The launch of New Grow™ by Micronutrients Canada Micronutrients Canada was a start-up company that had obtained patents in both the US and Canada for a new type of lawn-care product. Since the company was comprised of four agricultural engineers and a financial accountant, they were in need of marketing advice concerning their new product, New Grow™. This product, when applied to most types of grass, enabled the root system to retain water longer, thus reducing the need for both extra watering as well as frequent fertilizing. They were anxious to take this product to market; however, they desperately needed answers to several questions, including which segment to target, how to position their new product, and what type of launch strategy they should use. They approached a group of students at Sheridan College approximately four weeks ago with their needs. These students had analyzed the markets, costs, prices, and communications options. Their last task was to formulate a launch strategy recommendation for the launch of New Grow™. INITIAL MEETING WITH Micronutrients Canada During the initial meeting between Micronutrients Canada and the group of students at Sheridan College, the engineers outlined the product and its potential benefits. The product was very similar in appearance to most brands of common lawn fertilizer. In fact, New Grow™ was classified as a chemical fertilizer with one very important difference, its primary benefit was its effect on the root system of most of the common types of grasses used for lawns. The small pellets attached to roots and attracted and retained moisture. Extensive laboratory testing demonstrated that New Grow™ reduced the need for manual watering on most types of grass. Obviously, such a product would have high demand. The first question that Micronutrients Canada needed addressed was what market to target, initially, with this product. John Millis, CEO of Micronutrients, wanted to target the consumer lawn and garden market as their initial target segment. Brenda Smith, on the other hand, was more inclined to target the commercial lawn and garden market. Since these two markets required very different launch strategies, selecting the appropriate segment was the primary concern. And, due to the fact that both Mr. Millis and Ms. Smith were extremely biased towards their position, the students knew that they would have to present strong reasons to support their recommendation. THE CONSUMER MARKET In 2018, Canadians spent approximately $4.3 billion, at the retail level, on gardening. This figure includes $533 million for grass (both sod and seed), trees, and plants; $3.3 billion on lawn maintenance (with fertilizers accounting for 62% of the total); and the rest on hand tools, pots, window boxes, books, magazines, landscaping services, etc. In other words, gardening is big business in Canada. Lawn care is, however, a highly seasonal business, with 70% of sales occurring in the 2nd and 3rd fiscal quarters (i.e., April to September). This market is anticipated to grow by 4% per year as farm land continues to get converted to residential properties as the demand for housing continues to grow throughout Canada. If Micronutrients was to target this segment, they would be competing primarily with fertilizers. The consumer fertilizer market is extremely competitive, with the top two firms, Scotts Co. and Premier Tech Home and Garden, controlling approximately 70% of the total consumer market. Both firms are headquartered in the US (with divisional offices in Canada), and both have extensive international operations. The market share leader is Scotts Co., with their two powerful brands, Turf Builder and Miracle-Gro. Turf Builder is a slow- release fertilizer that reduces the number of applications required for a healthy lawn. This slow-release technology is relatively new—having been available to the consumer market for less than two years. Slow-release simply means that the fertilizing chemicals are released gradually over a number of months. Thus one application of slow-release fertilizer could last for a maximum of 6 months (although it is recommended that applications are made twice a year). Turf Builder is priced slightly lower than most Miracle-Gro products, which are advertised as maximum growth products, and not specifically (i.e., exclusively) aimed at lawn care. Premier Tech Home and Garden’s main brand, CIL, is priced competitively with Turf Builder. See Exhibit 1 for pricing information on the major branded fertilizer products. Market research has shown that seven out of ten consumers in this market have no concrete brand preferences. They rely heavily on in-store advertisements and sales staff for information and recommendations. Which meant that 3 out of 10 consumers are extremely loyal to existing brands and would be very unlikely to switch to a new product no matter how good it was. The product with the highest brand name awareness is Miracle-Gro; however, most associate this brand
name with their plant foods rather than their lawn fertilizers. Because of consumer behaviour and attitude towards this product category, most manufacturers relied on a strong push and pull strategy. EXHIBIT 1 Competitor Prices for the Consumer Market Size(s)
