Montreaux Case Analysis

1. Key Issues/Problems Since the purchase of rights to manufacture and distribute Montreaux’s European chocolate products in the US by Consumer Foods Group (CFG), David Raymond has established three strategic as well as aggressive objectives for the potential new product line given to Andrea Torres (director of new product development) to implement in a three year timeline. i. National distribution of the new Montreaux product line ii. $115 million in annual sales iii. Be in the top 25 in revenue (0.60% market share) (Exhibit 1 for volume projections) With these goals in mind, Andrea Torres must decide which of the following should be the best strategies to accomplish the goals set by David Raymond – a. Complete further product testing b. Launch the product in selected test markets c. Stage a regional rollout or launch the product nationally. d. Decide appropriate product name, positioning of the new product line (American or European branding) and its packaging size (3.5 ounce bar OR 10 squares in a 5 ounce stand up pouch). e. Decide accurate marketing strategies to penetrate the traditional retail channels (supermarkets, drug stores, convenience stores and “big-box” supercenters) f. Whether to buy an-in house production facility or import the product from Europe where the facilities are already running. The recommendation proposed for this case study will work to satisfy the target market, resolve Torres’ concerns and appease David Raymond’s objectives. 2. Discussion of Alternative Solutions a. Competitor Strategy: As the consumers are getting more focused on the fitness and health, the company wants to introduce chocolate products that gravitate towards a healthy living and generate consumer interest. But because of the trend in the industry, the landscape is seeing a number of new competitors and products in order to capture market share in this untapped market of chocolate confectionary products. Besides the new competitors, the already established major market share holders – Fishers, Inc. and Lancaster were tough competitors for Apollo. Andreas must ensure a faster time-to-market for the product in order to accomplish the objective of capturing significant market share. As there are immense opportunities in the chocolate market in the US due to increasing consumer awareness about health benefits, competitors are also testing their product launch in the same space. The brand name must be appealing in order to attract consumers and cultivate trust in order to instill loyalty. As both health and taste attributes are significantly important for product positioning, it must focus on In house facility rather than imports from Europe Mix Of Health & Taste Fast Go To Market Appealing Brand Name Full Rollout Size : 5 ounce pouch instead of 3.5 size bar Market Research: Consumer understanding and gap analysis for a low calorie chocolate that serves health and fitness conscious consumers Timing: Chocolate market to grow by 2% by 2015 Capacity: Evident from Apollo's rank 2 in the global confectionery space. Also it has tremendous sales force to implement chocolate distribution Testing: Thourough testing in coordination with Nielsen (Both Qualitative and Quantitative Analysis) Distribution: Strong infrastructure and relationships with traditional retail distribution channels b. Market Position: In order for the company to be successful, the most important factors Montreaux Chocolate can emphasize and improve are distinct position, clear and concise message, credibility and easy availability. For a company that is just entering a new market with no history of sale of healthy food items, it will need a distinct position to set it apart in the expansive chocolate industry. With the emphasized health benefits, innovative flavors, and stand-up package, this is certainly achievable. The second factor of success is having a clear and concise message. By packaging and labeling the product appropriately, people will be able to understand that it is a healthy alternative to the existing chocolates in the market. For instance, making the cardiovascular and low blood pressure benefits a focus on the package. The next major factor the Company needs to improve is their credibility. People are much less likely to purchase a brand they have never encountered before. This could be achieved through not only calling the product “Apollo Healthy Cravings” but by celebrity endorsements, advertising, sampling, and any number of creative means to building up credibility. Finally, the easy availability and access of a new product is very important. When dealing with chocolate, especially dark or luxury or foreign brands, the perceived value of the customer plays a huge role. For this reason, Montreaux needs to make their chocolate findable enough to be accessible to many people, but it must also be sold in the right kinds of stores. For instance, the perceived value of the brand would plummet if they are sold only in Wal-Mart and convenience stores. They ought to sell out of natural health food stores and upscale grocery or specialty stores also. c. Market Segmentation: In order to attract the right category of consumers, the marketing team must study certain characteristics of the consumers such as consumer attitudes and usage habits of confectionaries by the consumers and then decide strategies to target the accurate market segment. If we take a good look at the attitudes of chocolate eaters and the way they use it, we can isolate some interesting data. The data shows “92% of confection-eating adults eat on average 7.8 pieces of chocolate