MKTG320 Week 2 Case Study

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MKTG320 Week 2 Case Study MKTG320 Week 2 Case Study Case Study: Clover Valley Dairy The Clover Valley Dairy Case Study and Grading Rubric are in Doc Sharing. You are the manager of Clover Valley Dairy, which has no market research specialist. As manager, you must evaluate the situation of the company. Write a 3 to 5 page reply to Charles Krieger's letter concerning market testing. Your reply should include answers to the three Questions for Discussion and should also explore the purpose of the research, definition of the problem, and the design of the study. Evaluation of the cost/value of the research should also be included. 108 CASE I-1 Clover Valley Dairy Company In the fall of 1978, Vince Roth, General Manager of the Clover Valley Dairy Company, was considering whether a newly developed multipack carrier for yogurt was ready for market testing and, if so, how it should be tested. Since 1930, the Clover Valley Dairy Company had sold, under the trade name Valleyview, milk, ice cream, and other milk by-products—such as yogurt, cottage cheese, butter, skim milk, buttermilk, and cream—in Camden, New Jersey. The raw milk was obtained from independent farmers in the vicinity of Camden and was processed and packaged at the Clover Valley Dairy. Clover Valley’s sales had grown steadily from 1930 until 1973 to an annual level of $3.75 million. However, between 1973 and 1977, a series of milk price wars cut the company’s sales to $3.6 million by 1977. During this time, a number of other independent dairies were forced to close. At the height of the price wars, milk prices fell to 75 cents per half-gallon. In the spring of 1977, an investigation of the milk market in Camden was conducted by the Federal Trade Commission and by Congress. Since then, prices had risen so that Clover Valley had a profit for the year to date. Clover Valley served approximately 130 grocery store accounts, which were primarily members of a co- operative buying group or belonged to a 10-store chain that operated in the immediate area. Clover Valley no longer had any major chain accounts, although in the past they had sold to several. Because all three of the major chains operating in the area had developed exclu- sive supply arrangements with national or regional dairies, Clover Valley was limited to a 30 percent share of the Camden area dairy product market. Although Clover Valley had a permit to sell its products in Philadelphia, a market six times the size of Camden, management decided not to enter that mar- ket and instead concentrated on strengthening their dealer relationships. In addition, it was felt that, if a price war were to ensue, it might extend from Philadel- phia into the Camden area. With the healthier market and profit situation in early 1978, Clover Valley began to look for ways to increase sales volume. One area that was attractive because of apparent rapid growth was yogurt. During the previous three years, management had felt that this product could help to reverse Clover Valley’s down- ward sales trend, if given the correct marketing effort. However, the financial problems caused by the loss of the national grocery chains and the price war limited the firm’s efforts. As a result, Mr. Roth felt that Clover Valley had suffered a loss of share of yogurt sales in the stores they served. Since 1975, Mr. Roth had been experimenting with Clover Valley’s yogurt packaging with the hope that a new package would boost sales quickly. All dairies in Clover Valley’s area packaged yogurt in either 8-oz or 1-lb tubs made of waxed heavy paper. Clover’s 8-oz tub was about 5 in. high and in. in top diameter, taper- ing to in. at base. The first design change to be considered was the use of either aluminum or plastic lids on the traditional yogurt tubs. However, these were rejected because the increased costs did not seem to be justified by such a modest change. Changing just the lid would not make their tubs appear different from their competitor’s tubs, it was felt. By 1976, Mr. Roth had introduced a completely dif- ferent package for Clover Valley’s yogurt. The 8-oz tubs were replaced by 6-oz cups, designed for individual servings. In addition, the new cups were made of plas- tic and had aluminum foil lids. The 1-lb tubs were unchanged. No special promotional effort was under- taken by Clover Valley, but unit sales of the new 6-oz cups were more than triple the unit sales of the old 8-oz tubs (see Exhibit I-1). While the increased sales volume was welcomed, the new plastic cups increased unit packaging costs from 7.2 cents to 12.0 cents. This more than offset the saving of 4 cents because of the reduction in the amount of yogurt per container. Retail prices were reduced from 41 cents to 34 cents for the 13 4 21 2 The study data appear to support the notion that CFC grape juice is held in high esteem in Puerto Rico, yet a solution to CFC’s sales problem is needed. With this in mind, Ms. Verbrugge arranged a meeting with Jeff Hartman, Market Research Manager, to discuss and review the situation. Ms. Verbrugge wanted to examine the problem in more detail and was prepared to commit additional funds for marketing research. Before making any decision, however, she wanted Mr. Hartman’s