Retail Prices
Turf Builder
10 kg
$24.49
Turf Builder
25 kg
$59.99
Turf Builder
5 kg
$14.75
Miracle-Gro—Plant/Crystals
200 grams
$ 8.50
Miracle-Gro—Lawn/Garden
2.5 kg
$12.95
Miracle-Gro—Liquid
1 litre
$ 7.99
CIL
10 kg
$23.99
CIL
30 kg
$68.79
Most lawn care products are sold by three distinct types of retailers: discount stores, such as Canadian Tire, and WalMart; specialty stores, including nurseries; and home improvement stores. The discount stores, who buy direct from manufacturers, place strict requirements on their orders and expect price concessions and special support. Marketing expenses for both Scott and Premier Tech Home and Garden went up by approximately 10% between 2017 and 2018, with the bulk of the increase devoted to promotions to discount retailers. This indicates the relative importance of this channel. it is estimated that 40% of all consumer fertilizer sales are made in discount stores, compared to approximately 20% of sales being made in specialty stores, and 30% of sales being made in home improvement stores. Discount stores have, in fact, been spending millions in renovations in order to accommodate larger lawn and garden areas within their stores. The same is true with home improvement stores, such as Home Depot, Lowes, and Rona. Specialty stores, the vast majority of which are nurseries, tend to be independently owned and thus much more numerous. While the nine top discount chains across Canada control over 89% of all sales from discount stores, the top 50 specialty garden stores account for less than 28% of all sales from this store type. The most recent research indicates that there are over 1000 specialty garden stores in Canada. Most of these stores purchase from large horticulture wholesalers, and receive little, if any, promotional assistance from the major manufacturers. Home improvement stores are growing in numbers, and tend to be large, powerful chains, such as Home Depot, Lowes, and Rona. Like discount stores, home improvement stores buy direct from the manufacturers and require price concessions and promotional support. The large manufacturers of fertilizer products generally spend approximately 15% of sales on marketing activities. The bulk of this money goes towards the sales force, and selling in general, and trade promotions. Due to the three different channels in which their product is sold, most fertilizer manufacturers recognize the importance of a strong sales force. In terms of trade promotions, they provide in-store literature, displays, and sales training—especially to the large discount stores and the home improvement stores. Less important is advertising. Miracle-Gro and Scott’s are the most heavily advertised brands on the market, and they generally spend 8% of sales on advertising (which probably accounts for the high brand name awareness). Scotts advertises Turf Builder, but only during the early spring when demand for lawn fertilizers is at its peak. Most companies run their advertisements for their existing brands and any new brands they may be launching during the spring and early summer months. Thus, advertising expenditures are generally at their highest in April, May, and June, and much lower at all other times. Only Miracle-Gro is advertised year- round, with different messages at different times of the year. For example, Miracle-Gro advertises its benefits for house plants during the winter months, and its benefits for fruits, vegetables, and flowers during the spring and summer months. THE COMMERCIAL MARKET The commercial market consists primarily of Canada’s 2400 golf courses, but also includes commercial properties such as office complexes and apartment buildings. The numbers are stunning. There are an estimated number of golfers in Canada at about 1.5 million. That’s one course for every 625 players, or 15,400 Canadians—among the highest number per capita in the world. However, Canadians appear to be playing less golf than they used to. A recent study by the National Allied Golf Associations, or NAGA, found that the number of rounds played on the average Canadian course has
dropped 15 per cent over the past five years, with the blame falling on everything from waning interest to the time commitment required. In the U.S., a painful industry shakeout is already under way. Equipment sales are down, closures of golf courses are commonplace and an estimated 400,000 players left the sport last year alone. In Canada, meanwhile, clubs are slashing fees in a bid to stay in the black, with some more successful than others. The award-winning Sagebrush Golf & Sporting Club near Merritt, B.C., recently applied to put itself into receivership, following in the footsteps of others such as Tobiano (Kamloops), Tower Ranch (Kelowna) and The Rise (Vernon). In Ontario, the private York Downs Golf & Country Club north of Toronto put itself up for sale to developers (although the club says it’s not in any financial trouble), while a candidate seeking Toronto’s mayoralty wants to turn a money-losing municipal course in the east end into a park to ease the taxpayer burden. How did the industry end up in such an obvious hazard? Overly optimistic predictions about how many