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‘Neptune Gourmet Seafood’ is worth $820 million, is the third-largest North American seafood producer and is believed to be the most up market player in the $20 Billion seafood industry. Neptune has done everything in terms of their quality and technology for improved, efficient & sustainable production. Therefore, living up to their tagline, ‘The Best Seafood on the Water Planet’. In spite of having the best quality produce and substantial market share, the company is facing inventory problems. The company has purchased six new Freezer Trawlers, thereby increasing their original level of production in threefold, from what it had been a year ago.
The company’s sales executive Rita Sanchez suggests that the company must reduce their prices by 40% to 50% and sell the lower priced goods as a new brand, thereby reducing the excess levels of inventory. Neptune’s marketing director Jim Hargrove was unhappy with the idea of slashing their prices since, there were chances for the company to lose their existing customers and it cannot afford to have a fall in their revenue levels, as sunk costs have gone up and there is an increase in competition.
Instead, Jim suggests that there be a 10% discount given on the finished goods as the discount rate sounds more realistic and there would be no misrepresentation to the existing consumers about the sudden fall in Neptune’s finished goods.
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Neptune’s COO Bernard Germain wonders whether Neptune should target a new geographical market viz. South and Central America. On further analysis and study of the case, the three most realistic options that Neptune should implement are enumerated as follows.
Firstly, the company can reduce their prices by 40% to 50%; secondly, Neptune can launch a low priced seafood brand through private labeling; and finally, the company should target new geographical markets. With regards to the first option, the company should reduce their prices by 40% to 50% on their finished goods. The advantages of this approach are namely, that the consumers will understand that Neptune is selling a perishable product and its supply varies on a daily basis; just like those of other perishables like vegetables, fruits and flowers.
Hence, the prices of these perishables are expected to vary on a regular basis. This will in turn normalize the inventory levels. On the other hand, the disadvantages of this approach are enumerated as follows. Firstly, the company’s margins have already shrunk by 10% because of increase in the manufacturing costs on a number of its products, and growing competition. Secondly, the sudden drop in prices might cause retaliation among competitors which will cause some of the smaller companies to incur losses they cannot afford and in turn lead to price wars that none of them in the industry can afford. And finally, it might misrepresent the company’s products to the customers. The customers might wonder, as to why there is a sudden drop in prices when the company was selling their goods at premium price levels, leading them to question the quality of the product that is being sold at discounted prices.
The most viable reason for the implementation of this approach is that the loss incurred in slashing prices is much less when compared to loosing large amounts of inventory, being a perishable good. With regards to the second approach, the company can introduce a low-priced seafood brand catering the value -minded customers and distribute them via existing channels, thereby drastically reducing costs. The excess inventory can be distributed through existing suppliers & retailers. The costs we will incur to market and package those goods will be reduced when compared to the costs incurred in creating a mass market brand. The main advantage of this approach is that, since wholesalers and retailers (like Shaw’s Supermarkets and Whole Foods Market) already know about Neptune’s Seafood products; they know the level of quality goods and that Neptune is the only company to have the ‘Gold Seal of Approval’ which is given by the powerful ‘U.S. Association of Seafood Processors and Distributors’, on every product Neptune sells.
Hence, the private labelers can make profits in selling Neptune’s frozen seafood but with their own brand. Through this the company will not lose their existing customers and price wars can be avoided. However, the disadvantages to this approach is that, through private labeling the new brand might end up as a competitor to the existing Neptune Gold products as they have the same quality and cannibalize Neptune’s existing sales. Since, there are already a number of competitors in the industry the company must not pave way for, or create a new one to enter the market over a period of time.
Consumers might want to try out the new brand as it is priced slightly lower than Neptune’s existing products. Hence, the chance of losing loyal and valuable customers. This approach gives the chance for the company to target those consumers who are in the middle and lower income levels. Thereby, capturing a larger market share and also helps to deal with excess inventory levels in the long run. And finally, elaborating on the third approach Neptune can target new geographical markets outside the country viz., South America and Central America. If Neptune targets a new foreign market the company can grow on a global basis, hence increasing their revenues rather than incurring a loss with their excessive inventory levels.
With slightly lower prices Neptune can grab the attention of new consumers and therefore capture all together a new market segment abroad. The disadvantages to this approach are that, there are chances that the product might not be received well because of market leaders in their own country or market. The company will have to incur large amounts of costs to launch the product in a new market. The process of targeting a new geographic market is time consuming as the company will have to study the foreign market as in, the customers and their preferences. Neptune cannot afford to wait as inventory will begin to spoil and the Company might lose its premium image. However, Neptune can treat this as a growth strategy and take the opportunity of growing globally.
If Neptune had information pertaining to, whether the excess inventory problem is being faced by other competitors also or if it was only for the company; then they can analyse as to whether the prices should really be slashed. The company can get access to this information by holding a meeting with the U.S. ASPD. But on the other hand, had the company have access to this information and summed up that there are other companies with the same issues with excess inventory; then it would be wise to slash their rates as it is an industry wide phenomenon.
From the three approaches mentioned above, the company should consider and implement the third option, where in, Neptune targets a new geographical region. Given that this approach is the most expensive and time consuming, looking in the long run this seems to be the most viable and realistic approach. The company might have to sacrifice future profits for a period of time in order to grow globally. Since we know that the company has invested $9 million in new freezer trawlers, the levels of production are only going to increase. These increased levels of inventory can be marketed in a new market and the company will soon slowly earn back their investments in the form of revenues.
Class or Mass Mini Case Analysis. (2016, Dec 07). Retrieved from https://studymoose.com/class-or-mass-mini-case-analysis-essay
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