Analysis of Neptune Project - Essay Example

Introduction Neptune has a peculiar problem. It is overproduction. It is the third largest seafood processor and seller in the North American marketand it sells its ASPD Gold Seal approved products at a premium. . A big reason for increasing capacity and buying most modern freezer trawlers was the government regulation that forced fishing companies to fish in deeper waters and farther away from shores. To overcome this restriction Neptune has invested $ 9 million to buy modern freezer trawlers with advanced technologies that could freeze the fish at 70 degrees F which ensured that the products had a longer shelf life. The scale of operations cannot be reduced as it will affect the scale of economy hence inventory piles up. This has meant bigger and better fleet which resulted in larger catches which has bloated the inventory. The inventory now stands at sixty days requirements as against 20 days stock they used to hold a year ago. The disposal of this stock is causing problems. If it is not sold it will have to be thrown away due to its perishable nature. This is the root cause of the problem and the Marketing Director has come up with a suggestion to reduce prices by 50% to dispose of this stock. Her suggestion has caused a furor in the company management and at a recent meeting of the Marketing and Operation Council (MOC) of the company everyone seemed to have a different opinion to solve this problem. The outcome however has been in favour of two different views. One opinion is that the company should reduce its price by 45% thereby increasing its sales volume and bring down excess inventory to far lower levels. The inherent disadvantage here is that this will encourage the competition to do the same and the result will remain the same. Unless market share is increased this move is more likely to create chaos. It will also result in loosing customer confidence as the premium status of the product will be lost. The fear is that there will be immigration of customers to other suppliers. It was further pointed out that this loss could be mitigated by selling the excess inventory by calling it a different brand. It was argued by those who advocated this first policy that this would spare the premium brand and would attract new customers looking for low end products. The second suggestion is to offer deep discount to its captive customers only. Neptune has around 300 restaurants who are its regular customers and it is proposed that they be offered up to 45% discount on additional off take. It was argued that this would not be considered as price cutting and would avoid a price war with competition. This would also target a closed market which had the potential to absorb more quantities if the price was right. This would help the restaurants increase their own customer bas by offering different fares and would not hurt the image of Neptune in the market. Unable to decide between the two alternatives and looking for a solution, the CEO turned to look for an independent Consultant who has the qualifications to suggest a solution to the vexing problem. Consultancy Project Report To The CEO, Neptune Gourmet Seafood Co From XYZ Consultants Subject Project Consultancy XYZ Consultants The Consultants are a well established and have exposure in the seafood industry for over the last decade and have been credited with several successful projects launched by many clients around the whole of USA. Appreciation letters issued by several clients are available on request. They are able to offer practical solutions to the industry... They offer a practical solution to this problem of excess inventory. The Consultant’s Team The consultants have a varied team consisting of technical personnel. They have technical experts who have several years of background working in the industry in various technical positions. Besides they also have people who have great exposure in marketing of consumer perishable items, including seafood. They have the knowledge and understanding of marketing policies and their application in particular situations. There is back up of research staff which assists in collecting and collating vital data and statistics for our experts to make models for forecasting the future alternative course of actions. Apart from this support team, the consultants are personally involved in the seafood processing industry for the last decade and are intimately aware of its strengths and weaknesses. The Proposal The consultants are proposing a balanced approach and will suggest a long term solutions in place of a quick one that will only have temporary effect. The company will in the foreseeable future continue with high catches and has no choice in the matter. With a large modern fleet of trawlers and richer fishing grounds in deep waters it is getting larger catches. It also has to work on economies of scale to produce at efficient costs. This will invariably mean higher inventories. If Neptune opts for price reduction it will invite competition to a price war which will damage its reputation and increase losses in the long run. If it introduces a separate brand similar to its present ASPD Gold seal of Approval, it will invite the wrath of the US Association of Seafood Processors and Distributors and possible withdrawal of the Seal of Approval. If it floats a new company to sell product at lower prices, it will loose Brand Equity as it will be difficult to convince customers that they belong to the same Neptune stable The answer lies in expanding its market share. In the $20 billion market Neptune’s share is just $ 820 million and there is huge scope of