Natureview Farm

A Case Study Analysis: Evaluating Strategic Options

Table of Contents
Organic Growth and Thoughts of Expansion.............................................................................2
Evaluating Opportunities and Potential Issues...........................................................................2
One Choice, Three Possible Paths................................................................................................3
Option #1: New Market Development with 8-ounce Cup Size...................................................3
Option #2: New Market Development with 32-ounce Cup Size.................................................4
Option #3: Product Development with Childrens Multipack.....................................................4
Decision Criteria and Analysis.....................................................................................................5
Recommendations: More Than One Strategy?...........................................................................5
Appendices......................................................................................................................................6
Appendix A: Placement of Strategic Options.........................................................................6
Appendix B: Cost-Benefit Analysis of Strategic Options.......................................................6
Appendix C: Financial Value Added Analysis........................................................................7
Appendix D: Pro Forma Analysis of Strategic Options.........................................................7
Works Cited......................................................................................................................................8

Organic Growth and Thoughts of Expansion

People do not usually think of family recipes as something that will make them rich. However in
the case of Natureview Farm Incorporated, that is exactly what happened. When it was founded
in 1989, the organization generated roughly $100,000 in revenue. In a matter of 10 years, the
Natureview watched their revenues grow to approximately $13 million and had developed their
brand into a popular choice in the market for organic and natural food options through
authenticity. They were able to accomplish this with their differentiated all-natural yogurt
product which is described as smooth and creamy due to a special process in production.
Additionally, the organization expanded their product offering over time from two flavors
(vanilla and plain) and two sizes (8 and 32 ounces) to fruit on the bottom offerings in their 8ounce cup size. Made from natural ingredients and milk from cows not aided by human growth
hormones, their product offering gave them a competitive advantage with an extended shelf life.
While most yogurt last about 30 days on the shelf, theirs typically lasts 50 or more days.
Natureview capitalized on this competitive advantage and brand expansion in a number of ways.
It allowed for them to have flexibility in shipping and plant placement. With a longer shelf-life,
it was not absolutely essential that their products be immediately shipped from production to the
retail location. However, their competition was constrained by their products inferior shelf life
which ultimately led to more plants being built closer to retailers and need for faster delivery. In
addition to this competitive advantage, their presence in the natural foods channel allowed them
to sell their products at higher price points due to the growing demand for more wholesome and
healthy grocery options. Additionally, the strong relationships they had developed with those
retailers made the process of doing business much easier.
Now Christine Walker, the Vice President of Marketing at the time, had been tasked with
growing revenue by more than 50% before the end of 2001, from $13 million to $20 million.
However, one thing she needed to keep in mind was that the company had also struggled to
maintain a consistent level of profitability and finding a way to change that would be preferable.
After a good amount of collaboration among departments and top executives, the strategic
options Natureview that were being pursued had been narrowed down to two overarching
directions to take the company. First, they could enter into the supermarket channel by offering
either 8-ounce cup sizes on a large scale or 32-ounce cup sizes on an intermediate scale.
Although the new market entry was considered to have its risks, the revenue-generation
potential, if successful, would bring about another large opportunity for explosive growth for
Natureview. Second, they could simply expand their offering in their current natural foods
channel. This would require offering a new product (a childrens multipack). Overall, the
organization would have to choose between one of two directions to take the company by
choosing one of the three options.

Evaluating Opportunities and Potential Issues

The main problem with pursuing any of the three options was the issues that would arise related
to channel management and conflict between the interests of the various stakeholders of the
organization. Entering into the supermarket channel would cause friction with their existing
natural food channel relationships. If they were offering the same products at supermarkets at a
significantly lower price than what the natural food retailers were charging, this would hurt sales
and hurt the relationship Natureview would have with them. Additionally, if the organization
decided not to expand into the supermarket channel, the various executives would be upset and
feel like Natureview was not serious about capitalizing on the various growth opportunities that
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were available to them. In general, Walker had a very tough task ahead of her. How was she
going to balance all stakeholder interests while also ensuring financial viability moving forward?
Before the organization decided on which path to choose, they needed to ensure there was a
system in place to evaluate the strategic advantages and risks of each option. Additionally, they
needed to figure out how to deal with any conflict of various stakeholder interests and ensure
their channel management strategy could reconcile any issues that may arise. Now, an entrance
into the supermarket channel in a noticeable and widespread fashion would cause friction with
their natural food channel. Was there a way for Natureview to accomplish an entrance into the
supermarket channel without majorly disrupting the sales in their natural foods channel?
Additionally, if they chose to the new product offering in the existing natural foods channel,
would there still be a way for them to develop a possible entry strategy into the supermarket
channel that would allow for incremental adoption as opposed to an all-at-once mentality?
These are the questions that needed to be answer and the issues that needed to be resolved before
Natureview could narrow their three choices down to one final recommendation. With that in
mind, the financial and strategic benefits and risks of each option will now be evaluated.