retired Baby Boomers would hit the links was part of it. But the real culprit was golf’s unhealthy relationship with North America’s overheated real estate market. Now the industry is scrambling to find its way back out of the rough. Some operators have cut back on watering and maintenance, allowing courses to exist in a more “natural” state. Others are grasping for new ways to sell a centuries-old game to a time-pressed audience, experimenting with faster-to-play courses and pay-as-you-go pricing. One course in B.C. is using eight-inch cups on the greens to make putting easier, while others propose going as big as 15 inches, roughly the size of a large pizza. Golf Digest raised eyebrows this year when it featured a scantily dressed Paulina Gretzky on its cover—not because she’s a golfer, but because she happens to be married to one. Currently under fire for being a major source of ground water pollution, due to the high and frequent levels of fertilizers used to keep courses green, most owners are actively looking for ways to cut both water and fertilizer usage. Course owners spend, on average, $200,000 to maintain their golf course during the year, of which 42% represents water usage costs and 24% represents fertilizer purchases. For extremely large, complex courses, this figure can run as high as $600,000, and for smaller inner-city public courses, as low as $104,000. Tests have indicated that New Grow™ will reduce water usage by one third and fertilizer usage by one quarter. This is the primary reason why Ms. Smith was so adamant that the company select the commercial market as their primary target market. It is estimated that the number of golf courses will decrease by 10% to 2160 by the end of 2020. Currently, golf courses purchase maintenance supplies from wholesalers who specialize in products uniquely designed for the type of grasses used. Manufacturers of these fertilizers tend to be small firms, or divisions of the larger chemical companies. The market share leader in golf course fertilizers is Sierra Horticultural Products, a subsidiary of Scotts Co. Their biggest competitor in Canada is Nu-Gro Corporation—an Ontario-based horticultural products company founded in 2002. Unlike the firms competing in the consumer lawn maintenance market, these firms spend only about 9% of sales on marketing activities. These firms engage in little advertising, preferring to spend their marketing funds on sales calls to golf courses. They provide free samples of their products to non-users and try to build solid, long-lasting relationships with course owners. They know that it takes a tremendous selling effort to get a golf course owner to switch brands. If satisfied with their current brand, many course owners are unwilling to risk switching to a new product that may not perform as well. Since the condition of the course is the most important attribute in a consumer’s selection of a course to play, course owners tend to be highly brand-loyal. Should they consider to switch, most would likely want to see the results of the new product applied to a test area, for example the driving range, for a season or two before switching. Course owners, however, have two overriding concerns. The first problem concerns the growing public debate on the ground water pollution caused by golf courses. Heavy use of fertilizers and constant manual watering results in a chemical buildup in nearby reservoirs. In fact, according to the US Environmental Protection Agency, golf courses are the major source of ground water pollution in the United States. More and more negative publicity, in the form of newspaper and magazine articles, has resulted in golf course developers being denied permits to construct new courses. Thus, addressing the issue of ground water pollution is a major concern with course owners. Their second problem is that of shrinking profits. With some courses engaging in green-fees price wars, profit margins for many of the public courses have become strained. Estimated to be about one tenth the size of the golf course market is the balance of the commercial lawn care market, consisting of apartment and office complexes. Their needs are much less complex than golf courses, resulting in purchasing behaviour that mirrors that of the consumer market. Little concrete information is available concerning the number of office complexes and apartment buildings. This sector of the commercial market tends to purchase in bulk through wholesalers—generally the same wholesalers who service the specialty stores in the consumer market. Micronutrients Canada Micronutrients Canada was incorporated nearly one year ago. They have leased their production facilities, and have purchased and/or leased all of the equipment and machinery necessary for use in the production of New Grow™. Their
