Nestle Case Study

SUBJECT MATTER & PROPOSAL

In 1990, 3 years after successfully entering into refrigerated food category with Contadina Pasta and Sauces, Nestle Refrigerated Food Company (NRFC) considered launching new line extension: Contadina Refrigerated Pizza. Initial plans had envisioned two concepts: a pizza kit and a preassembled, heat-and-eat pizza.

NRFC decided to proceed with further developing only pizza kit product concept, which would be offered in two forms: Pizza Kit and Toppings (sold separately) and Pizza Kit only. The largest proportion of $18.4 billion pizza market consisted of pizzas sold in restaurants (88%) but interestingly 60% eaten at home, which had been an important indication of preferred place of product usage and thus potential guidelines for future product development strategies and positioning.

Consumption analysis insights showed that delivered/takeout pizza accounted for 75% of the last 10 incidences of product consumption, whereas frozen pizzas from supermarkets accounted for 16%, fresh pizzas from grocery store for 5% and homemade pizza for 4%. Although in a highly competitive market, NRFC again have the opportunity to seize the first-mover market advantage, it should first consider all assembled market, consumer and product research findings and decide on whether to launch the new pizza product extension or not and if yes, what would be the product portfolio.

The business requirement for the launch of Contadina Pizza is $45 million. With a capital investment of $12 million the company needs to capture 0.3% share of the pizza market.

We believe that NRFC should invest $12M for product development completion with a roll-out of only Pizza kit and Toppings option, the roll-out being supported by $18M marketing investment. We believe it is feasible to attain 0.3% of pizza market. We present supporting evidence hereunder.

METHOD OF ANALYSIS

We based our decision on key insights gathered from:

• Preliminary concept tests (Exhibits 13 through 15)
• BASES II line extension study (Exhibit 16 through 24)
• Company’s (MRD) own estimations (Table D)
• Group 8’s calculations to estimate volume of demand, using BASES II model for forecasting product demand
• Comparison of key analysis insights of both Contadina Pasta and Pizza

KEY FINDINGS AND THEIR IMPLICATIONS

We calculated three potential scenarios considering different brand penetration for the Pizza & Topping Kit and for Pizza only.

• Market potential: BASES II volume estimate calculations showed Pizza Only option does not yield total revenues of $45M in any of the three scenarios. Assuming 5% penetration of Contadina in the case of the Pizza &Toppings, calculations show almost a break-even case. Assuming 15% and 25% brand penetration, the calculations yield positive results. Product will generate revenues above $45M, which is the target revenue, set by NRFC. That is why we suggest the company should launch Pizza & Toppings option only. We also expect that sales of pizza would continue to grow in the following years, as it was in the case of the pasta product sales.
• Product benefits, switching intentions and estimations of repeat purchases (Exhibit 13 to 15 and 18): Characteristics attributed to frozen pizza by it consumers reveal that these consumers are least satisfied with their choice of the product. Furthermore, they are the ones who would tend to switch their product choice to Contadina Pizza in more instances than consumers of other pizza types. Consumers favouring the pizza kit concept have attributed product characteristics, which are closer to ratings of takeout pizza consumers. This could mean that our product potentially delivers higher value to existing frozen pizza consumers.

Nevertheless, even though most satisfied with their product choice among all the pizza consumers, there are 19% of home delivery pizza users who would replace their product choice with Contadina Pizza after they have tried it (Exhibits 15 & 18). We can conclude that our early adopters could be existing consumers of frozen and home delivered pizza. Brand promise should address these segments primarily.

• Brand Recognition & Heritage: Contadina Refrigerated Pasta was a new player in the category as the name Contadina was not associated with refrigerated food per se. The success of Contadina Pasta now provides Contadina Pizza with both brand recognition and extensive supply and distribution network to rely upon.

As per the concept test for Contadina Pasta the positive intent for purchasing was 75%. This intent resonated with the sales of Contadina Pasta when it was launched. Similarly, the positive intent for Contadina Pizza as per the concept test is 76%.  The ratings for Likability and Concept Uniqueness are the same for both Contadina Pasta and Pizza. Thus, comparing the similar parameters of the studies reflect a positive outlook for Contadina Pizza.

• Competitors Analysis: There is a chance to benefit from first-mover position.

RECOMMEDATIONS

Consumers favouring the pizza kit concept have given ratings which are closer to the ratings of takeout pizza consumers except for 2 attributes: “Would taste good” and “is appropriate for special meals”. Thus, we advise NRFC to concentrate on taste factor as well. 23% of those in favour of product, after the trial would possibly be even more satisfied if able to buy the product at a lower price. The price could be the factor that might hinder the successful adoption of the product as there are more than 60% of test participants who are willing to pay less than $8 for a similar sized product. Among those favourable to the product, there are 56.6% who are willing to pay less than the anticipated selling price. Among most probable switchers, there are 85% who would pay less than $8. When compared with Contadina Pasta and Sauces, pricing appears to be the most evident difference. Since, in the case of Pasta, the price was not an issue with the majority of the tested sample. Pricing strategy could be revised if actual product sales do not meet the estimated sales.