Nestl Refrigerated Foods: Contadina Pasta and Pizza

Product and Brand Strategies Case Study Analysis

2012.04.15.

Author: Adam Madcsi Professor: Katalin Ndasi

Adam Madacsi (HRYRTQ) Product and Brand Strategies Case Analysis

Nestl Refrigerated Foods: Contadina Pasta and Pizza Case Analysis I. The Problem Nestle Refrigerated Foods must decide whether or not to introduce a refrigerated Pizza Kit product. Nestle must address several issues prior to product launch: Unproven concept crust packaged together with separate packets of cheese and sauce ready for home use was a new concept Product positioningthe Pizza Kit must be positioned to attract most of its customers from the takeout/delivered (75% of total market) segment Brand awareness & extensionthe product is in the same ethnic food group as its pasta & sauce product, and could damage to the brand if it is a product perceived as a low quality one Nestle should bring the Pizza Kit concept to market and position it as a high quality, reasonably priced alternative to both the takeout/delivered and frozen pizza segments. The Pizza Kit concept registered a high probability of buying similar to that of Nestls successful pasta & sauce product, and the refrigerated pizza market is not currently serviced by its competitors. Furthermore, Nestl has a sizable advertising budget to go along with the rollout. On the other hand, Nestl may damage its current Contadina Pasta & Sauce product line if the Pizza Kit product will not perform successfully in the marketplace. Brand extenuation or moreover product cannibalization could hurt in this regard. II. Estimation of Demand (Trial and Repeat Volume) (answer for question 1) Sales of a refrigerated pizza product line, called Pizza Kit have been estimated for two product concepts, one is the Pizza with Toppings the other one is the Pizza Only. The target population was 95.5 million US households. The average trial unit purchased is 1.2 units in case of Pizza with Topping and 1.1 units for the Pizza Only concept. [Table D] II./1. Estimation for Pizza with Toppings concept The concept purchase intent for Pizza with Toppings according to the BASES II research study is 17% for definitely would buy and 59% for probably would buy [Exhibit 21]. In the next step to estimate the demand, the industry rule of thumb should apply in order to adjust the trial concept test research data. According to this rule, 80% of definitely would buy respondents and 30% of probably buy respondents will actually purchase the product in practice. Therefore the adjusted trial is (0.8*0.17) + (0.3*0.59) = 0.313, which means 31.3% of the consumers. The next step according to the BASES model is the environmental adjustments phase (e.g. seasonality adjustments). The marketing plan adjustment contains the advertising expenditures, which achieves $9 million in order to reach the awareness goal of 37%. The value of all commodity volume

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Adam Madacsi (HRYRTQ) Product and Brand Strategies Case Analysis

(ACV) is estimated 58%, thus after the Marketing plan adjustment the trial rate is 0.313*0.37*0.58 = 0.0672, or 6.72%. The concept test indicated average purchase amounts of 1.2 units for the Topping concept. Therefore the trial volume is 95.5 million households * 6.72% * 1.2 average purchase units = 7.7 million and the repeat volume is 7.7*22% (repeat rate)*2 (repeat purchase occasion)*1 (average repeat transaction amount) = 3.388 million units. [Table D, Exhibit 9] II./2. Estimation for Pizza Only concept The concept purchase intent for Pizza Only according to the BASES II research study is 15% for definitely would buy and 43% for probably would buy [Exhibit 21]. Similarly to the above presented calculation, the adjusted trial using the industry rule of thumb is 24.9%. After the environmental and marketing plan adjustment phase the trial rate equals to 5.34%, so it is less than the case of Pizza with Toppings concept. The concept test indicated average purchase amounts of 1.1 for Pizza Only. Thus the trial volume of this concept is 5.61 million units. Therefore the repeat volume is 5.61*22% (repeat rate)*2 (repeat purchase occasion)*1 (average repeat transaction amount) = 2.4684 million units, which is significantly lower than the repeat volume of the Topping concept. [Table D, Exhibit 9] II./3. Demand Estimation in case of Separating Users and Non-Users In my opinion the above presented calculations are not completely accurate, because responses were differed among consumers who had used a previous Contadina product from those who were non-users. Therefore I present a calculation which differentiates the users and the non-users of Contadina products. Contadina use share at the time of the pizza introduction was estimated at 25%. Therefore 22.92 million users and 72.58 million non-users are on the nationwide market. For the Topping concept, a concept purchase intent test indicated 30% top box (definitely would buy) and 57% second box (probably would buy) for Contadina users, 15% and 59% for non-users. Using BASES model to estimate trial, 0.8*definitely would buy + 0.3*probably would buy, yielding estimates of 41.1% for users and 29.7% for non-users. (For the Pizza Only concept, the estimates were 32% and 22.2%). Based on the marketing plan adjustment, awareness was estimated at 60% for users and 30% for non-users. ACV was estimated 58% for all cases. Therefore, adjusted trial rates were 14.3% for users and 5.2% for non-users (11.1% and 3.9% for Pizza Only concept). The concept test indicated average purchase amounts of 1.2 units for the Topping concept and 1.1 for Pizza Only. Thus, sales from trial were estimated at 3.933 million for users and 4.529 million for non-users (2.799 million and 3.113 million for pizza only). Repeat rates were estimated at 0.22, with two purchase occasions. Sales from repeat rates were estimated at 1.442 million from users and 1.660 million from non-users (1.120 and 1.246 for pizza only).

