MKTG 6010

Nestle Refrigerated Foods: Contadina Pasta & Pizza

Anthony Garver

Issue: In 1990, Nestle Refrigerated Food Company (NRFC) considered the release of a refrigerated pizza product into the U.S. market. Stephen Cunliffe, President of the NRFC, had managed the release of refrigerated pasta and sauce three years earlier, but this time faced production challenges, distribution challenges, and an unknown sales volume for the proposed product. Would there be enough demand for the pizza and would there sufficient sales volume to warrant moving forward with the decision? The NRFC uses a seven-step process in product development as follows: idea generation, concept screening, product development, volume quantification, test marketing, commercial evaluation, and introductory tracking. This process was intentionally flexible to allow product development teams to innovate effectively. Many times, NRFCs marketing research department (MRD) would outsource volume determination to BASES, a marketing research firm. A BASES-I test (for volume) was used to project awareness and usage for pasta and sauce. MRD decided to use the more thorough BASES II test (Line Extension Study) for projecting sales volume of the pizza concept. Prior to the launch of the pasta and sauce several surveys were conducted by BASES to test consumer likes and dislikes of the products. As referenced above, the pasta and sauce concept tests did not include taste tests. The majority of those surveyed liked the pasta and sauce concept with most having a high intent to purchase. When pizza was tested it received similar subject approval. With the pizza, however, respondents who indicated they would likely purchase the pizza were allowed to take a sample home for trial. The respondents intent to purchase was very positive after the take-home trial. The BASES II test for pizza sale volume was conducted in high-potential markets. This concerned the MRD as they felt the penetration calculations would vary more widely than BASES presented. Test subjects were entirely female and in close proximity to shopping malls. Although the survey method, mall intercepts, required the respondent in close proximity to a mall, consideration for rural areas should have been made. Male participants should have been involved in the survey process as well since they made up almost half of those who indicated positive purchase intent in earlier tests. Recommendation: The case concludes with Stephen Cunliffe indicating that the hurdle for proceeding with the pizza project was $45 million in Factory Dollar Sales. The BASES analysis in Exhibit 1 uses factory dollars defined as two-thirds of suggested retail. The BASES analysis in Exhibit 1 was performed by using the NRFC projection of 24 percent penetration of 95.5 million households. Exhibit 2 (Trial VolumeStress Test) details calculations for 5 percent, 10 percent and 15 percent penetration. Exhibit 3 contains supporting information for the BASIS analysis in Exhibit 1. The BASES results for each product: pizza with toppings and pizza only, given the NRFC projected penetration (24%), exceed the factory dollar sales hurdle set by Cunliffes. Volume stress tests of 5, 10, and 15 percent yield similar results and exceed the given hurdle. Given these results, NRFC should proceed with the roll-out. They should, however, do so only in markets that they tested in because the BASES test was skewed toward high penetration areas. If these results are satisfactory, NRFC could then widen their distribution. The surveys by NRFC and BASES indicate consumer support for a refrigerated pizza option. It appears that consumers would be highly likely to try Contadinas pizza. Testing related to attributes supports releasing the product as does testing for substitutes to existing options with Contadinas pizza. After taste testing, consumers continue to have a high intent to purchase the product. Based on these results, NRFC does to have support in the areas that they tested in. NRFC should roll-out the product in the test areas and proceed to expand if successful results are attained. Finally, NRFC should exercise caution as refrigerated products have a limited shelf-life. The projected frequency of toppings purchase is less than that of for pizza. As a result, there risk of spoilage and lost stock due to spoilage. In addition, the consumer might purchase non-NRFC toppings, which would exacerbate the spoilage potential by leaving unsold Contadina toppings sitting on store shelves.

Exhibit 1: BASES Volume Estimate

Concept Purchase Intent (CPI)
Pizza w/Topping(Pwt) Pizza Only(Po)

Definitely Would Buy Probably Would Buy Two Top Box

User 30% 57% 87%

Non 15% 59% 74%

User 22% 48% 70%

Non 12% 42% 54%

Adjusted Trial (AT)

Industry Rule of Thumb Actually Buy Definitely Purchase 80% Probably Purchase 30% Pizza w/Topping User Non 24% 12% 17% 18% 41% 30% Pizza Only User Non 18% 10% 14% 13% 32% 22%

Definitely Would Buy Probably Would Buy Adjusted Trial

Environmental Adjustments (EA)

None

Marketing Plan Adjustments (MPA)

Advertising $9,000,000 GRP's n/a Pizza w/Topping User Non 41.1% 29.7% 60.0% 30.0% 37.0% 37.0% 58.0% 58.0% 14.3% Pizza Only User Non 32.0% 22.2% 60.0% 30.0% 37.0% 37.0% 58.0% 58.0%

