A Harvard Business School Case Study Analysis.

1. Natureview Farm – A Case Study

2. Background:
What is Natureview Farm?
 Founded in 1989, Natureview Farm Inc. was a small yoghurt manufacturer.
 It manufactured and marketed refrigerated cup yogurt under the Natureview Farm brand name.
 The yoghurt was manufactured at the Natureview Farm production facility in Cabot, Vermont.
Authorities to Consider:
Vice President, Marketing - Christine Walker (Protagonist)
Chief Executive Officer (CEO) - Barry Landers
Chief Financial Officer (CFO) - Jim Wagner
Vice President, Sales - Walter Bellini
Vice President, Operations - Jack Gottlieb
Assistant Marketing Director - Kelly Riley

3. Status of Natureview Farm’s Market:
Products (By 2000) - 12 flavours of refrigerated yogurt - 8-oz. cups (86% revenue)
- 4 flavours of refrigerated yogurt - 32-oz. cups (14% revenue)
Revenue (1999) - $13 million
Net Income - $260,000 (2% of revenue)
Market Share in natural foods channel - 24%
Key Strengths and Differentiating Factors:
* Emphasis on ingredients and a strong reputation for producing yogurts of high quality and great taste.
* The yogurt recipe used natural ingredients and a special process that gave the yogurt its unique smooth, creamy texture
without the artificial thickeners.
* The company used milk from cows untreated with rGBH, an artificial growth hormone that increases milk production.
* The yogurt’s average shelf life was 50 days, which was 20 days more than most of its large competitors’ products.
* Applies low cost “guerrilla marketing” tactics.
* Developed strong relationships with leading natural food retailers.

4. Challenge – Adopting a marketing strategy to grow revenues by over 50% and reach $20 million, before the end of 2001.
Current Trends:
 Natureview Farm has started exploring multipack yogurt products (children’s 4-oz. cups and yogurt packed in tubes).
 The organic food market, worth $6.5 billion in 1999, was predicted to grow to $13.3 billion in 2003.
 In 1999, the total U.S. retail sales of refrigerated yogurt reached $1.8 billion and sales volume was just over 2. billion units.
 Yogurt sales through supermarkets had grown an average of 3% per year, while sales through natural food stores had grown 20% per
year.
 46% of organic food consumers bought organic products at supermarket, 25% at a small health foods store, and 29% at a natural
foods supermarket.
 Yogurt was consumed by approx. 40% of the U.S. population, with women comprising the majority (over 70%) of the yogurt
purchases.
 Regarding consumer product preferences, 6 and 8- oz. yogurt cups were the most popular product sizes, representing 74% of total
category supermarket sales in U.S. dollars.
 The next largest segment- multipacks- represented 9% of category sales and was growing by more than 12.5% per year.
 The 32-oz. size products represented 8% of the sales and was growing at a modest 2%.

5. Costs:
For Supermarket Channel:
Broker fee – 4% of manufacturer’s sales
Distributor mark-up margin – 15%
Retailer mark-up margin – 27%
Slotting fee - $ 10,000 per SKU per retail chain
Advertisement costs – Northeast, Midwest and Southeast U.S. - $7,500
Western U.S. - $15,000
Price:
Manufacturer
Distributor
Retailer
Customer
Supermarket Channel Average Retail Price
8-oz. cup $ 0.74
32-oz. cup $ 2.70
4-oz. cup multipack $ 2.85

6. For Natural Foods Channel: Manufacturer
Natural Foods Wholesaler
Natural Foods Distributor
Retailer
Customer
Wholesaler mark-up margin – 7%
Distributor mark-up margin – 9%
Retailer mark-up margin – 35%
No slotting fees
Natural Foods Channel Average Retail price
8-oz. cup $ 0.88
32-oz. cup $ 3.19
4-oz. cup multipack $ 3.35