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Adam Madacsi (HRYRTQ) Product and Brand Strategies Case Analysis

II./4. Variation in Parent Brand Usage Pizza is clear extension of the parent brand, because there is more awareness and affiliation to the brand. The higher numbers in favor of the Pizza concept is mainly due to the respondents who are users of Contadina Pastas as we could see above. Pastas even without much brand support showed positive response during concept testing. Pasta concept test included positioning which wasnt necessary in the case of pizza concepts. Contadina as a parent brand is well known for its fresh and tasty easy-to-cook pasta. This can be an important factor to leverage the brand awareness. A far as I concern the 25% brand penetration scenario supported by the strong and highly penetrated parent brand is relevant, accurate and applicable in the case of trial and repeat demand volume estimation. To give an answer for this question related to penetration scenarios, I dont think so, that a 5% of forecast sensitivity would be more applicable or accurate than the 25% penetration forecast value. The NRFC believed that they could reasonable expect a market penetration of 25% of the current Contadina users (24% of the 95.5 M target households). This base of parent brand users forecast sales of $36.6 million, disclosing the additional sales of toppings. This high market penetration for parent brand users requires picking up only $8.4 million in sales from non-parent brand users. Although there is a pending market introduction from Kraft, the previous introduction of the Kraft brand increased the size of the market instead of taking market share from NRFC. III. Analysis of Exhibits 13, 14 and 15 (answer for question 2) Exhibit 13, 14 and 15 compares and contrasts Contadina Pizza Concept (Pizza & Topping, Pizza Only) with the substitutes available in the market through relative concept attribute ratings by users in favor of either of the two forms of Contadina Pizzas, heavy users of Takeout Pizza and users of Frozen Pizza. From the all the three exhibits we can learn the attitudes of consumers towards the pizza market, and we can get insights about it. As a conclusion, takeout pizza is the most popular product in this market segment. Attribute ratings given by the frozen pizza users are way below the ratings given by other 2 set of users, thus frozen pizza is less preferred compared to others. To sum up Exhibit 13 and 14, the Pizza Kit lags behind with a huge margin compared with takeout pizza on taste, crush and product image of a special meal. So NRFC needs to concentrate more on the taste factor and also make it suitable for special meals. The ratings given by users favoring pre-assembled pizzas imply that they are apprehensive about the freshness, taste, availability of specific crust and toppings varieties and quality of the crust. If NRFC plans to go in for pre-assembled pizzas they need to take special care of the above mentioned attributes like ensuring the crust does not become soggy post production, crust and toppings have varieties that consumers would like. On the other hand Exhibit 15 clearly indicates that if the Contadina pizza is introduced in the market the market share of all the other pizzas already available would decrease, because 75% of

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Adam Madacsi (HRYRTQ) Product and Brand Strategies Case Analysis