One Choice, Three Possible Paths

As seen in Appendix A, the various options take distinct places on the Ansoff matrix in terms of
market and product placement. While options #1 and #2 are market development strategies,
option #3 is a product development approach. While a market development strategy typically
costs more upfront, their upside revenue potential is very lucrative. On the other hand, while a
product development strategy may not the same level of revenue potential, it does have
significantly lower additional costs to implement. With that brief overview, we can now evaluate
the strategic options in more detail (also see Appendix B for a less cumbersome representation
of the analysis). Additionally, Appendices C & D provide the full analysis of the financial
insights outlined below.

Option #1: New Market Development with 8-ounce Cup Size

As mentioned before, this option poses a threat to the current relationship between the natural
food channel retailers and Natureview. It likely poses the greater threat because the 8-ounce cup
size option would introduce the largest volume of product to a new market and would pose a
direct threat to the sales at natural foods retailers. However, for Natureview, this option
represented the greatest revenue potential earner and provided a way for them to stay ahead of
their competition. They would have a significant first-mover advantage if they were the first in
their category to introduce a product in the supermarket channel. Lastly, the organization
pointed out the incredible success of two other natural food brands that had achieved increased
revenues of more than 200% in just two years following a supermarket entry.
The financial analysis, however, generated a great deal of concern in terms of what Natureview
could expect in terms of profitability from a widespread new market entry. Although the main
goal of Natureview is to grow revenues to $20 million by 2001, this option would do that at the
expense of generating net losses of just over $1 million for 2000 and 2001. While revenues
would rise to about $40 million per year, the company would continue in the habit of operating
under an inconsistent level of profitability. This is likely due to the large-scale nature of this new
market entry. Thus, the revenue potential is high but the initial costs up-front and moving
forward yield the results we see. Now, if the organization saw more than 2% growth from 2000
to 2001, then their net income would likely turn positive, especially if the growth was anything
above 5%. Then, moving forward, it would likely see positive net income from year to year after
the supermarket adoption reached a higher level. However, there is a significant chance that this
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option would greatly hurt the relationships and revenues generated from the high price-point
natural foods channel.

Option #2: New Market Development with 32-ounce Cup Size

Like the first option, the new market entry poses a potential threat to the relationship Natureview
has with their natural food retailers. However, it does not seem that this option would create as
much friction for the relationship. At a significantly lower number of units and larger cup size
(32-ounce) being introduced into the new market, Natureview would cause less of a ripple in the
sales of their natural food channels retail stores. The main advantage of this option is the higher
gross margin it provides compared to the 8-ounce cup size option. Additionally, there was less
competition in this cup size and their shelf-life competitive advantage brought about a significant
ease of entry. This cup size had also achieved a 45% market share for the size segment within
the natural foods channel. If this market share was achieved in the supermarket channel, it
would develop a viable long-term financial benefit to the top-line. Lastly, slotting fees would be
10% of the cost that would be incurred with the first option ($4.8 million compared to $480,000).
The difference in cost between the first and second options is what allows the second option to
be profitable. Additionally, although it does not generate as much revenue, there is significantly
less risk in terms of payback period and initial investment. Option #1 goes for the home-run in
terms of revenue at the expense of operating under a net loss; option #2 plays it safe by ensuring
profitability even though revenue size and growth are not as substantial. Overall, this second
option promotes a greater devotion to a larger number of stakeholder interests; the first option
would appear to damage relationships to a greater degree if implemented and satisfy fewer
stakeholder interests collectively.

Option #3: Product Development with Childrens Multipack

This option is on the other end of the spectrum from the first and second options. This strategy
would result in the organization holding off on entering a new market. Instead, it would develop
a new product in order to better tailor to the needs of their existing market, the natural foods
channel. This option would also bring about different and unique strategic benefits compared to
the other two options. First, the new product would help further build the already solid
relationships Natureview has with the natural foods channel. Yogurt continues to be a very
important product for the natural foods retailers and that relationship should be maintained.
Second, many in the organization do not feel that they have the resources to handle a new market
channel management strategy. Many believed that the changes necessary that would be made to
the current marketing strategy would yield more harm than good. Third, the natural foods
channel was still growing at seven times the rate of the supermarket channel. Many within the
organization believed that capturing this value was more important than the value available for
capture in the supermarket channel. Lastly, the financial potential was lucrative, the details of
which will be outlined below.
Although the third option would add the least amount of additional revenue, the gross margin
and profitability results would far outperform the other two options. This option would bring
about the greatest increase in profit due to its very required initial investment. These substantial
financial benefits exist due to the absence of additional investment related to new market
penetration. By operating within a current market, the only additional costs incurred are research
and development for the new product and additional advertising. However, additional
advertising would also be greatly reduced due to the brand recognition and current advertising
devoted to the brand within stores. Additionally, it is not outside the realm of possibility that one
of the first two options could be pursued in addition to having the third option as the focal point.
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Decision Criteria and Analysis

