break Even Analysis Based on Two Expenditure Levels
Break Even at $400,000
Unit Variable Costs = $6.37 per case or $0.53 per tub
Total Dollar Fixed Costs to Produce & Market = $400,000
Selling Price = $0.79 / unit
Cont Margin = Unit selling price – unit variable costs / unit selling price
= 0.79 – 0.53 / 0.79
= 0.33 or 33%
Break Even $ = $430,000 / 0.33
= $1,303,030.30
Break Even at $600,000
Unit Variable Costs = $6.37 per case or $0.53 per tub
Total Dollar Fixed Costs to Produce & Market = $630,000
Selling Price = $0.79 / unit
Contribution Margin = 0.33
Break Even $ = $630,000 / 0.33
= $1,909,090.90
Was the market itself adequately defined and segmented? What position would Show Circuit seek in the market? Should the program be targeted toward all dog food buyers or toward specific segments? Could the food brokers get distribution in supermarkets given the sales program? What should be TPF's recommended selling list price to the consumer for Show Circuit? Could TPF at least break even in the introductory year and achieve a 15 percent return on sales in subsequent years?
Total sales of dog food market will be about $6.08 billion at manufacturer’s prices. $6.08 (0.59) = $3.59 million.
