True Earth Case Study

EXECUTIVE SUMMARY

Topics covered include: consumer marketing, market research, new product introduction, and quantitative analysis. TruEarth Healthy Foods, a maker of gourmet pastas, sauces, and meals, wants to build on its successful introduction of fresh whole grain pasta by introducing a similar product concept for pizza. In an increasingly competitive market, TruEarth is focused on beating its competition and wants to act quickly and decisively. The company conducts extensive market research, first using focus groups to test the concept and then following up with take-home trials.

INTRODUCTION

Market research involves the marketing function that links the consumer, the customer, and the public to the marketer through information. It involves the methods used to gather information, analyze it, and report the findings related to marketing goods and services which can be applied to any aspect of marketing.

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Marketing information that is retrieved from market research is used to identify marketing opportunities, solve marketing problems, implement marketing plans, and monitor marketing performance. The information obtained from research helps businesses, plan their future operations to increase sales and profits. Research answers the what, where, how, and at what price the products should be produced. The information also helps businesses solve marketing problems or anticipate future marketing potential. Research is needed before a product is put on the market and also during the life of the product.

It definitely gives valuable information on “New product acceptance” for instance, through questioners & interviews. We will look closely how TruEarth Company can use marketing information to take strategic decision to answer the following question” “To whether lunch a new product or not? ”

TruEarth was founded in 1993 in St. Louis, Missouri by Gareth DeRosa. The company is specialized in making gourmet pastas, sauces and meals. They produced standard pastas, such as spaghetti, rigatoni and shells as well as specialty pastas with blended ingredients, such as artichoke, spinach or saffron.

TruEarth was one of the first companies that captured consumer’s demand toward healthy foods by focusing on usage of whole grain products, offering both 60% and 100% whole grain pastas in its line. They used the highest quality ingredients in their tomato-based sauces like real tomatoes instead of paste or puree, extra virgin olive oil instead of soybean and no sweeteners or dried spices.

In order to increase customer awareness, the company used several promotional programs using coupons and magazine advertisements. The company was successful and became supplier to many ourmet groceries. Taking advantage of market opportunity and absence of competition, TruEarth decided to launch a new pasta product, Cucina Fresca. After the success of this product, TruEarth studied investing in a second product, whole grain pizza. In this report, we will discuss market opportunity for the new products, pasta & pizza, their product development, Pizza forecasting and the decision to launch the pizza or not.

MARKET OPPORTUNITY

TruEarth adopted a freewheeling, entrepreneurial spirit and encouraged innovation and trying new products. Hence, after the company had established its business and built a loyal regional following, they looked at new opportunity for launching a new product. That is when they had to look closely at market & consumer behavior which should be the case all over the company life cycle to stay at competitive edge. A segment of the market shifted away from highly processed foods toward greater quality and authenticity; therefore, the demand for healthy, gourmet products grew sharply. In addition, three important developments reshaped consumer’s tendencies toward purchasing groceries.

  • ST TREND: HOME MEAL REPLACEMENT Since dual-income households had increased, it led to higher disposal incomes. Working couples lacked the time to cook a meal and clean afterwards. For these reasons, people started to look for freshness and variety in food instead of unhealthy carry out and fast food. This led to a new defined food category, “home meal replacement” (HMR) so supermarkets enhanced food freshness to meet people’s needs. Nevertheless, not all consumers liked to have “ready to eat” food; some preferred “semi-prepared” products that required some effort to prepare. Therefore food manufacturers offered meal kits with the right components for a dish. This enabled consumers to get involved in meal preparation and choose their preferred flavor.
  • ND TREND: REFRIGERATED FRESH PASTA/1990S The second trend was the growth of refrigerated fresh pasta which consumers perceived to be tastier that regular dry pasta. By putting huge afford in packaging TruErth could beat it’s competitors Kraft & Nestle in increasing its annual sale to 4. 1 B by 2004.
  • RD TREND: WHOLE GRAIN FOODS/EARLY 2000S Finally, consumers became more aware of the importance of whole grains in the diet and started to avoid “bad Carbohydrate” originated from refined, white flour. TruErath took the advantage of the absence of competition and got the benefit from being the first mover in the market by keeping track of the above mentioned market trends. Therefore, TruEarth benefited from the above opportunities and launched fresh whole grain pasta, Cucina Fresca. This new product was successful with sales that reached $23 million, making it the most profitable product launched in the company history.

Nevertheless, growth had slowed as a new competitor, Rigazzi Brands, started entering the market offering similar products. Therefore, TruEarth responded by studying launching a new product, whole grain pizza. Pizzas were a core component of the Italian-American food category, with annual sales in the United States at $53 billion in 2007. Also, 77% of consumers ate pizza at least once a month. In addition, store-bought refrigerated market pizza totaled $5. 8 billion making it larger than refrigerated pasta which was $4. 4 billion. Besides, 33% of consumers showed strong interest in a whole grain crust. Therefore, TruEarth found new opportunities for introducing to customer healthier still tasty pizza.

