Montreaux Chocolates Case Study

1. Using the forecast model for the healthy dark chocolate product with fruit tested in the BASES II test in August 2012, what is your forecast of the demand for the chocolate product?

- From Table-I (attached below), it is found that a low customer awareness with a low ACV and a mediocre product gives a Montreaux sales volume of 17.44 M. A medium level of customer awareness with a medium ACV and an average product gives a sales volume of 25.11 M and a high level of customer awareness with a high ACV with an excellent product gives a sale volume of 39 M. So, an overly aggressive forecast would be 39M and a conservative forecast would be 17.44 M.

- Given the fact that Apollo is a global giant in the foods industry and is one of the largest players in the confectionary market, it can be assumed that it will be able to create a high level of customer awareness amongst its customers. It is also mentioned that Apollo “knew its customers well”, so through effective marketing campaigns and intial promotional launch offers, it can create a high level of customer awareness.

- Also, Apollo wants to market the product through its large sales force, making use of its existing relationships with the channel partners, it can be assumed that a high level of ACV will be established through retailers, distributors of the grocery, drug stores and supermarkets under traditional channels.

- Attribute ratings for the $4.49 5oz. pouch show that 87% of the customers agree that the chocolate is better for them than any other chocolate, 85% customers agree it would be of high quality and 84% say it would taste great.

- So, considering a high customer awareness and high ACV, it is seen that the acceptable hurdle rate of $30 M is met, even if the product is a mediocre, average or excellent.

With high customer awareness and high ACV distribution, and an average product, and considering the above attributes, a demand of 36M can be forecasted.

2.What is your recommendation to Andrea Torres – further product testing; test market the product in selected test markets; plan a regional rollout or launch nationally?

• a) Further Product Testing – Not recommended due to:

• Further product testing will require a long time of 1 year to obtain results and will setback the product launch by another 3 years. This long time gap will not only delay the launch of the product but also allow the competitors to sniff the impending launch of Montreaux in US markets and thereby give them a chance to react accordingly, perhaps even launch a product – dark chocolate with fruit - on similar lines. Competitors might launch a new product to target Apollo’s target segment. It is also mentioned that there was news that a competitor is not far behind in launching a dark chocolate with fruit.

-     So, Apollo is recommended to launch the product early in year 2013, without further product testing.

• b) Test market the product in selected test markets – Not recommended due to:

• Launching the product in select test markets would entail launching the product in 2 or 4 different cities that represent national tastes. Since, no such cities are available that are representative of the national sample, launching the product in select test markets would not serve Apollo’s purpose.

• Given that the test product would be produced in small test quantities, Apollo’s sales force would have to convince its retailers to stock small quantities of the product on their shelves. Despite having a strong retailer network, Apollo could face some possible fall-outs:

1. In a business scenario, the retailers will not have much incentive to stock or push small quantities. They would rather stock high selling, high volume or high margin products on their shelves.
2. Small quantities might not reach all customers or the target customers at all. The quantities might get picked off the shelves by non-target buyers and don’t reach the intended recipients.
3. The small quantity of product can also be picked up by the competitors and they will get a chance to test it and react to market conditions suitably.

• This test would be expensive, costing $ 3M and would require a long time of 1 year to get viable results. This in turn would delay the launch of the product by as much as 3 years.

• c) Plan a regional rollout or launch nationally – Recommended to launch nationally due to:

• As Apollo is vying for a larger pie of the US chocolate market, a national launch of Montreaux chocolate will give Apollo the right opportunity to make an impact. Apollo should launch the product nationally to gain first mover advantage in the dark chocolate-with-fruit category and capture the target market segment through early launch. This will help Apollo have a far-reaching effect and ensure greater market penetration.
• Reaching a wider customer base, on a national scale, will also provide a greater feedback and help Apollo improvise the product to suit tastes and requirements accordingly.
• As no one particular city is representative of the US market conditions, so also it is recommended to launch nationally as a regional launch would mask accurate findings; different regions which may have different customer expectations. A national launch will help Apollo gauge customer sentiments, preferences and expectations better.

TABLE –I – Montreaux Retail Sales Projection

[pic 1]

(Montreaux Sales Volume is in millions of US $.)

In the above calculations, the following formulae have been used:

1. Definites = 23%, Probables = 40%, Trial Rate = Definites 80% + Probables * 30%
2. Market Adjusted Trial rate = Trial Rate * % Awareness * % ACV (Distribution) * Penetration Rate
3. Trial Households = Number of US households * Market adjusted trial rate
4. Repeat Volume of purchasers = Trial Households * % of Households repurchasing * Repeat purchase occasions
5. Total purchases = Trial purchases + Repeat Purchases
6. Retail Sales value = Retail Selling Price * Retail sales volume
7. Montreaux sales volume = Retail sales volume*(1 – retailer gross margin)

[Given retailer gross margin = 35%]

The above Table-1 shows the various forecasts that can be possible for Apollo, considering different combinations of customer awareness, ACV (distribution) and type of product. It ranges from $ 17.44M – the most conservative estimate to $ 39M – the most aggressive estimate. Considering high customer awareness, a high ACV and an average product, a sales volume of $ 36 M is forecasted.