production facility has the capacity to produce 300,000 kilograms of New Grow™ per month. The owners of Micronutrients Canada have suggested a quality/value-added pricing strategy. They believe that they have a superior product that will save the end user both time and money, due to the reduced need for fertilizer products and reduced need for manual watering. The founders of Micronutrients Canada outlined their ideas for the launch year marketing strategy for both the consumer and the commercial lawn-care markets. If Micronutrients elects to target the consumer market, they will package New Grow™ in a 10 kilogram bag, which market research indicates was the most popular size with consumers. They will set their price to trade (i.e., wholesalers and retailers) at $22.50, with their variable costs representing 32% of sales. On average, the large discount stores and home improvement stores take a 10% markup on lawn maintenance products. The smaller specialty stores take a larger markup of 30%. Wholesalers (if used) take a 15% markup. Fixed production costs include $1.2 million in annual rental (for the site and the equipment), general and administrative expenses of $180,200, research and development expenses of $60,650, and miscellaneous expenses of $32,350. Distribution costs (including freight, warehousing, and storage) represented a significant yearly expense due to the seasonal nature of demand. Production of New Grow would be continuous year round; however, sales would be highly concentrated in the months of April through September. This means that the company would have relatively high distribution costs, estimated to be $426,000 per year. Their marketing budget has been set at $ $655,000, and Micronutrients has suggested this amount be allocated to the various tasks, as shown in Exhibit 2. Seasonal discounts are price discounts offered to retailers and wholesalers as an incentive to purchase well in advance of the peak selling season. The displays will cost approximately $250 each (which includes promotional materials, such as brochures), and will be furnished to discount stores, home improvement stores, and as many nurseries as possible. The sweepstakes is used to increase awareness and interest in New Grow. Consumers will have the chance to win several valuable prizes, including a year of free lawn maintenance, lawn and garden equipment and supplies, and other related prizes. In terms of the sales force, Micronutrients has planned on hiring 20 sales reps at an average cost of $50,000 per rep (salary and commission). The sales reps will be responsible for selling the product to the various channels, as well as offering sales training seminars. If Micronutrients elects to target the commercial market, then the size of the product will be increased to a 50 kilogram bag, which they will sell to wholesalers or end users at a price of $120.00. Variable costs as a percentage of sales price is 40%, resulting in a contribution margin of 60% of the selling price. Wholesalers, who generally sell directly to the commercial users take a 15% markup. Fixed expenses will remain nearly the same as for the consumer market option, with the exception of marketing and distribution costs. None of the promotional activities, such as displays, seasonal discounts, sweepstakes, or advertising, will be used in the commercial market. Instead, the size of the sales force will be increased to 60 to handle the lengthy sales calls necessary to golf courses. In addition, $800,000 has been set aside for free samples to be distributed to potential customers by the sales force. Finally, distribution costs decrease if the commercial market is chosen because demand tends to be slightly less seasonal. Thus costs for freight, warehousing, and storage decrease to $325,000 under this option. EXHIBIT 2 Allocation of Marketing Budget for Consumer Market Launch Marketing Task
Total Expenditure (Estimates)
Seasonal Discounts
$225,000
In-Store Displays
$92,000
Magazine Advertising
$204,000
Newspaper Advertising
$ 84,000
Sweepstakes
$ 50,000
THE DECISION
The Sheridan students were in the conference room discussing the results of their research and analysis. As one student pointed out, “A strong case can be made for both target markets! Each has its own advantages and limitations.” Another student countered with the fact that Micronutrients Canada was a start-up business. “Their financial resources are extremely limited right now. They cannot increase their production capacity for at least two years, and if they hope to acquire expansion capital to increase their total capacity, they need to show a profit as early as possible.” A third student was considering a more creative solution—targeting selected parts of either or both the consumer and commercial markets. A fourth student suggested keeping the options simple. That student felt that a detailed analysis of both the Consumer market and Commercial market should be made. Following that, a recommendation could be made to launch in either the Consumer market or the Commercial market. Before the group could begin to assess the viability of Micronutrients Canada and its product, New Grow™, they had to decide on which market to target, how to position New Grow™ in that target market, and then they had to develop a viable marketing strategy for the launch year. The final pressure for the group was the fact that Micronutrients needed to launch in February—just prior to the peak selling season—thus the students knew there was no time to acquire additional market research. The decision had to be based on the information at hand.