increasing this share. The way out is to identify customers and to make it attractive for them to buy Neptune’s products. It is also heartening to note that the demand is on the rise too as people are getting aware of seafood being healthier than meat. It is proposed that Neptune should tap this huge potential to take care of higher inventories. However for this it has to first decide on marketing strategies. The Consultants will undertake segmentation studies to identify the potential and then suggest strategies for marketing and implementation. Prior to that, the Consultants have made a SWOT analysis to clarify the status for the management. SWOT Analysis A SWOT analysis means checking out Strengths, Weaknesses, Opportunities and Threats. A SWOT of the company describes these and helps the company to arrive at decisions based on facts rather than assumptions. A SWOT on Neptune discloses that the Strengths of the company lie in its modern fleet with freezer trawlers. It can offer seafood that has a longer shelf life and better taste as it is frozen at 70 degrees F. The company also has a well organized marketing system and as much as 70% of its sales are to captive customers comprising of 300 restaurants, wholesale distributors and its own retail fish market. The Weakness lies in unplanned inventories. Due to restrictions in fishing in coastal waters the company was forced to go out to deeper sea fishing. This has resulted in higher investment of $9 million in acquiring freezer trawlers that bring in a higher catch that needs to be sold. If unsold it will be total loss as it has to be destroyed due to its perishable nature. This gives rise to an Opportunity. The extra inventory can bring in further revenue if it can be sold at a profit. But for this Neptune has to devise a marketing strategy carefully. The threat lies in the Strategy. If it cuts prices it is likely to loose customers as they will migrate to lower price product at the cost of its premium product. If Neptune tries to overcome this by co-branding as a lower end product it will hurt its Brand Equity and image as a premium product company. If it offers discounts openly to all then it will invite similar discounts from others and will ruin its balance sheet. As it stands there is already 10% erosion in margins. The Theory of Segmentation For an effective and efficient Marketing strategy, segmentation is an important tool, but segmentation research data precedes selection and segmentation methods models and procedures are based on customer profiles. Profiling requires certain pre-conditions and they are that a group of customers need specific products and there is nominal variance in their expectations. This will result in effective and profitable Targeting. Targeting is the process, by which this segment selection takes place and is determined when, Valuation of product is similar in a group of products A set of products is a suitable substitute for another similar set Behavior and/or value is the basis of selection Evaluation identifies the target segments Marketing segmentation would therefore cover the process of dividing customers who have a common need for common variety of products whose preferences vary in very narrow bands for these items. There will be several grades of customers. What determines the customer motivation and behavior is normally determined by the 4P’s, viz, Product, Price, Promotion and Place. Lately another 3P’s have been added to the list and they are People, Process and Physical Evidence. (CIM) Briefly the Product has to be acceptable by its nature and content and in this case the freshness of the Neptune Fish will be the unique selling point (USP) Price does matter and a lower price associated with quality will attract customers. Promotion means offering product in attractive packaging and offering value for money and assuring continuity of supply. Place would mean that it is available at the right area and time where the customer expects to find it. People would mean that the marketing or selling staff should be knowledgeable and helpful about product to raise the comfort level of the customer. Process will cover quality issues and will be required to be easily understood by customer to gain his confidence in the product. Finally Physical Evidence will cover easy and regular availability Marketing success depends largely upon the ability to divide the segments of different class of customers and catering to their particular and peculiar requirements based on the seven P’s described above. The fundamental factors for a company while deciding on segmentation are: Similarity of customer needs and wants and the customers are willing to pay premium for the products. Customers cluster into groups by need (viz., Daily fish eaters, Casual, Preference by type or variety or price). However there is a great need to strike a balance between the cost of serving the group and the value the customer obtains from the product for its special utility value that is charged for the customized product. A customized product can be priced higher or lower but higher pricing will invite competition and the efficiency of marketing lies in the final assessment. Segmentation improves the image of the company and customer recall is higher. This is the ultimate benefit the managers look for. This is also to the advantage of the stakeholders, both employees as well as shareholders. Marketing Strategies After the SWOT analysis it becomes clear that there is a clear opportunity available here. Neptune has a vast market at home in the other areas of the US where it has no or little presence so far. At the moment its sales are divided