Clover Valley Dairy Company
Charles Krieger
Dear Sir,
We have received your letter in response to our current market testing of the single and multipacks in the market. I would like to thank you for your concern and inform you that we value the feedback from our customers. We acknowledge the fact that you have taken your time to offer your insightful advice to our company. We have managed in the past to introduce different packaging materials in order to stay ahead of the competition here in Camden. I would like to inform you that it was part of our managerial decision to introduce the new cups into the market based on several factors including the costs of production.
I would like to share with you some information that made us make this decision of producing the multipack carrier. I believe that you are our customer and have been buying our brand for quite some time. We decided to introduce the 6-oz instead of the 8-oz cups because we believed that they were designed for individual servings. We received a triple increment in the sales of the new cups, but the percentage increase in sales as compared to the cost of production indicated to us that we would run at a loss in the long run. The new cups cost us 5.0 cents more in the packaging costs. The amount of yoghurt in the container also reduced due to the reduced size of the container and subsequently the price. However, the price wars and competition in the dairy stores have been a source of the problem to us, especially based on the total dollar contribution to fixed costs from yoghurt only.
Having shared with you this information, I must appreciate your idea about trying new outlets where we are not competing with the other dairies is a good idea. I would not like to rule out your idea about trying the new market, but I also have a feeling that this idea might not provide the right market representation. First, trying a new market without competitors would imply that we would be the only suppliers to that market. Therefore, the customers would not have an alternative to chose from them. I consider competition to provide an accurate representation of the new multipack carrier. For instance, in the market where we face competition from other dairies, we would establish if our multipack carrier has been received well by the customers against the package materials used by the competitors. Comparing our multipack against our own single cups would be restricted to preference and amount of disposable income of the buyers and not on fighting competition.
Secondly, we fear that price wars would extend from Camden into these regions that you have indicated. Since most of our competitors are also seeking to widen their market by entering new markets, they would also extend their branches into these areas, thereby hindering the correct findings of our market research. Eventually, we would have been ‘running’ from nothing because they would follow us. We believe that the best way to fight competition is by facing it. Additionally, the consumer tastes and preferences as well as income levels, which are some of the factors that influence buyer behavior, might differ between Camden and Naval Base or Bill. The company currently operates in Camden only and has no foreseeable plans of entering the latter markets. Therefore, while studying the Naval Base and Bill markets might give us the right information about the packaging materials, I think the data might not be representative of our current market. This might imply a waste of time conducting research outside the intended potential customers.
However, as I earlier indicated to you, we are not ruling out your consideration because we have not tried it to see if it might fail or succeed. We accept the fact that you concur with the organization on the fact that we need to test the multipack carrier. We have evaluated our previous packaging materials and considered this as the best alternative based on the costs of packaging and the benefits to the clients. Our supplier is also offering us attractive discounts. In my opinion, I approve the criteria you have suggested in this proposal. First, the fact that we would station our representatives in the stores looks important since they would provide us with the adequate information from the clients. The market entry procedure you have also suggested seems feasible since it could provide a comparative analysis of the reception or rejection of the multipack and single cups, which is significant in understanding the success or failure of the brand.
After considering both sides of the situation, and in connection with your close that gives me the opportunity to make the final decision, I believe that we should adopt your proposal. However, I would like to recommend a few changes in order to ensure that we have an accurate representation of facts. According to my proposal, we should try to conduct a similar proposal in Camden to compare the results of this study in both locations to be sure that the results are concurrent and representative of the whole market.
Manager
(signed)
