Ingredient Branding at the Caesan Cheese Cooperative Case Study Solution
Financial Analysis:
Financial analysis is done by calculating the breakeven point, contribution margin of introduction to the new products in the market or by continuing the existing product in the market through a focus on the customer. The breakeven is the point where the company assumed that it would cover its whole fixed cost of the product without generating any profit. However, the contribution margin shows that the per unit profit after deducting the variable cost.
If the company introducesa new product in the market then per unit price would be 4.75. A number of variable costs should be deducted in order to get the contribution margin. The variable costs per unit are composed of raw material, production and distribution cost that are 0.56, 1.06 and .95 respectively. If the company introduced the branded product then the company should have to pay a royalty fee of 0.25 per unit. Caesan’sresearchhad determined thatlaunching an artisan whiskey cheddar on its ownwouldrequireamarketinginvestmentof$1.8millioninfixedcosts for Jameson and 1.4 million for local ingredient cheese,$0.09perunitforcoupons,and $0.15perunitfortradeallowances toachievea$2millioninsaleswithinthefirsttwoyears. The contribution margin by the introduction of a new product by using a branded ingredient is 1.73 while the introduction of a new product by using a branded ingredient is 1.9.
The break-even units for the introduction of new products that contain branded units are 404858 and without branded ingredients are 454775 respectively. The total sales that the company would generate by the introduction ofa new product would be 2 million. By deducting the break-even revenue from the total sales that the company would generate, the extra revenue would come. If the company would introduce the new product with brandedingredients than the company would enableit to generate extra profit while non-brandedrevenue would give loss to the company. Further calculations are shown in exhibit-3.
Alternativesand Its Evaluation
CaesanCheeseCooperative(Caesan) has three alternatives i.e. the company would introduce the new product with branded ingredients, introduce a new product without branded ingredients and notlaunchinganewproductorfocusingonsellingmoredirectlytoconsumersonline. The feasibility of all the alternatives is based on a number of factors such as the ability of profitability generation, per unit price chances of success and so on.
Alternative-1: Launch New Product with Branded Ingredients:
One of the alternatives for the company is to launch a new product with branded ingredients. The pros and cons of launching this product are as follows:
Pros:
- The company would be able to add new product in its product line.
- By launching a new product the company would be able to improve the profitability
- The company would be able to improve its brand image.
- Reduces the fixed cost ofnew products.
- Low promotional cost.
Cons:
- The company has to do promotional activities to attract the customer and bring awareness to the customers about its new product.
- It requiresan additional investment.
- The company would have to pay royalty fees.
Alternative-2: Launch New Product without Branded Ingredients:
Another alternative for the company is to launch a new product without branded ingredients. The pros and cons of launching this product are as follows:
Pros:
- The company would be able to add new product in its product line.
- It would improve the brand image of the company and allow the customers to try new flavor, which ultimately improves the customer base of the company.
Cons:
- Due to a number of competitors in the market, it would not allow the company to generate additionalrevenue for the company.
- It requires high additional investment in comparison to the launch ofa branded ingredient products.
- High advertisement cost would be required
Alternative-3: FocusingOnSellingMoreDirectToConsumersOnline
Another alternative for the company is not to launch the new product and to focus on direct selling to consumers online. The pros and cons of this alternative are as follows:
Pros:
- High-profit margin in comparison to retail selling.
- Saves various margins of whole sellers and retailers.
- Increasing trends towards online purchasing.
- No additional cost.
Cons:
- Dependency on a limited product line.
- It would reduce the consumer base of the company, because the consumers of the company wants to try new products.
- The online sales has only a 2% contribution in overall revenue, which shows that 98% of sales of the company are generated through retail channels.
Recommendations
On the basis of the above analysis, it is recommended that the company should implement the alternative one, which is launching a new product with branded ingredients. The reason behind the suggestion of alternative-1 is that it would bring an additional profit in the company’s revenue as well as provides a new flavor to the customers which ultimately improves the consumer base of the company. The target audience of the company is upper class so the customers would pay even higher prices for buying the product. Branded ingredients would also improve the quality of the cheese that would easily attract the customers. It also recommended to the company that it would focus on selling directly to the customers through the online channels because the trend towards the online selling ids increasing day by day. By selling through online and retail as well would enable the company to capture the market easily.
Action Plan
In order to launch the new product with branded ingredients, the company hires additional staff and provides training that how to make the new cheese. After that, the company buys equipment, raw material and other things that are necessary for the production of the product. Furthermore, the company advertises its products on social media and other communication channels in order to acknowledge the customer about the new product of the company. The company also make sure that the product of the company would available at every store as well as through the website of the company....................................
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