TruEarth Healthy Foods: Market Research for a New Product IntroductionCase Analyses:

Isabel Eckstein the brand manager had let the introduction of the most

successful product of the company (Pasta Kit) in 2006 which means

that she has a very strong marketing background.

Competitors began offering similar products in 2008 which cause the growth to

slow.

Some of their competitors are Nestle and Kraft.

The do not make a rash decision. The success of Cucina Fresca was a

calculated risk based on significant research.

The company only uses high-quality durum wheat and mostly organic

ingredients.

The company further raised consumer awareness through several promotional

programs, using coupons, magazine advertisements, and in-store

demonstrations.

Idea generation. As the company grew, the idea generation process became a

more systematic evaluation of consumer trends, with formal management

brainstorming sessions.

Three important developments reshaped how consumers purchased groceries.

The first important trend was a new, loosely defined food category in the United

States— “home meal replacement” (HMR). An increase in dual-income

households had led to higher disposable incomes coupled with “time poverty,” as

both workers found themselves lacking the time to cook a meal and clean up

afterward. Further, consumers had tired of unhealthy carryout and fast food and

started seeking greater variety and freshness. Supermarkets began meeting

HMR needs by enhancing their fresh, prepared food offerings.

There was no fresh whole grain pasta with broad distribution, with 85% of those

in favour of the concept having never purchased it before.

Competitive Threat: Rigazzi Fresh Whole Grain Pasta.

Pizzas were a core component of the Italian-American food category, with annual

sales in the United States estimated at $53 billion in 2007.

suggested that 77% of consumers ate pizza at least once a month.

The store-bought refrigerated pizza market was 11% of sales and totaled $5.8

billion, making it a larger market than refrigerated pasta, which was

approximately $4.4B in 2007.

pizza demand in key demographics had been hurt by health concerns and the

popularity of diets that restricted or cut out carbohydrates. Eckstein believed this

presented the perfect opportunity for TruEarth.

Independent surveys of restaurant-goers showed that 33% of people had “strong

interest” in a whole grain crust.

Major chains like Papa John’s and Pizza Hut had introduced whole wheat or

multi-grain crusts

Kraft and Nestle are already huge players here with low-cost frozen pizza.

RECOMMENDATION HAI YE FUUMEMORANDUM

DATE: January 11, 2009TO: Isabel Eckstein

Brand ManagerFROM: Brett MatlackRE: Introduction of Whole Grain Pizza Product

The slowing growth of Cucina Fresca’s sales has placed our competitive

edge in the fresh Italian food category in jeopardy. In an attempt to retain our

leadership position and extend our product line, we have invested in the

development of a new whole grain pizza. We must decide whether to launch our

pizza offering. Our decision must take into consideration that the new product’s

wholesales volume estimates must exceed $12 million to meet our return

requirements. The decision-making process is time sensitive because one of our

competitors, Rigazzi Brands, has already tested a whole grain pizza concept and is

not far from introduction. Given these factors, we can either debut or suspend the

product. Based on sales volume estimates and situation analysis, I recommend that

the company launch the pizza. The introduction will result in a wholesales volume

that exceeds our return requirements and these additional funds can be reinvested

into the firm.

Option I: Launch Whole Grain Pizza ProductThe launch of a whole grain pizza kit will capitalize on the same consumer

trends that prompted the release of Cucina Fresca: growing demand for quick,

customizable home meal replacements that are refrigerated and available in tasty,

whole grain options. Also, pizza is a core component of the Italian-American food

category that we cannot ignore because it is frequently purchased by customers on

a monthly basis. Our whole grain pizza product resolves the time- and health-

related concerns of American consumers in one of their favorite dishes (see Exhibit

1: SWOT Analysis for Whole Grain Pizza Product). The growing demand for a whole

grain crust has been addressed by local pizzerias and take-out franchises, but not

in the store-bought refrigerated pizza market. The immediate release of the pizza

kit would allow us to penetrate this market before Rigazzi and benefit from first

mover advantages. As a result, our 1st year wholesale volume estimates would

exceed our return requirements by approximately $4.5 million (see Exhibit 2:

Whole Grain Pizza Concept Purchase Volume Estimate, Year 1 [Excellent]). The

excess returns can be reinvested into the firm and used to expand our

manufacturing facilities or further extend our product line.

If the pizza kit is launched, the firm must consider the potential

consequences. We must assess the impact it will have on Cucina Fresca’s success

and production, as well as the TruEarth image if the product flops (see Exhibit 1:

SWOT Analysis for Whole Grain Pizza Product). Likewise, we must review the

potential consequences if the wholesale volume estimate is calculated using the

percentage repurchases when the product is perceived to be of mediocre or

average quality (see Exhibit 3: Whole Grain Pizza Concept Purchase Volume

Estimate, Year 1 [Mediocre, Average].

