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III.

Investing in organic growth from in-house new products:


Anna Chong, Chief Innovation Officer, concentrated on the need for strong new methods for
product development, while Brannigan worked mostly in traditional categories and
products. She recommended an increase of more than 35% in the R&D budget. The projects
she found were' Deli Soups,'' Active Lifestyle'' Great meals.' This option would deal with the
changing consumer needs in the soup industry and develop new products at lower costs
than acquisition. In addition to unmet profit expectations, shorter life cycles have frustrated
retailers. In fact, it would not be possible to delegate new product development costs to
specific products. Below are the advantages and disadvantages of the proposed strategy.

Advantages:

1. The latest categories, such as chicken noodles and quick and simple Mediterranean
tomato basil, packed Deli soups, ' weight keeping devices, ' active life styles etc. They
will encourage you to enter into new categories.
2. In contrast to inorganic acquisitions of other businesses with many obstacles
mentioned in this last paragraph, it will be less costly to develop new products in this
way.
3. Brannigan should strengthen conventional strengths (new products based on the
most common soups of Brannigan).
4. Discuss rising needs of consumers and represent the class of product technology.
Brannigan is not seen by retailers as creative. Regularly developing new goods and
producing new and exciting flavours will lead to changing this view.
5. It makes a price increase of 0,10 dollars per can, resulting in a net profit of up to 12
million dollars. A further gross profit of up to 6 million dollars can be made if there is
new shelf space that is certainly low. A 90 percent chance of revenue benefit from
new products.

Disadvantages:

1. Cannibalization of existing product lines would result in the introduction of new


products. As mentioned above, retailers do not want to increase the shelf space in
Brannigan. Clark figured that the opportunity to win shelf space was just 5 per cent.
2. The latest 7 percent (Exhibit 1) success rate results in approximately 1 out of 10 and
the development of new products is approximately $8 million per year.
Nevertheless, new products usually recover at least their development and
marketing costs.
3. The accurate R&D costs for new products can be difficult to allocate, with only 10%
of ideas for new products developing.
4. The costs of introducing new products with short life cycles that do not meet the
expectations of their profit and sales are also intolerant to retailers. Brannigan has
been continuously responsible for stock costs, refunds and other payments for each
new product. There is a risk of loss of the reputation of retailers, which could lead to
a disruptive dispute over networks.

This strategy's projected revenue statement is given below:

Year 2011 2012 2013 2014 2015


Net sales of Brannigan's Foods worldwide 7330 7979 8230
Net Sales of US Soup Division 3034 2973 2929 2894 2866
Less:
Cost of goods sold 1669 1635 1610 1590 1574
Marketing, R&D, Selling Expenses 425 416 423 419 416
Other expenses 625 627 600 588 576
Net Earning 315 295 296 296 300
Broken out of Marketing and selling
expenses
Advertising and Promotion 189 178 180 171 163
Table 6: Projected income statement from strategy of Anna Chong (in $ dollars)

As can be seen from the table, the short term target of 3% growth in profits will not
be achieved using this strategy. However, the net profits start showing an upward
trend from 2015 onwards, meaning there is a potential for long term growth.

The following is the analysis according to Clark's decision criteria:

Volume versus profit: the strategy can result in up to $12 million in incremental net
revenues. An additional gross profit of up to 6 million dollars can be achieved by
gaining fresh store space, which is certainly very low. The 90 percent chance of gain
from new products would occur.

Short-term versus Long-term: the long-term growth of new flavor and brand is the
goal of this strategy. But net profits are showing an upward trend since 2015, which
means that there is a potential for long-term growth. This is not the short term
target.

Brand value versus Brand restriction: Customer views of Brannigan as being behind
rivals for wellness, nutrition and comfort patterns and retail innovation. That can be
fixed by this technique. However, there will be a great deal of restriction of limited
shelves and cannibalization.

Category trend versus Quality: This approach tackles a clear trend towards new
flavours and balanced and easy soups.
Health: New products like Chicken Noodle are focused on health.

Comfort: New products such as Fast-and-Simple Mediterranean basil are based on


comfort.

Risk of options: The risk of new products failing is high, since the success rate is just
7 percent (Figure 1).

Opportunities and resource limits: $5 million in increased R&D investment and


additional marketing advertising for new product lines will be needed in this
strategy.

What we do well: What we do well: Brannigan is not perceived as innovative. This


fact and the low success rate of ideas show that developing new successful products
are not Brannigan’s strength.

Competition: This class is highly competitive because market dynamics depend on it.
Brannigan will have to rely sooner or later on this product line in order to sustain
demand and defend its market share.

This strategy is full of difficulties and, given Brannigan's low success rate of 7% of
new products and the associated costs, cannot be counted on for long-term growth
on its own.