PRODUCT DEVELOPNMENT

TruEarth’s product development was very informal and driven by intuition. This wasn’t initially correlating with high risk, because the company was still small and didn’t reach the economy of scale. When the company had a new product, they just introduced it with production volume and distribution quantities based on their intuition, which sometimes was over-estimated or under-estimated. However, retailers wanted a high guaranteed sell-through performance to avoid excess inventory.

As the company grew with time, achieved scale and began serving large regional accounts, the cost of poor production volume was so risky and would have had serious complications on the company. Regarding, the pizza product development, TruEarth followed the same process used in the new pasta. TruEarth in the pizza forecasting used the analogy method as they relied on surveys conducted on consumers who tried Cucina Fresca pasta and sauce.

In addition, the margin structure was similar to pasta’s. Also, TruEarth relied on the fact that the customer base that had already tried the fresh pasta would have higher awareness of the pizza product.

FORECASTING PIZZA SALES

On this part, we will discuss the forecast model used for Pizza, which consisted of same key drivers for pasta volume estimation. This forecast model dealt with step No 4, Quantification of volume of the processes of research and development. In order to cover its pizza launching expenditure, Truearth needs to exceed the $12 million profit return from selling the new product. To predict whether its sales ever reach this breakeven point or not, a 3 step forecasting model is conducted, similar to Pasta BASE 1 model.

The total sales of TruEarth can be calculated by multiplying the combined trial and repeat volumes with the pizza trailer price ($12. 83), then deducting the 35% trailer gross margin from it. Based on this, the total sales for pizza will be $17,042,763 Vs. 2 M expenditure, which is a very promising result with more than five million profit. Since our calculations are based on assumptions, it would be better to conduct a sensitivity analysis to cover all the possible sales outcomes.

The following figure summarizes the total sales estimations, putting into consideration all the variable penetration percentages and product quality levels. Figure 4: Total Sale Volume via Sensitivity Analysis As shown above, the probability of failure to meet the minimum return required (12 million) is only 2 out of 9.

The worst case scenario is when the new pizza is mediocre product and the penetration is 5%. In this case, the lost will be about $ 2,276,809. Nevertheless, we believe that consumers won’t perceive the new pizza as a mediocre product because of the positive feedback received from mall interceptors and home trial participants. More than half of customers in the mall intercept interviews express their strong interest to buy. In average, they gave the product 3. 7 out of 5 in good value or likeability. In addition, the results of after home trial show that 109 tasters like the new product, while 59 dislike it.

This means that about 65% of the trial sample is fans of TruEarth pizza. All these indications suggest that the most likely case scenario is to be when the pizza is perceived as an excellent product. If this possibility becomes true, TruEarth will gain at least $1,557,689 profit from the new line. In fact, the profits will range between $1,557,689 and $7,366,147 due to the penetration variations.

CONSUMERS’ VIEW OF REFRIGERATED PIZZA COMPARED TO OTHER SUBSTITUTES

Pizza had an annual sale in the United States estimated at 53billion$ in 2007. 77% onsumers ate Pizza at least once a month according to surveys. The store-bought refrigerated pizza market was 11% of whole sales and totaled 5. 8 billion$ which is larger than the market for refrigerated pasta. Over two-thirds of pizza sales volume came from delivery, takeout and restaurants and those two were the alternatives that were taken in consideration when the test was conducted in 300 malls intercept interviews (asking passerby to provide feedback on a specific topic) comparing the TruEarth concept with takeout and other refrigerated pizza.

The attributes that used to evaluate those alternatives were usage, taste and quality attributes. Consumers generally consider pizza as a family treats which they can conveniently access and easily prepare. However, in terms of convenience, takeout pizza scored the highest due to its competitive advantage in terms of accessibility and easiness of prepare.

However, for the taste attributes which include “comes in a variety I like” and “would taste fresh” the takeout pizza scored the highest and refrigerated pizza the lowest and for the quality attributes, both takeout and TruEarth pizza scored high for the quality of ingredients, while TruEarth pizza marked the highest for healthy ingredients, which might have resulted from the ‘healthy’ brand image of TruEarth, as well as the brand’s core value to use ‘top-of-the quality’ and ‘healthy- conscious’ ingredients.

Below Graph shows that 17 % of consumers are willing to change their purchase behavior when TruEarth pizza is launched. The takeout/ delivery consuming behavior will decreased by 4%. while restaurants and home-made pizza consumers are less likely to switch to TruEarth Pizza whereas the feedback of passerby showed that only 1% for both will be changed, The refrigerated pizza consumers showed the highest possibility to switch by 6% and then the frozen pizza by 5%. Figure 6: Impact of TruEarth Pizza on other Pizza choices

COMPARISON BETWEEN PIZZA AND PASTA CONCEPT TEST RESULTS

However, for the pizza the numbers were not that promising they took TruEarth customers and 225 non-customers and asked them that if they would probably buy or definitely would buy TruEarth customers scored higher than non-customers. Based on a five-point scale with 5 being “like extremely” for Cucina Fresca it was 4. 1 but for the pizza it was 3. 7 which is lower than that of the pasta.