Running head: ASSIGNMENT #2 – CASE STUDY ANALYSIS
ADVF18846 Market Analysis - Assignment #2 – Case Study Analysis Maria Morales, Natalia Munoz Abacate, Joshua Jafri, Kay Wing Man Liu, and Shadai Miller Sheridan College – HMC Professor: Samuel David Coulter April 12th, 2019
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Section 1: The problem that Micronutrients Canada is facing is that they cannot decide which market to target between the consumer and commercial markets for their new product - New Grow™. They also face the problems of choosing how to position their product, and what type of launch strategy they should use. The company faces these problems because they are a new and developing company that is launching a new product, which is unknown to the general public. Micronutrients Canada faces the problem of deciding which market or segment to enter their product into, between the consumer or commercial markets.
Section 2: SWOT Analysis Strengths: ● Patents: Micronutrient Canada's new lawn care product - New Grow™, has been patented in Canada and the United States. This is an advantage, because due to the patent, competitors cannot copy the company’s unique product formula during the patent protection time period. ● Unique product: New Grow™ is unique in the lawn care products market. When its unique, effective formula is applied to the roots of most grasses, those roots will be able to retain moisture for a longer duration, thus reducing the need and frequency of watering and fertilizing. This is one of the strengths due to the high demand for a lawn care product which can reduce the need for manual watering on most types of grass.
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● Size of company: Micronutrients Canada is comprised of a small development team of four agricultural engineers and a financial accountant. This is one of their strengths because of the ease of continual improvement and training. ● Differentiating Component New Grow™ reduces the need for manual watering on most types of grass. This is a strength because the product offers a faster and more efficient system for consumers. ● Quality Assured The need for manual watering on most types of grasses can be effectively reduced by using New Grow™. This has been verified through extensive laboratory testing. This is an advantage because it lets a new consumer have more confidence in this product. ● Versatile production facilities: All the production facilities to produce New Gro™ are leased. It is a strength for the company because the company can update the equipment or facilities at any time to get the latest technology to remain competitive. At the same time, the rental company will be responsible for repairing the equipment, so the company can save maintenance costs for the production facilities.
Weaknesses: ● Management: Both Mr. John Millis, the CEO of Micronutrients, and Ms. Brenda Smith, have very different views on if the product should be marketed to the consumer market or to the commercial market. As a company that is a recent start-up, if the high-level staff planning the strategy have great differences in opinions, this will result in the company becoming unharmonious, leading to instability in the development of the company. Therefore, this is a weak point of Micronutrients
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Canada. ● Finance: The financial funds are tremendously limited since Micronutrients Canada is a start-up business. This situation does not allow them to grow more in production capacity for two years. As a result, they are unable to increase their total capacity to get more profit. In the absence of profit, it is difficult to obtain expansion capital to increase total capacity. This will create a vicious cycle. ● Limited Experience Since Micronutrients Canada is a new company, incorporated nearly one year ago, the company lacks the experience needed to foresee valuable market changes. They have not created a name for themselves and have not gained the consumer’s trust. They also have not tested the market to see what works and what does not, as such, this can lead to a number of mistakes that could be otherwise avoided, if they had the knowledge, expertise, or experience that comes from being a more “seasoned” company. ● Reputation: Since Micronutrients Canada is a new company, it has not yet built up a high reputation in its industry. This undeveloped reputation may affect consumer buying intention as well as their buying power. This is one of the weaknesses of Micronutrient Canada. ●
Appearance:
The New Grow™ product is very similar in appearance to most brands of common lawn fertilizer. This is a weakness, because if the packaging is not different from products from other brands, consumers will not understand the identity or niche of this specific product.
