Tyler Pet Foods, Inc. met with representatives of Marketing Ventures Unlimited to discuss possible entry into the household dog food market in the Boston Massachusetts metropolitan area. The meeting raised the question: “Is there a place for Show Circuit in the dog food market?” COURSES OF ACTION After the meeting, Tyler Pet Foods had several unanswered questions: 1. Was the market itself adequately defined and segmented? 2. What position would Show Circuit seek in the market? Should the program be targeted toward all dog food buyers? 3. Could the food brokers get distribution in supermarkets given the sales program? 4. What should be TPF’s recommended selling list price to the consumer for Show Circuit? 5. Could TPF at least break even in the introductory year and achieve a 15% return on sales in subsequent years? Upon answering these questions, TPF must consider the general media strategy as to implementing Show Circuit.
The market has been adequately defined with the target market of married couples and singles between the ages of 21 and 50 years of age with an income greater than $25,000. This is a target market that would spend money on a premium product for a “family member.” However, TPF must consider the profitability of such a market. Show Circuit will be marketed as a high-quality food. Show Circuit is also quite different from other dog foods in that it is a frozen dog food. The problem lies in getting room on frozen food shelves next to people foods. Frosty Paws, a frozen dog treat, has done some of the pioneering work by gaining some freezer space in Boston supermarkets. It is possible that TPF may have to give up more than a 25% gross margin to get freezer space. Assuming that food brokers do get distribution into supermarkets, the following breakdown shows recommended selling prices (as well as, variable costs and contribution margins).
Price to consumer: based on the notion that Show Circuit will be sold as a premium priced item in a category that falls somewhere between canned and semimoist products, it can be determined that a case of twelve 15 ounce canned tubs will sell for $18.00. This is found by multiplying the premium price of $0.10 ounce (exhibit 3 page 90) by one 15 ounce tub by 12. Thus, a single 15 ounce tub will sell for $1.50. While, a case of 1lb. semimoist tubs would run $11.16 at a price per tub of $0.93.
Price to retailer: The supermarket demands a 25% gross margin; thus, the price per canned tub is $1.13 and $0.70 per semimoist tub.
Variable Costs: Brokers will get 7% commission on the retailers suggested price. So, brokers will get $0.08 per canned tub and $0.05 per semimoist tub. In other variable costs, both semimoist and canned tubs will give up $.53 each.
Contribution Margins: The contribution margin based on the price to retailer will be $0.52 per canned tub and $.12 per semimoist tub. This gives a CM ratio of 35% for a canned tub and 13% for a semimoist tub.
From these numbers we can do a breakeven analysis based on the $600,000 budget w/ a $30,000 slotting fee and a $400,000 budget with a $30,000 slotting fee: canned tub ” $430,000/35% = $1,228,571.43 must be earned to breakeven $630,000/35% = $1,800,000.00 to breakeven semimoist tub — $430,000/13% = $3,307,692.31 to breakeven $630,000/13% = $4,846,153.85 to breakeven If we compare the canned tub breakeven analysis to the $10,949,400 canned market potential in the Boston area we see that we must earn 16.4% of the market using the $600,000 budget and 11.2% using the $400,000 budget. Regardless, of the budget we use for semimoist, we must gain over 100% of the semimoist market in Boston, which will be impossible.
The company must also consider the General Media Strategy listed on p.93. To accomplish the first and second objective, brokers must be fully aware of the benefits of Show Circuit in order to get it into supermarket shelves. A 7% commission should be enough incentive. If the brokers cannot get into supermarket then other outlets, such as pet stores, will have to be considered. The sales packets that TPF has given to brokers should insure that Show Circuit gets on supermarket shelves. Consumers may be tempted to purchase Show Circuit by the coupons they see in Better Homes and Gardens and Dog Fancy. Of course, TPF should get these into the magazines before they plan on putting Show Circuit on the shelves to help create awareness and demand. Television is certainly a strong way to advertise, but maybe TPF should reconsider buying space during “The Late Show with David Letterman.” Families tend to watch television together during prime time hours, perhaps this would be a better time to show the ads.
Final Analysis Tyler Pet Foods should market Show Circuit to supermarkets; after all, Frosty Paws has already done some groundwork. TPF has good ideas behind its marketing efforts, yet it should focus on earlier time slots for its television campaign. In order to get their promotional efforts off the ground and running, they should focus on the $400,000 budget with the slotting fee of $30,000 and target the canned food market. They can attain 11.2% of the market much easier than 16.4% using the $600,000 budget. Of course, TPF must try hard and garner as much of the frozen food section that they can. With the right television advertising, the right brokers, and the right magazine ads at the right time, TPF should be ensured success.