Now what should Natureview use as a criteria for deciding with option to ultimately pursue?
There are a number of stakeholder interests and internal directions that need to be aligned in
order for the growth strategy chosen to be accepted and embraced both internally and externally.
First, the result of all final decision on what to do should meet the revenue goal of $20 million by
2001. However, this goal does not need to be grossly overachieved. It would be better to grow
steadily than to grow explosively and then crash. Second, the final recommendation must
contribute to consistent profitability for Natureview. Thus, there must be evidence that there is a
high level of confidence that the option(s) chosen will contribute to the bottom-line goals in
addition to the top-line requirements. Lastly, the strategic option strategy chosen must seek to
satisfy the greatest number of internal and external stakeholders. Overall, the organizations
customers and wholesale buyers must be kept happy in order to ensure the top-line experiences
does not experience any undue stress or decline. With that, a final evaluation of the strategic
options must be conduction and a final recommendation must be made.

Recommendations: More Than One Strategy?

The three options each provide their own strategic benefits and pose their own unique risks to
Natureviews business model. In recommending what should be done to Christine Walker, the
following recommendations and action plan would yield the best result for the organization
based on the analysis found in this report and in the appendices.
For certain, the third strategic option must be pursued. It offers the least amount of downside
risk while offering a desirable level upside in terms of profitability and revenue. Additionally,
the relationships with the existing natural foods channel will be maintained and strengthened.
The rapid growth that the channel is still experiencing relative to supermarkets is value that
Natureview must capture. Lastly, this option provides the best source of consistent profitability
and brings the organizational to $19 million in revenue in 2000. The projections in Appendix D
are conservative and do not show Natureview reaching $20 million in revenue with this option
(all of the projections are conservative to convey uniformity in analysis of the options).
However, taking into account the expected growth of the natural foods channel and the want and
need for a childrens option, it is more likely than not that the $20 million revenue goal would be
reached. Now, the question remains, if Natureview pursues the third option, what happens to the
other two?
These two options should by no means be thrown out for good. The only reason these options
should not be pursued now is because they need either be further developed or implemented on a
smaller scale. The recommended action plan would be to introduce the 32-ounce cup size option
into the supermarket first to test the effect it would have on the natural food channel. If it has
little effect, then consider adding the 8-ounce option into the mix on an incremental basis as the
brand gains recognition in the channel. Once the brand has established itself, then a more
comprehensive market development strategy can be implemented. However, the relationship
with the natural food channel must be maintained.
In short, the third option must be implemented to satisfy and align the greatest number of
stakeholder interests. The other options should only be pursued incrementally and only to the
point at which they do not harm the natural foods channel relationship. If Christine Walker
proposes this longer-term strategy, it is much more likely that all stakeholder interest will be
satisfied eventually than some not being addressed at all.

Appendices
Appendix A: Placement of Strategic Options1

Option #1: Market Development

8-ounce cup (six SKUs) introduced into supermarket channel
Option #2: Market Development
32-ounce cup (four SKUs) introduced into supermarket channel
Option #3: Product Development
New childrens multipack produced introduced in current natural foods channel
Appendix B: Cost-Benefit Analysis of Strategic Options
Benefits

Costs

Utilitaria
n Ruling
(1-10)

Option #1
Option #2
Very high revenue
Intermediate revenue
potential
potential
Greater scale
Positive net income
achievable
venture
Natural food channel
Unknown effect on natural
relationship damage
foods channel relationship
Operating under a net
loss
More harm than benefit
More benefit than harm with
with large-scale market
a medium-scale market
entry (4)
entry (7)

Mostly benefits with little harm

potential due to financial
performance projected (9)

1 "Ansoff Matrix Template and Professional Matrix Software." Web.

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Option #3
Highest profitability
Maintain natural food
channel relationship
Lowest initial investment
Lower revenue addition

Appendix C: Financial Value Added Analysis

*For slotting expenses: 101 retailers; $10,000 fee per SKU per retailer; Option 1: 6 SKUs; Option 2: 4 SKUs

Appendix D: Pro Forma Analysis of Strategic Options

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Works Cited
"Ansoff Matrix Template and Professional Matrix Software." Ansoff Matrix Template and
Professional Matrix Software. Web. 31 Mar. 2015.
Fleming, Karen M. "Natureview Farm." Brief Cases. Harvard Business School Publishing,
7 June 2007. Web. 31 Mar. 2015. <https://cb.hbsp.harvard.edu/cbmp/content/32486931>

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