ASSIGNMENT #2 – CASE STUDY ANALYSIS ● Absence of a Marketing Team: Micronutrients Canada is a small company, comprising of four agricultural engineers and a financial accountant. The absence of a marketing team can be considered a weakness, especially since the company is launching a new product in the market. The absence of this team, which would handle advertising, pricing strategy, essential market research, and development of the company’s marketing strategy, can negatively impact Micronutrients Canada.
Opportunities: ● Socio-Cultural Gardening is steadily increasing in Canada. This can be seen in the $4.3 billion that Canadians spent on gardening at the retail level in 2018. Among them, the consumption of fertilizer accounts for approximately 2 billion. This represents a significant opportunity for the company as they are able to capitalize on Canadians’ interest in gardening in the consumer market, especially their new product - New Grow™. ● Socio-Cultural Canadians in the consumer market do not have strong preferences for brands, or in other words, they have no strong brand loyalty. This is evident in the 7 out of 10 consumers who have no allegiance/preference to an existing brand. This is a major opportunity because it means that these consumers may be open or receptive to a new product being launched on the market. This is an opportunity for Micronutrients Canada to position themselves at the product of choice and to win over these consumers. ● Demographic: The population in Canada is forecasted to increase by nearly 1% a year for the next few years. This is an opportunity because as the population increases, so too will the possible target market
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of consumers. ● Competitive: New Grow™ has an advantage over the major competitors in the consumer market since its retail price is cheaper than them (The price of Turf Builder in 10kg bag is $24.49, Miracle-GroLawn/Garden 2.5kg bag is $12.95, and New Grow™ in the 10kg bag is $22.50). This is an opportunity as it attracts consumers to buy this new product. ● Competitive: Though one of the top brands in the consumer market, Turf Builder is not especially aimed to the lawn care market. Another top brand, Miracle-Gro, does not build a strong association between its brand name and its lawn fertilizer product. In contrast, because Micronutrients Canada is a company which only focuses on its lawn care product, it has an opportunity to make consumers think of New Grow™ as a more reliable and professional lawn care product. ● Environmental In response to rising housing demand across Canada, the conversion of farmland to residential properties has increased. This is an opportunity for the company because the gardening market is expected to grow by 4% per year.
Threats: ● Environmental Golf courses are a major source of groundwater pollution. This is evident in the use of fertilizers and frequent manual watering, which creates a chemical build-up. This is a threat to the golf course segment in the commercial market, as it not only contributes to water pollution, but it also leads to bad publicity. It can be extremely damaging to the brand and paint a negative image of that brand in the consumer’s mind.
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● Social-Cultural For the commercial market, since the population of the interest in golf has fallen by 15% in the past five years, many golf courses have been closed due to falling business. This is a threat to the company because if a golf course is closed or bankrupt, the company will lose potential customers. It may be worse because if a golf course that uses the company’s product shuts down, then the company will lose current customers. ● Economic The consumer fertilizer market is very competitive, with two main firms, Scotts Co. as well as Premier Tech Home and Garden. These two firms control 70% of the total consumer market. This is a threat because these two companies have already built brand awareness, and consumers know and trust them. ● Economic Most lawn care products are distributed in distinct types of retailers, like discount stores, such as Canadian Tire and Walmart. This can be a threat because the company will have to sell their product in these stores, but at a lower price. ● Competitive Compared to the two main competing fertilizers - Scott Co. and Premier Tech Home and Garden, Micronutrients Canada does not have a high brand name awareness and only has one lawn care product. This is a threat for this company because it is relatively unknown to consumers.