IV. Core Investment:

The promotional costs for Brannigan's main RTE (preparing for eating) items will be
increased by US$ 20 million by Bob Pugh, Director of Marketing and Sales, to raise
brand awareness. The organization also wishes to reduce the RTE soup prices by 5
cents per can, with RTE soup prices increasing by on average 2 percent per annum
during the past 5 years. In order to improve production efficiency and reduce
production costs, he also recommends a $22 million capital investment. By adopting
this strategy, the risk of new products not being effectively placed on the market
would be reduced since they focus on core products, the most successful products of
the soup business. Investment in manufacturing and marketing, however, is an
enormous investment and the fall in prices could affect the premium brand image of
Brannigan. Below are the benefits and drawbacks of the strategy:

Benefits:

1. This reduces the risk of the failure and associated cost of new products.
2. The gain on the mature product, i.e. cash cow milk (BCG product matrix), shall be
maximised.
3. The' Boys and Girls Love Soup ' plan will attract young customers.
4. Any dilution of brands caused by a reduction in perceived value due to higher
prices and a decrease in RTE goods marketing costs will be reversed, thus reversing
market declines.
5. Senior management and a large part of the sales force will probably support the
strategy. Mr Pugh himself is the company's Vice President.

Drawbacks:

1. Reducing prices might harm the image of premium brand. It can also trigger dollar
sales to decline if there is no rise in soup can't sales.
2. The strategy focuses on a mature product with decreasing sales (10.5% and 3.8%,
Table 1). This strategy can therefore result in loosening market share and is not very
workable in the long term.
3. The budget calls for capital expenditure of $22 million. This is expected to increase
investment and depreciation (similar to alternative 2).

Mr. Pugh's estimated sales projection and the corresponding projected returns are
shown below:

2012 2013 2013 Pugh 2014 Pugh


Traditional ready to eat soups
Ready to serve wet soups 998 893
1819 1962
Condensed Wet soups 917 882
Broths 414 439 439 466
New products, acquisitions last 10 years
Low Sodium RTE "Heart Healthy" 321 356 356 395
Annabelle's Fast n Simple 71 79 79 88
Dry soups and mixes 53 54 54 55
Other, including private label 199 209 209 219
Total Sales 2973 2913 2957 3186
Table 7: Projected sales figures as per Bob Pugh (in $ millions)

Year 2011 2012 2013 2014


Net sales of Brannigan's Foods worldwide 7330 7979 8230
Net Sales of US Soup Division 3034 2973 2957 3186
Less:
Cost of goods sold 1669 1635 1626 1752
Marketing, R&D, Selling Expenses 425 416 427 447
Other expenses 625 627 600 588
Net Earning 315 295 304 399
Broken out of Marketing and selling
expenses
Advertising and Promotion 189 178 189 209
Table 8: Projected income statement (in $ millions)

The research according to Clark's judgment criteria is as follows:

Volume versus Benefit: This strategy will lead to significant sales and profit growth,
as shown in Table 8.

Short-term versus long-term: this approach focuses on the 3 percent short-term


growth target. The customer preference for safer and more realistic goods is not
discussed. Therefore, when category sales have declined steadily in the past (10.5%
and 3.8%), the long-term growth potential is reduced.

Market equity versus market limit: This approach focuses on the core products of
Brannigan that may lead to increased brand equity.

Trend versus performance of the category: There is a clear tendency towards new
flavours and healthy soups, which are not addressed in this strategy. However, this
approach has the potential to offer better short-term sales performance.

Health: Typical RTE items are not health-focused.

Comfort: Traditional RTE products are not comfortable.

Risk of options: This strategy focuses on the quick maturing cash cow – the RTE
soups – and the milking of brannigans. In the long run, Brannigan will lose its market
leader status if it does not comply with changing consumer preferences.

Opportunities and resource limits: $22 million in capital spending for manufacturing
plant upgrades and $20 million of additionals in promotional expenses will be
required for this strategy.

What we are doing well: This approach focuses on the core products of Brannigan
and thus plays an important role.

Competition: This class has strong competition but the RTE soup market is declining.
Competition is focused more on nutritious and easy soups, which allow Brannigan to
actively promote its products and gain market share from its rivals to keep up with
consumer trend.

This approach is too short-term to actually take into account all of Clark's criteria. In
order to meet consumer preferences, new products will have to be placed on the
market, otherwise Brannigan risks losing its market leadership role. This strategy will
not be viable in the longer term, even if it succeeds quickly to stem the decline in
sales and profits. Brannigan will then have to take a new approach.

Conclusion:

Table 8 shows that net revenues are growing year-by-year to 399 million or 3.05 per
cent in key segments of Brannigan's feedstuffs, as suggested by Bob Pugh. In 2014,
the sales will rise to 3186 million. Brannigan should look forward to maximizing
profit on the maturing product as a market leader in the ready-to-eat segment (RTE).
Clark has a long term strategy to decide as well. Inorganic development is negative,
as it had experienced operational difficulties five years ago with the purchase of
Annabelle Foods. They should therefore address customer preferences through the
internalization of new products. Although additional R&D expenditure of
approximately 5 million and additional marketing costs for new products may be
required, increased profits can be achieved by increased investment in the core
products. This would also boost Brannigan's reputation as an innovator and continue
to build consumer brand equity. To order to fulfill all his decision requirements, Clark
would thus have to follow alternatives III and IV.