Background
Neptune Gourmet Seafood is a leading firm in N. America’s $20 billion seafood industry with an estimated capital of $820 million (Case Study, 1998). It offers a range of high-quality seafood products, including the Neptune Gold line. The major issues, in this case, include excess inventory, inappropriate marketing strategies leading to accumulation of inventory, quality improvement to achieve 25 to 30 percent price points, and a decline in sales (10%) compared to the previous year (Case Study, 1998). The firm plans to introduce a new and cheaper product (Neptune Silver) into the market to reduce its inventory levels. This paper analyses the case to determine whether a class or a ‘mass’ marketing strategy is appropriate for launching the new product.
Analysis
Features of Neptune’s Business Position
One key feature of Neptune’s business that triggered the discussion to introduce an inexpensive product line is the high inventory levels. The current inventory represents a threefold increase from the previous year’s levels. Additionally, Neptune’s sales dropped by 10% compared to the previous year’s revenue because of high production costs and stiff competition in the industry. Thus, the high inventory levels and declining sales necessitated the decision to add an inexpensive brand to Neptune’s product line.
The Effect of the New Brand (Neptune Silver)
The introduction of the new brand (Neptune Silver) will affect three aspects of Neptune’s business, namely, revenue, supply chain, and market. The new brand will be sold at a lower price than the Neptune Gold line products. This will affect the firm’s revenue, as it has already invested $9 million in new fishing trawlers. The new brand will also affect the supply chains. Neptune must find an independent wholesaler to market the inventory as a new less costly brand. Third, the brand will compete with the existing products (Neptune Gold line). In this view, the COO is considering selling the new brand outside the existing North American market.
Rita Sanchez’s Proposal
Rita Sanchez proposes deep price reductions of up to 50% as a solution to Neptune’s inventory problems. This proposal is reasonable considering that the firm has tripled its production and the inventory has grown to two times its usual level. Moreover, even with the “demand reaching an all-time high”, the inventory level is still rising (Case Study, 1998, Para. 7). Thus, only price cuts can reduce the high inventory and ensure sustainable production.
Hargrove’s Objections to Sanchez’s Proposal
Jim Hargrove, Neptune’s marketing manager, objects to Sanchez’s suggestion to reduce prices by between 40 to 50 percent. He notes that huge price cuts will create the perception that the firm’s products are of low quality and drive customers away. For the last ten years, Neptune has occupied the top spot in Connoisseurs Choice magazine due to the high quality of its products (Case Study, 1998). He fears that price cuts will affect the firm’s brand equity and market share. Additionally, the proposal will attract unprecedented price wars that will affect growth in the industry.
Hargrove’s objections are reasonable considering that the firm has experienced a 10% revenue decline in the past year. Additionally, the rising sunk costs and intense competition have had a big impact on Neptune’s revenues. Thus, price cuts will only eat into the firm’s dwindling profits. The proposed cuts may also create negative perceptions about the quality or safety of the firm’s products, which will damage the company’s reputation and lead to a decline in market share (Joshi, 2005). It may also precipitate price wars that can affect the firm’s performance further.
Strengths and Weaknesses of the Experts’ Analyses and Recommendations
The experts note that the firm wants to introduce a low-priced brand in the existing market that is served by the Neptune Gold line. Moreover, the management is considering taking the low-priced brand to a new territory. The recommendation that the two brands be kept separate relates to class marketing. ‘Class marketing’ will allow Neptune to differentiate its products according to the characteristics of each market segment (Burrow & Bosiljevac, 2005). However, moving clients from the low-end to the high-end product would mean new brand labeling, which is costly.
Additional Information Needed
In setting up Neptune’s strategy, additional information, such as the firm’s business networks (wholesalers and distributors), will be helpful. Additionally, information about the characteristics of the existing market will be useful in designing a market coverage strategy. According to Kotler (2006), market segment differences define how a firm differentiates its products. Information about the distributors will help determine how Neptune can streamline its supply chains to reduce the excess inventory.
Other Options not Mentioned in the Case
The main options appear in the case include price reductions (40-50%), a 10 percent discount, expansion to new markets, and new brand development. Other possible options include selling the inventory to a firm with a different brand name. In this way, Neptune can make a profit and retain its brand image. Neptune can also dispose of the excess inventory to independent distributors at a reduced price. Another probable solution is to identify potential geographical markets not reached by its current product line. This will allow Neptune to introduce the new brand at higher prices and avoid losses associated with deep price cuts.
Recommendation to Hargrove
The writer’s recommendation to Hargrove is to adopt a class marketing strategy. This will allow the firm to sell the two brands in different market segments. In the short-term, the excess inventory can be sold to independent wholesalers. The writer will propose these views to Neptune’s senior management level to influence strategic decisions.
References
Burrow, J., & Bosiljevac, J. (2005). Marketing. Nashville, TN: South-Western Educational Publishing.
Case Study: Class or Mass. (1998). Web.
Joshi, R. (2005). International Marketing. New York: Oxford University Press.
Kotler, P. (2006). Marketing Management. London: Pearson.