per month” (Case, Pg.4). Only 30-40% of confection-eating children consume chocolate but children eat more chocolate than adults. Premium chocolate buyers are women, age 45-65, well-educated and have an income of $50,000+, are health conscious, and buy for themselves over others. Looking at the motivation and benefits of chocolate-consumers, we find that women react positively to new products and the new benefits they offer. Chocolate consumers show improved cardiovascular fitness and lower blood pressure. Men focus on price and practical characteristics such as affordability while women react “positively to new ingredients and flavors” as well has health benefits. Based on the known characteristics of the chocolate consumer groups, the marketing team can selectively target the consumers by demographics. Gender (94% women vs 90% men are more likely to eat chocolates) Age (females aged 45-64) Income groups Social strata (“everyday sophisticates” or “bliss consumers”) Chocolate loyalists (female, aged 45-64, college educated, married with children with household income greater than $50,000, health conscious) Understand motivation behind purchasing of chocolates – women were more responsive to new ingredients in the chocolate and the health benefits offered by the newer varieties of chocolates whereas men were focused more on price. Size of the chocolate bars – 40% adults preferred mini and snack sizes (0.25-0.6 ounces) to standard bars CFG can also make use of the studies from the US chocolate market trend in 2011 to design a product that will be easily preferred by the customers Low-calorie options such as reduced fat and aerated chocolate Premium chocolate products moving to mainstream channels (i.e., supermarkets, mass merchandisers) Dark chocolate popularity rise Packaging transition to stand-up pouches and bigger sizes New labeling with terminology emphasizing share ability, portion control, and saving a piece for later Increases in pricing attributable to rising commodity costs d. New Product Development: Apollo could use a combination of qualitative research results on target consumer groups and quantitatively assess and optimize the new dark chocolate initiative. CFG can make use of the extensive innovation experience of Nielsen BASES that resulted in identification of the 12 key criteria that drive successful consumer adoption of new products (Exhibit 2). Qualitative analysis can be done by targeting a consumer group, and in this case, BASES was able to quickly identify the flavors of dark chocolate in combination with fruit flavors (blueberry, pomegranate and cranberry as top flavors). The selective identification of these flavors by the target test group can be relied on to develop the new product flavors. The product development team also needs to experiment with the percentage of cocoa that the consumer’s palette would approve and also experiment with the acceptable sizes of the product (3.5 ounce bar vs 10 inch squares in a 5 ounce pouch). The team would then need to find viable formulas to ensure high product quality, texture and flavor along with a price that consumers would be willing to pay. (Exhibit 3). With the expertise of the BASES, the results obtained by contacting consumers via a proprietary Internet survey panel can be utilized to further perform some quantitative analysis and used as inputs for volume forecasting model, including the buying intention of consumers, intended frequency and purchase, price/ value assessments and other similar diagnostics. The results from the studies to determine the degree to which the first-year sales forecasts would meet or exceed the $30 million hurdle rate, assuming Montreaux sold its products at 65% of the manufacturer at a suggested retail price of $4.49. The repeat results from reducing the quantity of cocoa by BASES (for mediocre, average and excellent product scenarios) can also be utilized in devising an accurate marketing strategy (Exhibit 5). 3. Recommendations After determining the target market, strategies to market the product and understanding the case overall, I suggest that Montreaux Chocolate USA should launch the new product line under the name Montreaux to build brand equity for the European company, but should also include Apollo Foods on the packaging to inform consumers that this is an Apollo Foods’ product and a sub-brand of the company. Because Apollo Foods has a well-established and strong brand value, consumers will not be suspicious of the new brand’s credibility if the name is featured somewhere on the package, something that was an issue with the first BASES Concept Test. Furthermore, the new product line should be offered in supermarkets for optimal purchasing convenience and positioned as premium dark chocolate that provides health benefits to satisfy the target market’s health-centric demand and purchasing behavior. As for packaging, I recommend that a stand up 5-ounce pouch be implemented due to the results from the second BASES test that displayed greater preference for this packaging design. Additionally, the standup pouch should clearly display the health benefits of Montreaux’s dark chocolate and its fruit flavors to entice consumers to purchase the product through nutritional value add messaging. As mentioned before, this target market is not opposed to trying new things and prefers products that communicate a healthy lifestyle. Finally, I propose that Torres launch the new product line nationally without further product testing or launching in selected markets. Because Apollo Foods has successfully innovated 70 new products in the last