ASSIGNMENT #2 – CASE STUDY ANALYSIS
Section 3: The Consumer Segment: ● Size of Consumer Segment (with and without competitive loyalty data): Without competitive loyalty data $3.3 billion spent on lawn maintenance in 2018 x 62% fertilizers + 4% annual growth = $2.1billion total. We are considering 4% annual growth because the maintenance spent cost is from 2018, and we are analyzing the data in 2019. With competitive loyalty data 70% of the consumer market: $ 1.5 billion, due to 30% loyalty to competitors. We are going to take the information with the competitive loyalty data to be more conservative. ● Break-even point: Fixed cost: Annual rent: General & administrative: Research & development: Miscellaneous: Distribution costs: Sales Force: Marketing Budget:
$1,200,000.00 $ 180,200.00 $ 60,650.00 $ 32,350.00 $ 426,000.00 $1,000,000.00 $ 655,000.00
Total Fixed Cost
$3,554,200.00
Contribution margin: Retail price - variable cost = $15.30 Retail price: $22.50 Variable cost: $22.50 X 32%= $ 7.20
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ASSIGNMENT #2 – CASE STUDY ANALYSIS $22.50 - $7.20 = $15.30 Break even in units: Total Fixed Cost / Contribution margin $3,554,200.00 / $15.30 = 232,301 bags of 10kg. Break-even point: 232,301 bags of 10kg. ● Market Share required to Break-even: Market size: $3.3 billion x 62% fertilizers spent + 4% annual growth = $2,127,840,000.00 Break-even: 232,301 bags of 10kg x $ 22.50 retail price = $5,226,764.71 Market Share: $5,226,764.71 / $2.127,840,000.00 x 100 = 0.3% Market Share required to Break-even: 0.3% We assume the 4% annual growth because the information is from 2018 and we are analyzing the information in 2019. ● Production Capacity: 300,000 kg per month x 12 months = 3,600,000 kgs per year or 360,000 bags of 10 kg.
Reflection: Do they have enough production capacity to reach the break-even point for this market segment? The break-even point in kg for consumer market is 2,323,007 kg (Breakpoint 232,301 x 10 kg per bag) and the production capacity is 3,600,000 kg, which means there is enough capacity to reach the consumer market break-point. Additionally, this leaves 1,276,993 kg of production
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capacity past the breakeven point, allowing to produce more product and profits past the breakeven point. Is the market share required to break-even seem achievable for this segment? The market share required to break-even is 0.3% which is achievable due to only 30% of the consumer market having strong brand loyalty. The other 70%, not being loyal to any brand, may easily be influenced into purchased New Grow™.
Identify some pro’s for launching into the consumer market Advantages: 1. The consumer segment in the gardening industry is quite large in Canada. It accounted for $ 4.3 billion in retail sales in 2018. Furthermore, the consumption of fertilizer accounts for around 2 billion in this industry as well as 70% of the consumer doesn't have any brand preferences. Therefore, even New Grow™ is a new lawn care product, still has a significant opportunity to break into the market. 2. The market is anticipated to grow by 4% per year. 3. Low brand loyalty, 70% of the consumers in this market have no concrete brand preferences. This would mean that they may be open to purchasing a new product. 4. Micronutrients Canada can produce 300,000 kg New Grow™ per month, it can reach the demand of a breakeven point of the consumer market as 2,323,007 kg.