7. Option 1:
Expand six SKUs of the 8-oz. product line into one or two selected supermarket regions.
Analysis:
Retailer’s Selling Price = $ 0.74
Retailer’s mark-up margin = 27%
Retailer’s cost price = Distributor’s selling price = $ 0.74 x (1-0.27) = $ 0.54
Distributor’s mark-up margin = 15%
Distributor’s cost price = $ 0.54 x (1-0.15) = $ 0.46
Yogurt manufacturing cost = $ 0.31
Manufacturer’s mark-up margin = ($ 0.46- $ 0.31)/$ 0.46 x 100 = 33%
 Sales = 35,000,000 units
 Revenue = 35,000,000 x $ 0.46 = $ 16,100,000
 Manufacturing cost = 35,000,000 x $ 0.31 = $ 10,850,000
 Number of regions = 2 (north-eastern and western regions)
 Advertising cost = $1.2 million per region per year
 Total advertising cost = $ 1,200,000 x 2 = $ 2,400,000
 SG & A costs = $ 320,000
 Broker’s fee = $ 16,100,000 x 4% = $644,000
 Slotting fee = $ 10,000 per SKU per retail chain
 Number of supermarket retails = 20 (11 in North-east and 9 in the West)
 Total slotting fee = $ 10,000 x 6 x 20 = $ 1,200,000
2000 2001
 Sales = 35,000,000 x 1.2 = 42,000,000 units
 Revenue = 42,000,000 x $ 0.46 = $ 19,320,000
 Manufacturing cost = 42,000,000 x $ 0.31 = $ 13,020,000
 Number of regions = 2 (north-eastern and western regions)
 Advertising cost = $1.2 million per region per year
 Total advertising cost = $ 1,200,000 x 2 = $ 2,400,000
 SG & A costs = $ 640,000
 Broker’s fee = $ 19,320,000 x 4% = $772,800

8. 2000: 2001:
Total expenses = $ 15,414,000 Total expenses = $ 16,832,800
Net profit = $ 686,000 Net profit = $ 2,487,200
PROS:
 Significant potential for revenue growth as 8-oz. cup has the largest unit share among refrigerated yogurts.
 Unique position of market to capitalize on the growing trend in natural and organic foods in supermarkets.
 Due to heavy competition, the first organic foods brand to enter the supermarket could have a significant advantage.
 Offering more organic products at supermarkets could attract higher-income, less price sensitive customers, there by the
company has the leverage to increase profits.
CONS:
 Entering into supermarket segment could adversely affect the strong relationships with natural foods retailers.
 Natureview may not have the necessary skill set or resources to expand effectively into supermarkets.
 Expenditure on marketing and promotions would be high.

9. Option 2:
Expand four SKUs of the 32-oz. size product line nationally.
Analysis:
Retailer’s Selling Price = $ 2.70
Retailer’s mark-up margin = 27%
Retailer’s cost price = Distributor’s selling price = $ 2.70 x (1-0.27) = $ 1.97
Distributor’s mark-up margin = 15%
Distributor’s cost price = $ 1.97 x (1-0.15) = $ 1.67
Yogurt manufacturing cost = $ 0.99
Manufacturer’s mark-up margin = ($ 1.67- $ 0.99)/$ 1.67 x 100 = 41%
2000 2001
 Sales = 5,500,000 units
 Revenue = 5,500,000 x $ 1.67 = $ 9,185,000
 Manufacturing cost = 5,500,000 x $ 0.99 = $ 5,445,000
 Number of regions = 4(nationally)
 Advertising cost = $ 120,000 per region per year
 Total advertising cost = $ 120,000 x 4 = $ 480,000
 SG & A costs = $ 320,000
 Broker’s fee = $ 16,100,000 x 4% = $ 367,400
 Sales = 5,500,000 units
 Revenue = 5,500,000 x $ 1.67 = $ 9,185,000
 Manufacturing cost = 5,500,000 x $ 0.99 = $ 5,445,000
 Number of regions = 4 (nationally)
 Marketing expenses = $120,000 per region per year
 Total marketing expenses = $ 120,000 x 4 = $ 480,000
 SG & A costs = $ 160,000
 Broker’s fee = $ 9,185,000 x 4% = $ 367,400
 Slotting fee = $ 10,000 per SKU per retail chain
 Number of supermarket retails = 64
 Total slotting fee = $ 10,000 x 4 x 64 = $ 2,560,000

10. 2000: 2001:
Net Expenses = $ 9,012,400 Net Expenses = $ 6,612,400
Net profit = $ 172,600 Net profit = $ 2,572,600
PROS:
 32-oz. cups generate an above-average gross profit margin for Natureview (43.6%).
 Fewer competition in this segment, and Natureview products have advantage of longer shelf life.
 Promotional expenses and marketing expenses will be lower.
CONS:
 Entering into supermarket segment could adversely affect the strong relationships with natural foods retailers.
 Natureview may not have the necessary skill set or resources to expand effectively into supermarkets.
 New users may not readily buy the product because of its multi-use size.
 Full national distribution in 12 months is doubtful.
 Need salesman who have the experience selling to sophisticated supermarket channels.