Consumers also perceived fresh pasta to be tastier and more authentic than dry. And there was a growing awareness of the importance of whole grains in the diet. As a result, TruEarth saw an opportunity to market healthier gourmet pasta and sauce made from superior ingredients. The fresh whole grain product category was still new and growing. At the same time, its competitors have not yet figured out how to make whole grain pasta that still taste good. TruEarth identified and targeted a brand new and fast growing market segment, which is a consumer group who wanted tasty whole grain pasta that is healthy, easy to prepare and affordable.

Together with the significant investment in new manufacturing equipment and the distribution infrastructure required to get fresh food to shelves quickly, TruEarth launched the product with intensive and effective marketing campaigns, targeting both consumers and distribution channels. As a result, TruEarth enjoyed first-mover advantage via managing extensive distribution channels as well as high consumer awareness and built the critical mass in terms of market share before its competitors entered the market. However, the situation is quite different in the pizza market. The market for healthy whole grain alternatives already exists.

Craft and Nestla are already huge players with low-cost frozen pizza. In addition, the competition is aggressive as the consumer perception on ‘healthy pizza’ is not as favorable as that of pasta. A consumer over all attitude is positive for takeout pizza therefore; their willingness to switch to TruEarth products is relatively insignificant. More importantly, one of the major competitive advantages TruEarth had in the whole grain fresh pasta market was the distribution channel domination which cannot be realized any longer as late comers in the pasta market reacted aggressively to gain market share.

In conclusion, the overall rewards of TruEarth being the first-mover in the whole grain fresh pizza market will not at all be the same as those they have enjoyed in the pasta market. At the same time, it is highly likely that TruEarth have to enter the market with challenges such as educating the consumers about the new product category, changing the consumer preference and usage patterns of pizza-eating, competing with multiple competitors (mainly Nestla, Craft & Rigazzi) while extending the distribution channels and finalizing product development, which all require huge investment.

In order to overcome above challenges, it is inevitable to conduct an extensive marketing campaign; however, there is a high possibility that TruEarth will lower the entry barrier for the competitors, who will enter when the market is ready to accept the new product concept.

But if TruEarth withdraw from launching its pizza line at this point and consider becoming the second-mover, while maintaining and enhancing distribution channel relationship as well as its favorable brand image, it would be a better decision for TruEarth to enter the market when first-mover (highly likely Rigazzi) make successful efforts to enhance the market receptiveness of fresh whole grain pizza which will enable TruEarth to fully enjoy the free rides.

TO LAUNCH PIZZA OR NOT?

Analyzing the consumer view, concept comparison and the possibilities of the first-mover advantage, it is highly likely that TruEarth have to enter the market with challenges such as educating the consumers about the new product category, changing the consumer preference and usage patterns of pizza-eating, competing with multiple competitors, while extending the distribution channels and finalizing product development, which all require huge investment.

In order to overcome above challenges, it is inevitable to conduct an extensive marketing campaign, however, in the process; there is a high possibility that TruEarth will lower the entry barrier for the competitors, who will enter when the market is ready to accept the new product concept. However on the other side TruEarth would be already benefiting the first mover advantage and with proper marketing campaign it can unlock the non-customer level of the market and formulate its customer base in this field; in another word it can have the available market share before the other competitor enters the market.

Very promising results & findings from the market research done by the firm show that it is worth entering the market at this point however truEarth may need to have another look at their anticipated price as the customers under review were not willing to pay such again if they emphasize on the healthy benefits aggressively through marketing & promotion even hoes customers may buy. At the end all market researches are just forecasting which might be the future & might not, then it all depends on to which extend the decision maker is willing to take risk!

CONCLUSION

As the test results and sales volume forecast shows, TruEarh can anticipate a successful product launch for their new healthy Pizza. However, there are certain risks surrounding this promising opportunity. There is a high competition with different substitutes like the takeout which people favor due to the freshness and convenience, and the frozen pizza which would be a cheaper choice. Unlike the pasta experience, TruEeath is not a first-mover in refrigerated pizza. Keeping all the findings from the market research in mind & studying the market opportunity & the completion environment, we advise TruEarth to take this step & wish them all the best.

REFERENCES

  1. Rangan, V. Kasturi, and Sunru Yong. “TruEarth Healthy Foods: Market Research for a New Product Introduction. ” Harvard Business School Case 094-065, December 2009
  2. Wikipedia website, http://en. wikipedia. org/wiki/Market_research , retrieved on 21/10/2012
  3. Market research website http://www. msearch. com/services_products. aspx, retrieved on 21/10/2012
  4. Small Business, Chron,Consumer and Customer definitions, http://smallbusiness. chron. com/customer-consumer-definitions-5048. html retrieved on 20/1/2012

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