Identify some con’s for launching into the consumer market Disadvantages: 1. Lawn care is a highly seasonal business with 70% of the sales occurring during April to September. 2. Competition is high in the consumer fertilizer market, with the top two companies Scotts
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Co. and Premier Tech Home and Garden dominating 70% of the consumer market. 3. The discount stores ask for price concessions, special support, and they place strict requirements on their orders. This is a disadvantage to the consumer market as these strict restrictions cut into the profits of lawn care companies, such as Micronutrients Canada. The Commercial Segment: ● Size of Commercial Segment: (with and without Apartment and Office complexes) Number of golf courses: 2,400 Cost average maintenance per year: $200,000.00 Water usage: 42% Fertilizer purchase: 24% Without Apartment and Office complexes: 2,400 x [($200,000.00 x 42%) + ($200,000.00 x 24%)] = $316.8 million Total Commercial Segment (Without Apartment and Office complexes): Golf course market: $316.8 million + Office and apartment complexes :10% of golf course market = $348.5 million ● Break-even point: 77,753 bags of 50 kg Fixed cost: Annual rent: General & administrative: Research & development: Miscellaneous:
$1,200,000.00 $ 180,200.00 $ 60,650.00 $ 32,350.00
Distribution costs: Sales Force: Marketing Budget:
$ 325,000.00 $3,000,000.00 $ 800,000.00
Total Fixed Cost
$5,598,200.00
ASSIGNMENT #2 – CASE STUDY ANALYSIS ● Market Share required to Break-even: 2.9% Market size: (2400 Golf course x Average year maintenance $200,000 x Water usage costs 42%) + (2400 Golf course x Average year maintenance $200,000 x Fertilizer purchases 24%) = $316,800,000.00 Break-even: 77,753 bags of 50kg x $120 price = $9,330,360.00 Market Share: $9,330,360.00 / $316,800,000.00 x 100 =2.9% ● Production Capacity: 300,000 kg per month x 12 months / 50kg = 72,000 bags of 50kg ● Cost savings for golf course operator: Water Saving: ($200,000* 42%) *33%= $27,720 Fertilizers Saving: ($200,000*24%) *25%=$12,000 Total savings: $27,720 + $12,000 = $39,720 Cost savings for golf course operator: $39,720
Reflection: Do they have enough production capacity to reach the break-even point for this market segment? The break-even point for this market segment is 3,887,639kg and the production capacity is 3,600,000 kg, meaning there isn’t enough production capacity to reach this market segment.
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Is the market share required to break-even seem achievable for this segment? No, because the production capacity for the commercial market does not meet the minimum amount of units required to meet the breakeven point. The minimum amount of units required for the commercial market is 77,753 bags of 50 kg each, totaling 3,887,639 kg. However, the maximum production capacity of Micronutrients Canada is 3,600,000 kg. Even if the company produced and sold the maximum amount, they would still lose money.
Identify some advantages for launching into the commercial market Advantages: 1. They have more costs compared to the consumer market, but the break-even is low. This means that even with fewer products sold, this market easily crosses the threshold and is more convenient in the long term. 2. Because of the commercial markets urgent need the product can reduce the use of water and fertilizer, New Grow™ is the only product in the market that can cater to this demand.
Identify some disadvantages for launching into the commercial market Disadvantages: 1. The popularity of playing golf is declining. This was exhibited with the number of rounds declining in Canada by 15% during the last 5 years. Market demand for New Grow™ could decline as more golf courses go bankrupt or close down. 2. Since Micronutrients Canada only can produce 300,000 kg New Grow™ per month, it cannot reach the demand of a breakeven point of the commercial market as 3,887,639 kg. 3. The commercial market is significantly smaller than the consumer market in terms of value. The commercial market is worth nearly $317 million, while the consumer market is worth slightly over $2.1 billion.
ASSIGNMENT #2 – CASE STUDY ANALYSIS
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Section 4: Recommendation(s): What course of action do you recommend? Defend that recommendation. Support with from the case and your analysis from previous sections. Our recommendation is to focus in the consumer market segment because it has a higher contribution margin, accounting for $1.53 per kg. Additionally, based on the PESTLED analysis, it has more options to succeed in the future. It is a market with ineffective competitor positioning and customers who lack brand loyalty, so it is easy to enter this market. Also, the distribution effort is much lower than the commercial segment, and the production facilities produce enough to meet the breakeven point of 2,323,007 kg by a large margin. Finally, the consumer market can meet this breakeven point easily, as only a 0.25% share of market is required. In comparison, the commercial market cannot even meet their breakeven point of 3,887,639 kg bags due to this being above the maximum production capacity of Micronutrients Canada, 3,600,000 kg. Due to these reasons, we strongly recommend focusing on the consumer market.
ASSIGNMENT #2 – CASE STUDY ANALYSIS REFERENCES 1. Study Case: “The Launch of New Grow by Micronutrients Canada”.
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