assessment of the situation. Source: This case was reprinted with permission from Subash C. Jain, International Marketing Man- agement, CA: Southwestern Publishing Co., 1993. Cases for Part I Nature and Scope of Marketing Research 109 new 6-oz cup, while the price for the 1-lb tub remained at 75 cents. The increased sales then increased the total dollar contribution to fixed costs from yogurt by only 5 percent. (All dairies priced their yogurt to give retail- ers a 10 percent margin on the retail selling price. Competitor’s retail prices for their 8-oz tubs remained at 41 cents.) Mr. Roth felt that both the change to plastic and the convenience of the smaller size were responsible for the increased sales. However, he was disappointed with the high packaging costs and began to look at ways of reducing them, without changing the package much further. He felt another package change would be too confusing to consumers. Because of the economies of scale needed to produce plastic containers, costs could be reduced if more units were produced and sold. Mr. Roth felt that packaging a number of cups together would make the 6-oz cups easier to carry home, which might increase sales, and would certainly reduce pack- aging costs. By 1978, work had begun on developing a multi- pack holder to hold six cups together. A single strip of aluminized plastic would serve both as holder and as the top for two rows of three yogurt cups. A single cup could be readily separated from the others in the pack. Dairy personnel constructed wooden models of several different cups for use with the holder and with plastic- molding experts, choosing one that would mold easily and cheaply. Eventually, some of these carriers were made to order for testing in the plant and among Clover Valley employee families. Several problems soon became apparent. The holder did not always fasten securely to all six cups in the multipack. While the holder strip was being put on, the side walls of the cups were slightly compressed, causing some cups to crack at the edges. When con- sumers tried to remove one of the cups, they sometimes pulled the top from an adjacent cup. The problem was the strength of the aluminized plastic, which made it difficult to tear even when perforated. The multipack was redesigned and again tested in the plant and by employee families. It appeared that the new package was performing satisfactorily. Negotiations with Clover Valley’s carton supplier resulted in an esti- mated price of 8.5 cents for the first 100,000 units. There- after unit costs would drop to 7.5 cents per 6-oz cup. EXHIBIT I-1 Clover Valley Dairy Company: Sales Results 1974 1975 1976 1977 1978 Unit Sales of Yogurt—8-oz Tubs (6-oz after June 1977) January 1,203 3,531 7,899 18,594 February 996 3,651 7,629 20,187 March 960 3,258 6,677 20,676 April 853 3,888 6,081 20,199 May 861 4,425 5,814 18,420 June 915 4,044 12,726a 14,424 July 978 3,546 13,422 16,716 August 1,254 3,696 15,105 16,716 September 1,212 3,561 23,601 18,657 October 1,740 1,485 4,731 23,214 November 1,437 2,928 4,499 22,146 December 1,347 3,528 6,177 17,916 Unit Sales of Yogurt—1-lb Tubs January 3,882 3,715 3,937 3,725 2,971 February 4,015 3,596 3,833 3,510 3,232 March 4,061 3,670 3,285 3,344 2,866 April 3,573 3,405 3,333 3,503 3,392 May 3,310 3,482 3,609 3,101 2,390 June 3,252 3,376 3,366 3,537 2,094 July 3,383 3,366 2,837 3,827 2,589 August 3,721 3,307 2,616 3,103 2,384 September 3,415 3,275 2,729 2,871 2,895 October 3,276 3,450 2,816 3,028 November 3,865 4,650 3,375 2,796 December 4,110 3,908 3,386 3,086 a6-oz tubs. 110 Mr. Roth decided that the best multipack carrier presently possible had been designed. His attention then turned to methods of testing the new packs for consumer acceptance. Mr. Krieger, his father-in-law and president of Clover Valley, sent him the following letter concerning market testing: Dear Vince, Concerning the market test of the new cups and carriers, I have a few suggestions that may be helpful, although the final decision is yours. I think we should look for a few outlets where we are not competing with the other dairies, perhaps the Naval Base or Bill’s Market. Actually, if we use Bill’s, then the test could be conducted as follows: 1. Give Bill a special deal on the multipacks for this week- end. 2. In the next two weeks, we’ll only deliver the multi- packs and no single cups at all. 3. In the third week we’ll deliver both the packs and the single cups. 4. During the third weekend we’ll have someone make a survey at the store to determine its acceptance. 5. Here is how it could be conducted: a. Station someone at the dairy case. b. After the shoppers have chosen either single cups or the multipacks, question them. c. If they chose the multipacks, ask them why. d. If they chose the single cups ask them why they didn’t buy the packs. e. Thank them for their help and time. Yours, CHARLES KRIEGER (signed) Questions for Discussion 1. Should the new multipack carrier be tested? 2. If a test is judged necessary, what should be the criteria for success or failure? 3. How useful is the proposed test in addressing the management problem? What changes, if any, would you recommend?

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MKTG320 Week 2 Case Study

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