Nestle Case Write up

MKTG 6010 Nestle Refrigerated Foods: Contadina Pasta & Pizza Anthony Garver

Issue: In 1990, Nestle Refrigerated Food Company (NRFC) considered the release of a refrigerated pizza product into the U.S. market. Stephen Cunliffe, President of the NRFC, had managed the release of refrigerated pasta and sauce three years earlier, but this time faced production challenges, distribution challenges, and an unknown sales volume for the proposed product. Would there be enough demand for the pizza and would there sufficient sales volume to warrant moving forward with the decision? The NRFC uses a seven-step process in product development as follows: idea generation, concept screening, product development, volume quantification, test marketing, commercial evaluation, and introductory tracking. This process was intentionally flexible to allow product development teams to innovate effectively. Many times, NRFC’s marketing research department (MRD) would outsource volume determination to BASES, a marketing research firm. A BASES-I test (for volume) was used to project awareness and usage for pasta and sauce. MRD decided to use the more thorough BASES II test (Line Extension Study) for projecting sales volume of the pizza concept. Prior to the launch of the pasta and sauce several surveys were conducted by BASES to test consumer likes and dislikes of the products. As referenced above, the pasta and sauce concept tests did not include taste tests. The majority of those surveyed “liked” the pasta and sauce concept with most having a “high intent” to purchase. When pizza was tested it received similar subject approval. With the pizza, however, respondents who indicated they would “likely” purchase the pizza were allowed to take a sample home for trial. The respondent’s intent to purchase was very positive after the take-home trial. The BASES II test for pizza sale volume was conducted in high-potential markets. This concerned the MRD as they felt the penetration calculations would vary more widely than BASES presented. Test subjects were entirely female and in close proximity to shopping malls. Although the survey method, mall intercepts, required the respondent in close proximity to a mall, consideration for rural areas should have been made. Male participants should have been involved in the survey process as well since they made up almost half of those who indicated positive purchase intent in earlier tests. Recommendation: The case concludes with Stephen Cunliffe indicating that the hurdle for proceeding with the pizza project was $45 million in “Factory Dollar Sales.” The BASES analysis in Exhibit 1 uses factory dollars defined as two-thirds of suggested retail. The BASES analysis in Exhibit 1 was performed by using the NRFC projection of 24 percent penetration of 95.5 million households. Exhibit 2 (Trial Volume–Stress Test) details calculations for 5 percent, 10 percent and 15 percent penetration. Exhibit 3 contains supporting information for the BASIS analysis in Exhibit 1. The BASES results for each product: pizza with toppings and pizza only, given the NRFC projected penetration (24%), exceed the factory dollar sales hurdle set by Cunliffe’s. Volume stress tests of 5, 10, and 15 percent yield similar results and exceed the given hurdle. Given these results, NRFC should proceed with the roll-out. They should, however, do so only in markets that they tested in because the BASES test was skewed toward high penetration areas. If these results are satisfactory, NRFC could then widen their distribution. The surveys by NRFC and BASES indicate consumer support for a refrigerated pizza option. It appears that consumers would be highly likely to try Contadina’s pizza. Testing related to attributes supports releasing the product as does testing for substitutes to existing options with Contadina’s pizza. After taste testing, consumers continue to have a high intent to purchase the product. Based on these results, NRFC does to have support in the areas that they tested in. NRFC should roll-out the product in the test areas and proceed to expand if successful results are attained. Finally, NRFC should exercise caution as refrigerated products have a limited shelf-life. The projected frequency of toppings purchase is less than that of for pizza. As a result, there risk of spoilage and lost stock due to spoilage. In addition, the consumer might purchase non-NRFC toppings, which would exacerbate the spoilage potential by leaving unsold Contadina toppings sitting on store shelves.

Exhibit 1: BASES Volume Estimate

User Non User NonDefinitely Would Buy 30% 15% 22% 12%Probably Would Buy 57% 59% 48% 42%

Two Top Box 87% 74% 70% 54%

Industry Rule of Thumb Actually BuyDefinitely Purchase 80%Probably Purchase 30%

User Non User NonDefinitely Would Buy 24% 12% 18% 10%Probably Would Buy 17% 18% 14% 13%

Adjusted Trial 41% 30% 32% 22%

Advertising $9,000,000GRP's n/a

User Non User NonAdjusted Trial 41.1% 29.7% 32.0% 22.2%

Awareness (AW) 60.0% 30.0% 60.0% 30.0%Overall Awareness 37.0% 37.0% 37.0% 37.0%

ACV 58.0% 58.0% 58.0% 58.0%

MPA (AT x AW x ACV) 14.3% 5.2% 11.1% 3.9%

None

Pizza w/Topping Pizza Only


Marketing Plan Adjustments (MPA)

Adjusted Trial (AT)

Environmental Adjustments (EA)

Pizza w/Topping(Pwt) Pizza Only(Po)

Concept Purchase Intent (CPI)

Target HHUser Nonuser User Nonuser

Target HH 22,920,000 72,580,000 22,920,000 72,580,000Marketing Plan Adj. 14.30% 5.17% 11.14% 3.86%

Units at Trial 1.2 1.2 1.1 1.1Total Trial Units 3,933,842 4,500,947 2,807,608 3,083,982

Repeat Rate 22.0% 122.0% 22.0% 122.0%# Repeat Purch. Occasions 2.0 2.0 2.0 2.0

Avg. Repeat Trans. Amt. 1.0 1.0 1.0 1.0Total Repeat Units 1,730,891 10,982,311 1,235,348 7,524,917