Adjusted Trial Awareness (AW) Overall Awareness ACV MPA (AT x AW x ACV)

5.2% 11.1% 3.9%

Exhibit 1: BASES Volume Estimate, Continued

Trial Volume with NRFC Estimate of Pennetration (24%)
Target HH Target HH Marketing Plan Adj. Units at Trial Total Trial Units Repeat Rate # Repeat Purch. Occasions Avg. Repeat Trans. Amt. Total Repeat Units Total Units Factory Unit Cost-Pizza Factory Sales-Pizza $ Pizza w/Topping Sales $ Topping Sales Total Units Sold 0.5 of Fav. Purch at Trial 0.25 of Fav. Purch at Trial 0.5 of Fav. Purch at Retrial 0.25 of Fav. Purch at Retrial Pizza w/Topping User Nonuser 22,920,000 72,580,000 14.30% 5.17% 1.2 1.2 3,933,842 4,500,947 22.0% 2.0 1.0 1,730,891 122.0% 2.0 1.0 10,982,311 Pizza Only User Nonuser 22,920,000 72,580,000 11.14% 3.86% 1.1 1.1 2,807,608 3,083,982 22.0% 2.0 1.0 1,235,348 122.0% 2.0 1.0 7,524,917

5,664,733 15,483,258 4,042,956 10,608,899 $4.26 $4.26 $4.26 $4.26 24,143,827 $ 65,991,658 $ 17,231,604 $ 45,216,507 90,135,485 Pizza Only Sales $ 62,448,111 Favorable Nonusers 15,483,258 1.50 11,612,443 0.75 2,903,111 1.00 7,741,629 0.50 1,935,407 24,192,591 $0.86 $ 20,816,031

Favorable Users 5,664,733 1.50 4,248,549 0.75 1,062,137 1.00 2,832,366 0.50 708,092 Total Units Sold 8,851,145 $0.86 Factory Unit Cost-Toppings Factory Sales-Toppings $ 7,615,790 90,135,485 28,431,821 118,567,306

Pizza w/Topping Sales $ Total Toppings Sales $ Total Sales $

Pizza Only Sales $ 62,448,111

Exhibit 2
Trial Volume-Stress Test
Target HH Target HH Marketing Plan Adj. Units at Trial Total Trial Units Repeat Rate # Repeat Purch. Occasions Avg. Repeat Trans. Amt. Total Repeat Units Total Units Factory Unit Cost-Pizza Factory Sales-Pizza Pizza w/Topping Sales $ Topping Sales Total Units Sold 0.5 of Fav. Purch at Trial 0.25 of Fav. Purch at Trial 0.5 of Fav. Purch at Retrial 0.25 of Fav. Purch at Retrial Pizza w/Topping User Nonuser 4,775,000 90,725,000 14.30% 5.17% 1.2 1.2 819,550 5,626,184 22.0% 2.0 1.0 360,602 122.0% 2.0 1.0 13,727,889

5%
Pizza Only User Nonuser 4,775,000 90,725,000 11.14% 3.86% 1.1 1.1 584,918 3,854,978 22.0% 2.0 1.0 257,364 842,282 $4.26 $3,589,917 122.0% 2.0 1.0 9,406,146 13,261,124 $4.26 $56,520,633

Trial Volume-Stress Test

Target HH Target HH Marketing Plan Adj. Units at Trial Total Trial Units Repeat Rate # Repeat Purch. Occasions Avg. Repeat Trans. Amt. Total Repeat Units Total Units Factory Unit Cost-Pizza Factory Sales-Pizza Pizza w/Topping Sales $ Topping Sales Total Units Sold 0.5 of Fav. Purch at Trial 0.25 of Fav. Purch at Trial 0.5 of Fav. Purch at Retrial 0.25 of Fav. Purch at Retrial Pizza w/Topping User Nonuser 9,550,000 85,950,000 14.30% 5.17% 1.2 1.2 1,639,101 5,330,069 22.0% 2.0 1.0 721,204 122.0% 2.0 1.0 13,005,368

10%
Pizza Only User Nonuser 9,550,000 85,950,000 11.14% 3.86% 1.1 1.1 1,169,837 3,652,084 22.0% 2.0 1.0 514,728 1,684,565 $4.26 $7,179,835 122.0% 2.0 1.0 8,911,086 12,563,170 $4.26 $53,545,863

1,180,153 19,354,072 $4.26 $4.26 $5,029,964 $82,489,573 87,519,537

2,360,305 18,335,437 $4.26 $4.26 $10,059,928 $78,148,016 88,207,944

Pizza Only Sales $ 60,110,551 Favorable Nonusers 842,282 1.50 631,712 0.75 157,928 1.00 421,141 0.50 105,285 1,316,066 $0.86 $ 1,132,383