three years and the growth rate of the chocolate market is on the rise, Montreaux Chocolate has a high probability that they will be just as successful in this venture. Launching the new product nationally will meet Raymond’s objective of national distribution and also allow the new product line to get its foot in the door before its competitors. Through this recommendation, the brand will be able to build awareness on a national level and prevent spending $3 million dollars in further testing that that takes the longest to measure. Apollo Foods should also use its substantial salesforce and its strong marketing expertise to sell the new product by leveraging their already established relationships within the industry. The digital marketing channel can also be explored in order to understand the customer behavior and trends and employ modern marketing techniques for effective marketing of the product . The sales and marketing team should promote the high-quality reputation of Montreaux Chocolate to appeal to the target market and, as a result, increase market share as well as annual sales. This recommendation is based on the results from both Nielson’s BASES tests and works to meet the needs for this target market. Because the “everyday sophisticates” and “bliss consumers” are reported to be very brand loyal and also open to trying new products, introducing this product to them nationwide and proving its value will further the success of the new product line and help reach the objectives developed by David Raymond. It is also cost and time effective. Comparison of Pros and Cons for the 4 courses of action considered by Apollo Foods for the launch of the new Montreaux Chocolate Product. Pros Further Testing The Market Launch in Selected Market Stage a Regional Rollout Fine Tune Consumer Insight Gather Additional Consumer Insights Average Expenditure Most Limited Liability and Risks Most Representative of Market Condition Limited Liability and Risks Display Commitment to Retailers Biggest Opportunity to increase Market share Begin Market Share Dominance Greatest Revenue Generation Opportunity Discover New Opportunities Cons National Launch Possibly Redundant Data Long waiting time for end results (1 Year) Conservative Strategy Requires new factory Delay in Market Entrance Delay in Market Entrance Potential Lost Opportunity Greatest Resource Commitment Difficulty in Finding suitable Test markets Less than 100% commitment to market Convincing Retailers for Limited batch purchases Requires new factory Most Expensive ($3MM) Poor Regional selection Limited Production Can be quite expensive capabilities 4. Discussion of Potentials Drawbacks of Proposed Solution Risk with New products: As the industry attracts more competitors due to its lucrativeness, it may be difficult to attain all the goals and the desired target market share. Mitigation plan: Faster time to market and effective marketing strategies to capture market share. Risk with insufficient testing: The proposal to launch the product without completing the testing has potential drawbacks such as missed opportunities to include enhancements based on outcomes of a well-tested product. The process to manufacture a well-rounded and absolutely healthy product may not be explored given the limited testing conducted. The shorter time span of testing could give the competitors in the market an opportunity to develop a superior product. The target market was considered predominantly women centric, which means the opportunity to develop a product specifically targeted for men is lost. Mitigation Plan: Conduct phased testing and release enhancements in stages. • Risk with Domestic Industry Evangelists: The resources (team) provided to Andrea did not comprise of experts that were well acquainted with the American chocolate industry as well as consumers. Instead the team was mainly from Montreax that had limited experience in the US market. Therefore the list of 45 ideas that was run through Nielsen BASES may be potentially incomplete and did not consist of elements of American dynamics and domestic chocolate industry landscape. On the other hand, if the team is not comprised of Montreaux experts, there may be resistance in knowledge sharing and potentially collaboration failure. As Apollo will be selling Montreaux dark chocolate, the technical product expertise is mandatory for a successful product launch. Mitigation plan: This can be potentially mitigated with a right mix of Montreaux experts and US chocolate industry experts. • Collaboration with Lancaster/Fisher: Montreaux could have collaborated with Lancaster or Fisher instead of Apollo. This is because Lancaster and Fisher were the leaders in US chocolate industry and had the technical nitty-gritties of chocolate and consumer behavior. On the other hand, collaboration with these companies may lead to IP threat as well as future competition (with their own brand chocolate products) as these are leaders in US chocolate industry and understand the most critical competitive advantages in the product space. Mitigation plan: This can be mitigated by putting up a Montreaux team that is solely responsible for dark chocolate in US but also include a separate advisor/consulting team for domestic elements. • Risk with Digital Marketing: It may be expensive and may require additional people (new) on the team if the existing employees don’t have skill sets required to make use of the digital market. Mitigation plan: Hire a new person as a contract employee in the company to do in-house and use digital marketing in addition to other marketing strategies.