Total Units 5,664,733 15,483,258 4,042,956 10,608,899Factory Unit Cost-Pizza $4.26 $4.26 $4.26 $4.26

Factory Sales-Pizza 24,143,827$ 65,991,658$ 17,231,604$ 45,216,507$

Pizza w/Topping Sales 90,135,485$ 62,448,111$

Topping SalesTotal Units Sold 5,664,733 15,483,258

0.5 of Fav. Purch at Trial 1.50 4,248,549 1.50 11,612,4430.25 of Fav. Purch at Trial 0.75 1,062,137 0.75 2,903,111

0.5 of Fav. Purch at Retrial 1.00 2,832,366 1.00 7,741,6290.25 of Fav. Purch at Retrial 0.50 708,092 0.50 1,935,407

Total Units Sold 8,851,145 24,192,591$0.86 $0.86

7,615,790$ 20,816,031$

Pizza w/Topping Sales 90,135,485$ Total Toppings Sales 28,431,821$

Total Sales 118,567,306$ 62,448,111$

Factory Unit Cost-ToppingsFactory Sales-Toppings

Pizza Only Sales

Trial Volume with NRFC Estimate of Pennetration (24%)


Pizza Only Sales

Favorable Users Favorable Nonusers

Exhibit 1: BASES Volume Estimate, Continued

15%





Avg. Repeat Trans. Amt. 1.0 1.0 1.0 1.0Total Repeat Units 1,081,807 12,282,848 772,092 8,416,025


Factory Sales-Pizza $15,089,892 $73,806,460 $10,769,752 $50,571,093



0.5 of Fav. Purch at Trial 1.50 2,655,343 1.50 1,895,1360.25 of Fav. Purch at Trial 0.75 663,836 0.75 473,784

0.5 of Fav. Purch at Retrial 1.00 1,770,229 1.00 1,263,4240.25 of Fav. Purch at Retrial 0.50 442,557 0.50 315,856

Total Units Sold 5,531,965 3,948,199$0.86 $0.86

4,759,869$ 3,397,149$


Total Sales 97,053,370$ 61,340,845$Pizza Only Sales

Pizza Only

Trial Volume-Stress Test

Pizza w/Topping

Pizza Only Sales



5%



Units at Trial 1.2 1.2 1.1 1.1Total Trial Units 819,550 5,626,184 584,918 3,854,978


Avg. Repeat Trans. Amt. 1.0 1.0 1.0 1.0Total Repeat Units 360,602 13,727,889 257,364 9,406,146

Total Units 1,180,153 19,354,072 842,282 13,261,124Factory Unit Cost-Pizza $4.26 $4.26 $4.26 $4.26



Topping SalesTotal Units Sold 1,180,153 842,282

0.5 of Fav. Purch at Trial 1.50 885,114 1.50 631,7120.25 of Fav. Purch at Trial 0.75 221,279 0.75 157,928

0.5 of Fav. Purch at Retrial 1.00 590,076 1.00 421,1410.25 of Fav. Purch at Retrial 0.50 147,519 0.50 105,285

Total Units Sold 1,843,988 1,316,066$0.86 $0.86

1,586,623$ 1,132,383$



Pizza Only


Pizza w/Topping

Pizza Only Sales



10%





Avg. Repeat Trans. Amt. 1.0 1.0 1.0 1.0Total Repeat Units 721,204 13,005,368 514,728 8,911,086





0.5 of Fav. Purch at Trial 1.50 1,770,229 1.50 1,263,4240.25 of Fav. Purch at Trial 0.75 442,557 0.75 315,856

0.5 of Fav. Purch at Retrial 1.00 1,180,153 1.00 842,2820.25 of Fav. Purch at Retrial 0.50 295,038 0.50 210,571

Total Units Sold 3,687,977 2,632,133$0.86 $0.86

3,173,246$ 2,264,766$



Pizza Only


Pizza w/Topping

Pizza Only Sales



Exhibit 2

# of Households* = 95,500,000

Actually BuyDefinitely Would Buy 80% Pennetration Est. # of HHProbably Would Buy 30% 5.0% 4,775,000

10.0% 9,550,000 15.0% 14,325,000 20.0% 19,100,000

Percentage Pennetration 5.0% 25.0% 23,875,000

# of User Households 4,775,000 NRFC Est. 24% 22,920,000 # of Nonuser Households 90,725,000

User Nonuser User NonuserPennetrated HH 22,920,000 72,580,000 22,920,000 72,580,000

Estimated Pennetration User Non User Non

10% 9,550,000 85,950,000 9,550,000 85,950,000

Awareness Pizza Kit Pizza Only

Contadina Pasta & Sauce Users 60% 60%Nonusers 30% 30%

Overall Awareness 37% 37%

All Commodity Volume (ACV) 58% 58%

Purchase Assumptions Pizza Kit Pizza OnlyUnits Purchased at Trial 1.2 1.1

Repeat Rate 22% 22%Repeat Purchase Units 1.0 1.0

Repeat Purchase Occasions 2.0 2.0

Purchased Toppings0.5 of Fav. Purch at Trial 1.50

0.25 of Fav. Purch at Trial 0.750.5 of Fav. Purch at Retrial 1.00

0.25 of Fav. Purch at Retrial 0.50

Table D


NRFC Estimated Pennetration (24%)


Estimated Pennetration Stress Test

Pennetration Stress Test

Target HouseholdsIndustry Rule of Thumb (ROT)

Exhibit 3

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Nestle Case Write up