Option II: Do Not Launch Whole Grain Pizza ProductThe competitive environment of the pizza market and quality-related issues

discovered in the BASES studies indicate that the whole grain pizza product should

not be launched. Although the market generates high sales, it is extremely

crowded and dominated by powerful players like Kraft and Nestle. Furthermore,

the ability to market a tasty whole-grain pizza crust and communicate its benefits

will be difficult because the American public perceives whole grains to be less

appetizing than white flour. Attempting to change consumer preferences is timely

and costly.

By foregoing the release of the pizza kit, the company can focus solely on

Cucina Fresca. The operating facilities will not have to worry about manufacturing

two different product lines and our distribution infrastructure will not be

overworked (see Exhibit 1: SWOT Analysis for Whole Grain Pizza Product).

Likewise, our marketing team could concentrate on attempting to revive the pasta

meals. This product has proven to be successful at one time. Investing all of our

resources into the pizza product could be both disastrous and expensive

considering we have no experience in this market category. However, by shelving

the pizza, an opportunity is lost because our company would be ignoring the needs

of a potentially profitable market. The health-conscious trend is not going away

and our firm needs to expand our product line in order to retain our leadership as

a gourmet, healthy alternative.

Recommendation

At this time, our company would benefit the most by launching the new

whole grain pizza product. By not launching the pizza kit, our investments and

time can be focused on expanding the pasta line and retooling the marketing

campaign to improve sales; however, in order to diversify the TruEarth brand

name, innovation is needed. Although the pasta market may seem safe, we must

venture into new categories in order to raise brand awareness, seek new

customers, and increase our profits.

Exhibit 1: SWOT Analysis for Whole Grain Pizza ProductStrengths Weaknesses

Highly selective about ingredients Existing infrastructure for coupons,

magazine advertisements, in-store demonstrations

Existing formal 4-step process for research and development

Incremental investment for pizza less than pasta

Higher awareness of pizza product among Cucina Fresca customers

Successful market experience in launching new products (brand name awareness)

Existing manufacturing equipment and distribution infrastructure to get fresh food to shelves quickly

Easy preparation, but gives customers the chance to be involved in the cooking process

Permits customers to customize Refrigerated pizza is considered

tastier, more authentic than frozen pizza

Is a product for the whole family (8.6/10 in mall-intercept)

28% of home-trial users believe there is no need for improvement

33% of respondents in mall-intercept considered the TruEarth name a favorable advantage

Pizza kit only feeds 2-3 people Consumers have to buy toppings

separately Limited selection of toppings and

varieties offered Considered too expensive ($12.38 vs.

$10.09 for other refrigerated options, $11.72 for takeout)

Only received 10% favorable to product in overall taste, texture, and quality

Limited time to product expiration (similar refrigerated manufacturing issues as Cucina Fresca)o If using same equipment, this

may lead to bottlenecks in both operating facilities and distribution network

Opportunities Threats Leverage relationship with North

Dakota durum wheat supplier to supply wheat for pizza dough

Health conscious mindset (e.g. low carbohydrate diet) has hurt key demographics in pizza demand

Expand serving size optionso Offer single serving sizes for

individual meals; whole pizzas to feed a family

Expand topping offerings Contract with local cafes and other

gourmet specialty restaurants to offer products in other store formats

Create a packaged bundle which includes Cucina Fresca and the pizza kit

Leverage TruEarth brand name to enter the pizza marketo TruEarth is well-liked and

considered to be high quality Utilize this to demonstrate the benefits/product attributes of the pizza product

Consumers may not purchase additional toppings

Rigazzi has tested a pizza concept and is preparing to introduce it

Competitors may quickly replicate whole-grain pizza kit and price them lower to win larger share of the market

Nestle and Kraft dominate the frozen-pizza market

Our pizza dough’s quality may not be comparable to freshly made takeout

Pizza market is extremely crowded (options include takeout, delivery, refrigerated)

If product succeeds, product facilities may struggle to manufacture two lines (Cucina Fresca placed on back burner, limited production)

If product fails, damage to TruEarth name may make it harder to launch new products in future

Exhibit 2: Whole Grain Pizza Concept Purchase Volume Estimate, Year 1 (Excellent)

Total Purchase IntentDefinitely would buy 18.00%% of “Definites” who actually buy 80.00%“Definite” Purchases 14.40 a % Probably would buy 43.00%% of “Probables” who actually buy 30.00%“Probable” Purchases 12.90 b % Trial Rate 27.30 c %

Marketing Plan AdjustmentTarget Households 58,500,000Cucina Fresca Pasta Customers 6,435,000d

Non- Cucina Fresca Pasta Customers 52,065,000e

Customer Awareness 50.00%Non-Customer Awareness 12.00%All Commodity Volume Distribution (ACV) 40.00%

Marketing Adjusted Trial Rate

a Definitely would buy x % of “Definites” who actually buy: 80% x 18%b Probably would buy x % of “Probables” who actually buy: 30% x 43%c “Definite” Purchases + “Probable” Purchases: 14.4% + 12.9%d Target Households x 11%: 58,500,000 x 11%e Target Households x 89%: 58,500,000 x 11%

