MKTG 320 Case Study Assignment

Clover Valley Dairy Company In the fall of 1978, Vince Roth, General Manager of the CloverValley Dairy Company, was considering whether a newly developed multipack carrier for yogurtwas 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 independentfarmers 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 $3.75million. 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 toclose. At the height of the price wars, milk prices fell to 75 cents per half-gallon. In the spring of1977, an investigation of the milk market in Camden was conducted by the Federal TradeCommission and by Congress. Since then, prices had risen so that Clover Valley had a profit forthe year to date.Clover Valley served approximately 130 grocery store accounts, which were primarily membersof a cooperative buying group or belonged to a 10-store chain that operated in the immediatearea. Clover Valley no longer had any major chain accounts, although in the past they had sold toseveral. Because all three of the major chains operating in the area had developed exclusivesupply arrangements with national or regional dairies, Clover Valley was limited to a 30 percentshare of the Camden area dairy product market.Although Clover Valley had a permit to sell its products in Philadelphia, a market six times thesize of Camden, management decided not to enter that market and instead concentrated onstrengthening their dealer relationships. In addition, it was felt that, if a price war were to ensue,it might extend from Philadelphia into the Camden area.With the healthier market and profit situation in early 1978, Clover Valley began to look forways to increase sales volume. One area that was attractive because of apparent rapid growthwas yogurt. During the previous three years, management had felt that this product could help toreverse Clover Valley’s downward sales trend, if given the correct marketing effort. However, thefinancial problems caused by the loss of the national grocery chains and the price war limited thefirm’s efforts. As a result, Mr. Roth felt that Clover Valley had suffered a loss of share of yogurtsales in the stores they served.Since 1975, Mr. Roth had been experimenting with Clover Valley’s yogurt packaging with thehope that a new package would boost sales quickly. All dairies in Clover Valley’s area packagedyogurt 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, tapering to in. at base. The first design change to be considered was the use of either aluminum or plastic lids on thetraditional yogurt tubs. However, these were rejected because the increased costs did not seem tobe justified by such a modest change. Changing just the lid would not make their tubs appeardifferent from their competitor’s tubs, it was felt.By 1976, Mr. Roth had introduced a completely different package for Clover Valley’s yogurt.The 8-oz tubs were replaced by 6-oz cups, designed for individual servings. In addition, the newcups were made of plastic and had aluminum foil lids. The 1-lb tubs were unchanged. No specialpromotional effort was undertaken by Clover Valley, but unit sales of the new 6-oz cups weremore than triple the unit sales of the old 8-oz tubs (see Exhibit I-1). While the increased salesvolume was welcomed, the new plastic cups increased unit packaging costs from 7.2 cents to12.0 cents. This more than offset the saving of 4 cents because of the reduction in the amount ofyogurt per container. Retail prices were reduced from 41 cents to 34 cents for the new 6-oz cup,while the price for the 1-lb tub remained at 75 cents. The increased sales then increased the totaldollar contribution to fixed costs from yogurt by only 5 percent. (All dairies priced their yogurtto give retailers a 10 percent margin on the retail selling price. Competitor’s retail prices for their8-oz tubs remained at 41 cents.)Mr. Roth felt that both the change to plastic and the convenience of the smaller size wereresponsible for the increased sales. However, he was disappointed with the high packaging costsand began to look at ways of reducing them, without changing the package much further. He feltanother package change would be too confusing to consumers. Because of the economies ofscale needed to produce plastic containers, costs could be reduced if more units were producedand sold. Mr. Roth felt that packaging a number of cups together would make the 6-oz cupseasier to carry home, which might increase sales, and would certainly reduce packaging costs.By 1978, work had begun on developing a multipack holder to hold six cups together. A singlestrip of aluminized plastic would serve both as holder and as the top for two rows of three yogurtcups. A single cup could be readily separated from the others in the pack. Dairy personnelconstructed wooden models of several different cups for use with the holder and with plasticmolding experts, choosing one that would mold easily and cheaply. Eventually, some of thesecarriers 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 sixcups in the multipack. While the holder strip was being put on, the side walls of the cups wereslightly compressed, causing some cups to crack at the edges. When consumers tried to removeone of the cups, they sometimes pulled the top from an adjacent cup. The problem was thestrength 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. Itappeared that the new package was performing satisfactorily. Negotiations with Clover Valley’scarton supplier resulted in an estimated price of 8.5 cents for the first 100,000 units. Thereafterunit costs would drop to 7.5 cents per 6-oz cup.Mr. Roth decided that the best multipack carrier presently possible had been designed. Hisattention 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 markettesting: JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember Unit Sales of Yogurt- 8oz Tubs (6oz after June 1977)19741975197619771,2033,5317,8999963,5617,6299603,2586,6778533,8886,0818614,4255,8149154,04412,726a9783,54613,4221,2543,69615,1051,2123,56123,6011,7401,4854,73123,2141,4372,9284,49922,1461,3473,5286,17717,916 JanuaryFebruaryMarch 19743,8824,0154,061 Unit Sales of Yogurt- 1lb. Tubs197519763,7153,9373,5963,8333,6703,285 19773,7253,5103,344 197818,59420,18720,67620,19918,42014,42416,71616,71618,657- 19782,9713,2322,866 AprilMayJuneJulyAugustSeptemberOctoberNovemberDecember 3,5733,3103,2523,3833,7213,4153,2763,8654,110 3,4053,4823,3763,3663,3073,2753,4504,6503,908 3,3333,6093,3662,8372,6162,7292,8163,3753,386 3,5033,1013,5373,8273,1032,8713,0282,7963,086 3,3922,3902,0942,5892,3842,895- *** a = 6oz. Tubs ***Dear Vince, Concerning the market test of the new cups and carriers, I have a few suggestionsthat may be helpful, although the final decision is yours. I think we should look for a few outletswhere 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 weekend.2. In the next two weeks, we’ll only deliver the multipacks 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 itsacceptance.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. 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?