into sales to around 300 restaurants (33%), to wholesale Distributors (33%), to its own fish market (4%) and the rest to others. Sales to restaurants can be increased by offering them deep discounts of 45% on additional purchases beyond their normal daily lifting. This will help the restaurant plan new meals for those customers that a re price conscious. Neptune can also add to its restaurant client list with such dual offerings. Since this will be a well structured plan it will not be price cutting and the benefit to the restaurants will not hurt the product price elsewhere. In fact it will be a win-win situation for both the restaurants and Neptune. The strategy with Wholesale Distributors should not be changed as it will hurt the Brand Equity or the image of the company which has been selling premium product only. Instead it should look to expanding its reach all over US by sales promotions in the country on a wider scale. The company can afford this from the sale proceeds it will earn from these new markets. The additional revenues will cover this cost. This is a positive outlook rather than lowering its revenues by reducing prices. As it stands the margins are already under pressure by 10% compared to previous year due to competition from China, Peru, Chile and Japan. The next area of expansion could be the emerging markets of South America. With rising incomes and awareness of healthy food, these markets are ripe for Neptune’s premium products. Segmentation will help in locating the right centers with high acceptability and willing customers. This will be a highly productive area. A product mix is another way of looking at Marketing Strategy. With the trawlers now fishing in rich grounds there is also a larger variety available. A little effort would land a greater variety of fish and will add to the list of products. At little or no extra cost, Neptune can market more products. The inventory will then become more varied and certainly the disposal will become faster. Implementation of the Project Plan The Consultants propose that they will appoint a full team to carry out the following activities on basis of which Timelines and Responsibilities will be established. The Consultants will formulate a Working group comprising of the Marketing Director, The Sales Director and the Finance Director from Neptune and three consultants from its own core team. They will provide the input about information of catch details, process details and specifications, product availability, seasonal effects, promotion programmes, market potential and other related matters that can assist in formulating Policy. Once the broad policy guidelines have been established they will be approved by the CEO in consultation with the COO and approved. The approved plan will then be described in detail for which the Consultants will make detailed survey of the market for segmentation. Once the segments have been identified, the knowledge base of the company employees will be reviewed to locate right people for implementation of the plan. For example the marketing people will be working out for harnessing new segments of markets, both at home and abroad. Those who have any exposure to this activity will be team leaders and other will be trained to the specific requirements and knowledge that is required to work successfully in these areas. In house sessions will be organized to train the marketing staff to learn the peculiarities of these new markets and to understand the customer needs in order to attract new customers. They will be taught about the new environments and even cultures where they will be working to persuade customers to buy Neptune product range. Similarly the Production People will have to learn to process and pack the fish in different ways acceptable to the new market segments for which they are intended. The sales and finance people will all have to be trained to be in tune with specific requirements of customers or the regulatory requirements of their various markets to ensure smooth transactions. At this stage broadly speaking it should take around three months to accomplish all this and therefore the Consultants propose this as the deadline for this project from the time of its approval. Cost of the Project As the Project is estimated to last 3 months the Consultants are prepared to offer an attractive price of $ 100,000/- as their fees for Planning and Implementation. This will include training of the participants at various stages. Should the Project overshoot its target time and if it is established that this is due to the lack of time support and participation of the company personnel, then the Consultants will be entitled to $ 20,000/- additional fees per month, or part of a month, for the duration till the Project is declared as successfully implemented. The Consultants will begin work on receipt of 50% payment in advance and the balance to be paid midway at 45 days from the first payment. Conclusions Marketing has always been a difficult process and many a company have survived or perished as a result of its marketing strategy. In order to survive and thrive, a company has to adopt sound policies which will ensure that its products or services attract customers at remunerative prices. Neptune is therefore advised to engage the Consultants to carry out the exercise at the earliest. A positive attitude will be of great help and rather than looking at higher inventories as a Problem, it should be looked at as an Opportunity and this should be profitably encashed. References Chartered Institute of Marketing, Available at: http://www.cim.co.uk/cim/ser/html/infQuiGlo.cfm?letter=M Read More