Cucina Fresca Pasta Customers Adjusted Trial Rate

5.46f%

Non- Cucina Fresca Pasta Customers Adjusted Trial Rate

1.31g%

Cucina Fresca Pasta Customers Trial Purchases

351,351h

Non- Cucina Fresca Pasta Customers Trial Purchases

682,051.5i

Total Trial Purchases 1,033,402 j , k

Repeat Purchase InputsRepeat Purchase Occasions 2.00

Repeat Rate, by Product ServicesExcellent Product 49%

Repeat Volume, by Product ScenarioExcellent Product 1,012,733 l , m

Total Purchases 2,046,135n

Total Sales VolumeRetail Sales Volume $25,331,151.30o

TruEarth Sales Volume $16,465,248.35p

In Excess of Return Requirements $4,465,248.35q

f Trial Rate x Customer Awareness x ACV: 27.3% x 50% x 40%g Trial Rate x Non-Customer Awareness x ACV: 27.3% x 12% x 40%h Target Households x Cucina Fresca Pasta Customers Adjusted Trial Rate:

58,500,000 x 5.46%i Target Households x Non- Cucina Fresca Pasta Customers Adjusted Trial Rate:

58,500,000 x 1.31%j Cucina Fresca Pasta Customers Trial Purchases + Non- Cucina Fresca Pasta

Purchases: 351,351 + 682,051.5k Rounded down because cannot include 0.5 of a householdl Total Trial Purchases x Repeat Purchase Occasions x Excellent Product Repeat

Rate: 1,033,402 x 2.00 x 49%m Rounded down because cannot include 0.96 of a productn Trial Purchases + Repeat Purchases: 1,033,402 + 1,012,733o Total Purchases x Average Spent per Purchase: 2,046,135 x $12.38p Retail Sales Volume x (1-Food Retailers 35% Gross Margin): $72,835,811.1 x (1-

0.35)q TruEarth Sales Volume – Minimum Return Requirement: $16,465,248.35-

$12,000,000

Exhibit 3: Whole Grain Pizza Concept Purchase Volume Estimate, Year 1 (Mediocre, Average)

Inputs from Exhibit 2Trial Rate 27.30Total Trial Purchases 1,033,402Repeat Purchase Occasions 2.0

Repeat Rate, by Product ServicesMediocre Product 21%Average Product 37%

Repeat Volume, by Product ScenarioMediocre Product 434,028.84r

Average Product 764,717.48s

Total PurchasesMediocre Product 1,467,430t,u

Average Product 1,798,119v,w

Total Sales VolumeRetail Sales Volume (Mediocre Product)

$18,166,783.40x

TruEarth Sales Volume (Mediocre Product)

$11,808,409.21y

Retail Sales Volume (Average Product) $22,260,713.22z

TruEarth Sales Volume (Average Product)

$14,469,463.59aa

Based on these wholesales volumes, the average product perception meets

our return requirements. We would gain $2,469,463.59 in extra cash if we were to

launch this product. However, the mediocre product does not meet our return

requirements (off by $191,590.79). We are only off of our return requirements by a

small margin (1.596%bb); thus, we may consider taking on this initial loss for the

first year. Considering the growth rate of Cucina Fresca’s retail sales between the

3rd quarter of 2006 and 2007 (194.44%cc), we may predict that the initial sales

volume will grow between the first and second year of the product launch. Our

r Total Trial Purchases x Repeat Purchase Occasion x Mediocre Repeat Product Rate: 1,033,402 x 2.0 x 21%

s Total Trial Purchases x Repeat Purchase Occasion x Average Repeat Product Rate: 1,033,402 x 2.0 x 37%

t Total Trial Purchases + Mediocre Product Total Purchases: 1,033,402 + 434,028.84u Rounded down because cannot have 0.84 of a purchasev Total Trial Purchases + Average Product Total Purchases: 1,033,402 + 764,717.48w Rounded down because cannot have 0.48 of a purchasex Total Purchases for Mediocre Product x Average Spent per Purchase: 1,467,430 x

$12.38y Retail Sales Volume for Mediocre Product x (1-Food Retailers 35% Gross Margin):

$18,166,783.40 x (1-0.35)z Total Purchases for Average Product x Average Spent per Purchase: 1,798,119 x

$12.38aa Retail Sales Volume for Mediocre Product x (1-Food Retailers 35% Gross Margin):

$22,260,713.22 x (1-0.35)bb (TruEarth Sales Volume (Mediocre Product) – Return Requirement)/Return

Requirement: ($11,808,409.21-$12,000,000)/$12,000,000cc [{ (2007 Retail Sales-2006 Retail Sales)/(2006 Retail Sales)} + 1] x 100%:

[{($35,000,000-$18,000,000)/($18,000,000)} +1] x 100%

future sales volume will most likely cover our initial return requirements in the 2nd

year and our losses from the 1st year.