11. Option 3:
Introduce two SKUs of a children’s multi-pack into natural foods channel.
Analysis:
Retailer’s Selling Price = $ 3.35
Retailer’s mark-up margin = 35%
Retailer’s cost price = Distributor’s selling price = $ 3.35 x (1-0.65) = $ 2.18
Distributor’s mark-up margin = 9%
Distributor’s cost price = Natural food wholesalers’ = $ 2.18 x (1-0.09) = $ 1.98
selling price
Natural food wholesalers’ mark-up margin = 7%
Natural food wholesalers’ cost price = 1.98 x (1-0.07) = $ 1.84
Yogurt manufacturing cost = $ 1.15
Manufacturer’s mark-up margin = ($ 1.84- $ 1.15)/$ 1.84 x 100 = 41%
2000 2001
 Sales = 1,800,000 x 1.15 = 2,070,000 units
 Revenue = 2,070,000 x $ 1.84 = $ 3,808,000
 Manufacturing cost = 2,070,000 x $ 1.15 = $ 2,380,500
 Total marketing expenses = $ 250,000
 Complimentary cases = $ 3,808,000 x 2.5% = $ 95,220
 Sales = 1,800,000 units
 Revenue = 1,800,000 x $ 1.84 = $ 3,312,000
 Manufacturing cost = 1,800,000 x $ 1.15 = $ 2,070,000
 Total marketing expenses = $ 250,000
 Complimentary cases = $ 3,312,000 x 2.5% = $ 82,800

12. 2000: 2001:
Net Expenses = $ 2,402,800 Net Expenses = $ 2,725,720
Net profit = $ 909,200 Net profit = $ 1,083,080
PROS:
 Natureview Farm’s all-natural ingredients would provide the perfect positioning from which to launch its own
children’s multi-pack product offering into their core sales channel.
 The financial potential was very attractive. Gross profitability of the line would be 37.6%
 Lower sales and marketing expenses, and no slotting or broker expenses.
 Natural food channel was growing almost 7 times faster than the supermarket channel.
CONS:
 Natural foods channel would soon make demands much like those expected from supermarkets.
 The opportunities for expansion would be lesser when compared to those in supermarkets.

13. RECOMMENDATION:
Combine Options 1 and 3 and implement them together.
 Introduction of 8-oz. yogurt into the supermarket channel will lead to high revenues.
 As major natural food competitors would soon try to enter supermarkets, entering the segment first would enhance authenticity and brand
equity.
 Combining both the options would require more SG & A employees.
Calculated combined Net Profit (2000) = $ 686,000 (Option 1) + $ 909,200 (Option 3)
= $ 1,595,200
A part of the revenue ( ~ $ 500,000) can be used to employ more number of staffs to handle increased responsibilities.
Expected Net Profit (2000) = $ 1,005,200
Expected Net Profit (2001) = $ 2,487,200 (Option 1) + $ 1,083,080 (Option 3) - $ 500,000 = $ 3,430,280
 The company should realise the importance of sustaining its strong relationship with natural foods retailers by introducing children’s multi-
pack products. It also increases the revenue of the company.
 As the natural food channel was growing at a rate 7 times faster than supermarket channel, the potential future benefits of having a position
in the natural foods segment could be significant.
 Besides, if the supermarket product fails due to over expenditure, inefficient employees, etc. the company can shift its focus to the natural
foods retail products. Vice versa, if the natural foods segment faces hindrances such a increased demands from retailers, it can always shift its
attention to the supermarket segment.
 Option 2 is not preferred as there is not guarantee that the company would be able to expand nationally in a span of 12 months, and have
sufficient marketing and sales expertise to advertise the products effectively in such a short interval. It is also expensive and the potential
losses the company would incur if the segment fails could be large.