Pizza Only Sales $ 60,725,698 Favorable Nonusers 1,684,565 1.50 1,263,424 0.75 315,856 1.00 842,282 0.50 210,571 2,632,133 $0.86 $ 2,264,766

Favorable Users 1,180,153 1.50 885,114 0.75 221,279 1.00 590,076 0.50 147,519 Total Units Sold 1,843,988 $0.86 Factory Unit Cost-Toppings Factory Sales-Toppings $ 1,586,623 87,519,537 2,719,006 90,238,543

Favorable Users 2,360,305 1.50 1,770,229 0.75 442,557 1.00 1,180,153 0.50 295,038 Total Units Sold 3,687,977 $0.86 Factory Unit Cost-Toppings Factory Sales-Toppings $ 3,173,246 88,207,944 5,438,012 93,645,956

Pizza w/Topping Sales $ Total Toppings Sales $ Total Sales $

Pizza Only Sales $ 60,110,551

Pizza w/Topping Sales $ Total Toppings Sales $ Total Sales $

Pizza Only Sales $ 60,725,698

Trial Volume-Stress Test

Target HH Target HH Marketing Plan Adj. Units at Trial Total Trial Units Repeat Rate # Repeat Purch. Occasions Avg. Repeat Trans. Amt. Total Repeat Units Total Units Factory Unit Cost-Pizza Factory Sales-Pizza Pizza w/Topping Sales $ Topping Sales Total Units Sold 0.5 of Fav. Purch at Trial 0.25 of Fav. Purch at Trial 0.5 of Fav. Purch at Retrial 0.25 of Fav. Purch at Retrial Pizza w/Topping User Nonuser 14,325,000 81,175,000 14.30% 5.17% 1.2 1.2 2,458,651 5,033,954 22.0% 2.0 1.0 1,081,807 122.0% 2.0 1.0 12,282,848

15%
Pizza Only User Nonuser 14,325,000 81,175,000 11.14% 3.86% 1.1 1.1 1,754,755 3,449,191 22.0% 2.0 1.0 772,092 122.0% 2.0 1.0 8,416,025 11,865,216 $4.26 $50,571,093

3,540,458 17,316,802 2,526,847 $4.26 $4.26 $4.26 $15,089,892 $73,806,460 $10,769,752 88,896,352

Pizza Only Sales $ 61,340,845 Favorable Nonusers 2,526,847 1.50 1,895,136 0.75 473,784 1.00 1,263,424 0.50 315,856 3,948,199 $0.86 $ 3,397,149

Favorable Users 3,540,458 1.50 2,655,343 0.75 663,836 1.00 1,770,229 0.50 442,557 Total Units Sold 5,531,965 $0.86 Factory Unit Cost-Toppings Factory Sales-Toppings $ 4,759,869 88,896,352 8,157,018 97,053,370

Pizza w/Topping Sales $ Total Toppings Sales $ Total Sales $

Pizza Only Sales $ 61,340,845

Exhibit 3
Industry Rule of Thumb (ROT) Actually Buy Definitely Would Buy 80% 30% Probably Would Buy Pennetration Stress Test Percentage Pennetration 5.0% Target Households
# of Households* = 95,500,000

Pennetration Est. 5.0% 10.0% 15.0% 20.0% 25.0% NRFC Est. 24%

# of HH 4,775,000 9,550,000 14,325,000 19,100,000 23,875,000 22,920,000

# of User Households 4,775,000 # of Nonuser Households 90,725,000

NRFC Estimated Pennetration (24%)

Pizza w/Topping Pizza Only

User Pennetrated HH 22,920,000

Nonuser 72,580,000

User 22,920,000

Nonuser 72,580,000

Estimated Pennetration Stress Test

Pizza w/Topping Pizza Only

Estimated Pennetration 10%

User 9,550,000

Non 85,950,000

User 9,550,000

Non 85,950,000

Awareness

Table D Pizza Kit 60% 30% 37% 58%

Pizza Only 60% 30% 37% 58% Pizza Only 1.1 22% 1.0 2.0

Contadina Pasta & Sauce Users Nonusers Overall Awareness All Commodity Volume (ACV)

Purchase Assumptions Pizza Kit Units Purchased at Trial 1.2 Repeat Rate 22% Repeat Purchase Units 1.0 Repeat Purchase Occasions 2.0 Purchased Toppings 0.5 of Fav. Purch at Trial 0.25 of Fav. Purch at Trial 0.5 of Fav. Purch at Retrial 0.25 of Fav. Purch at Retrial

1.50 0.75 1.00 0.50