the last 10 pizza-eating occasions were takeout or delivered pizza for those respondents who are favorable to Contadina pizza and who would buy it instead of another product. Exhibit 15 presented the likely trend post-trial of Contadina Pizza: There is no change in the consumption of homemade pizzas, almost no consumption of fresh pizza from supermarket, 50% and 22% reduction in consumption of frozen and takeout pizzas respectively, and 3 out of 10 times, they would prefer eating Contadina pizzas. To sum up, Contadina pizza becomes the 2nd most preferred product for the user after takeouts. IV. Pizza and Pasta concept test data (Analysis of Exhibit 6, 19, 20, 21) (answer for question 3) Among the Pizza with Toppings and Pizza Only concepts, Pizza with Toppings is more popular among the consumers. However the concept interview for the Pizza Only option was brief. Therefore there are just limited diagnostics. Those favorable were asked just why they were favorable, and those unfavorable just why they disliked the concept, therefore more extensive behavioral study have been conducted on Pizza with Toppings concept. The likeability towards Pizza with Toppings was more significant amongst both users and non-users of Contadina Pasta, than in case of the Pizza Only concept. In the pre-product launch research of Pasta there is more emphasis on the USP of the product which is not being replicated while launching the pizza. The point of understanding the market perception with regards to the packing of the product at hand has not been taken care of in the case of pizza. Moreover the whole positioning process of the pizza product is determined previously by the position of other ethnic foodstuff of Contadina. Despite being an entirely new product in the market, Contadina pastas already had a favorable response from the users. The percentage of respondents who indicated a high probability of buying is almost the same in concept testing for Contadina Pastas and Contadina Pizza with Toppings (75% and 76% respectively); the percentage is lower (58%) in case of Contadina Pizza Only concept. Comparing the concept test data for Contadina Pastas and Pizzas the ratings are the same for Likability and Concept uniqueness. Respondents have rated availability of variety, easiness and quickness in preparation, freshness, general taste and flavor as the major attributes in refrigerated pasta and pizza as well. Major contrast can be observed in the concept test data for Pastas & Pizzas is case of pricing. Respondents in favor of Pastas did not have issues with pricing of units (only 3% of favorable and 23% of unfavorable thought they were expensive). However, in case of Pizza, both respondents in favor and not in favor of refrigerated pizza quoted the units were too expensive (21% and 44 % respectively). V. Analysis of Exhibit 23, 24 and 18 (answer for question 4) According to Exhibit 23 and 24 the determined price for the pizzas are too high for the respondents. 33% noted that it is an unfavorable reason against purchase intent, that the product is

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Adam Madacsi (HRYRTQ) Product and Brand Strategies Case Analysis

too expensive. Both respondents in favor and not in favor of refrigerated pizza argued that the units were too expensive (21% and 44 % respectively). The mean price of the research in related to typical price consumers would pay for different pizza products shows as well, that the current price of the pizza line is not favorable for the consumers, it is higher than the price of the takeout pizza, which may indicated that the product is not competitively priced. VI. The success of Pasta (answer for question 6) The success of Pasta product line can be attributed to the following reasons. They could capitalize on the First Mover Advantage and on the strong research methodology adopted prior to launch, which I like very much, because it presents strong and accurate data and information about the market, consumers attitudes, opinions and perceptions about a certain product. Further, majority of the population was in favor of the concept. Another factor of the success is the main characteristic of the pasta, which it is refrigerated and not frozen to target a market niche in the US, which is completed with a large variety of the ingredients products. Furthermore, it has a good quality and freshness, and quick and convenient to make, which characteristics are perceived by the consumers as well, making a high intent and perceived value of the product, which could distinguish the product and the brand and can use as a USP for premium or superior positioning strategy. Moreover due to the acquisition of Lambert Inc, two plants, a package technological innovation, a longer shelf life and an efficient supply chain is a benefit of the product as well. VII.Similarities and Differences in the Opportunities of Pasta and Pizza (answer for question 5) Similar opportunities in case of the pasta and pizza concept are a significant market niche, which should be explored and capitalized on. Further, the umbrella brand name of Nestl is also a strong supported force for both products, which can use a sufficient supply chain management and network nationwide in the US, and has serious advertisement budget. Furthermore, the strong and effective research methodology is also a huge benefit and opportunity for the company and for both pasta and pizza concept. With the refrigerated pasta and the pizza kit, Contadina achieved first mover advantages in the market of refrigerated products. With these high quality and premium positioned products there is the opportunity also to reach high-rollers and build up a significant brand and product loyalty in the market of refrigerated products, before the competitors (Kraft) enter the market. VIII. Launching the Pizza product line (answer for question 7) In my opinion I would launch the pizza product, on the one hand because of the market niche and the first mover advantage on the refrigerated product market. On the other hand I would launch because of the strong parent and umbrella brand support, the capability of distinguishes the product and the lower marketing and positioning costs. Highly important point of view is the

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Adam Madacsi (HRYRTQ) Product and Brand Strategies Case Analysis

awareness and perceptions of the customers, in which aspect this pizza product performed well according to the market research data, mainly in favor of the Contadina users and loyal customers. Total sales were estimated from trial plus repeat for users plus non-users (plus sales of toppings for the kit option), based on estimated retail and factory prices. The estimates were factory sales of $57.763 million for the Pizza with Topping concept and $35.264 million for Pizza Only concept. BASES accuracy is within +/- 20%. Given the estimated breakeven point of $45 million in factory sales, the results are not favorable for the Pizza Only concept, which would have to be on the very high side of the error interval to be profitable. On the other hand, the Topping concept was estimated to be profitable even with the worst error. According to this data I would definitely launch the Pizza Kit product applying the Topping concept, but I definitely would not launch Pizza Only concept according to this research.

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