TruEarth Healthy Foods: Market Research for a New Product

Introduction
Case Analyses:
Isabel Eckstein the brand manager had let the introduction of the most successful
product of the company (Pasta Kit) in 2006 which means that she has a very
strong marketing background.
Competitors began offering similar products in 2008 which cause the growth to
slow.
Some of their competitors are Nestle and Kraft.
The do not make a rash decision. The success of Cucina Fresca was a
calculated risk based on significant research.
The company only uses high-quality durum wheat and mostly organic
ingredients.
The company further raised consumer awareness through several promotional
programs, using coupons, magazine advertisements, and in-store
demonstrations.
Idea generation. As the company grew, the idea generation process became a
more systematic evaluation of consumer trends, with formal management
brainstorming sessions.
Three important developments reshaped how consumers purchased groceries.
The first important trend was a new, loosely defined food category in the United
States home meal replacement (HMR). An increase in dual-income
households had led to higher disposable incomes coupled with time poverty, as
both workers found themselves lacking the time to cook a meal and clean up
afterward. Further, consumers had tired of unhealthy carryout and fast food and
started seeking greater variety and freshness. Supermarkets began meeting
HMR needs by enhancing their fresh, prepared food offerings.
There was no fresh whole grain pasta with broad distribution, with 85% of those
in favour of the concept having never purchased it before.
Competitive Threat: Rigazzi Fresh Whole Grain Pasta.
 Pizzas were a core component of the Italian-American food category, with annual
sales in the United States estimated at $53 billion in 2007.
suggested that 77% of consumers ate pizza at least once a month.
The store-bought refrigerated pizza market was 11% of sales and totaled $5.8
billion, making it a larger market than refrigerated pasta, which was
approximately $4.4B in 2007.
pizza demand in key demographics had been hurt by health concerns and the
popularity of diets that restricted or cut out carbohydrates. Eckstein believed this
presented the perfect opportunity for TruEarth.
Independent surveys of restaurant-goers showed that 33% of people had strong
interest in a whole grain crust.
Major chains like Papa Johns and Pizza Hut had introduced whole wheat or
multi-grain crusts
Kraft and Nestle are already huge players here with low-cost frozen pizza.

RECOMMENDATION HAI YE FUU

MEMORANDUM
DATE: January 11, 2009
TO: Isabel Eckstein
Brand Manager
FROM: Brett Matlack
RE: Introduction of Whole Grain Pizza Product
The slowing growth of Cucina Frescas sales has placed our competitive edge in the fresh Italian food

category in jeopardy. In an attempt to retain our leadership position and extend our product line, we have

invested in the development of a new whole grain pizza. We must decide whether to launch our pizza

offering. Our decision must take into consideration that the new products wholesales volume estimates must

exceed $12 million to meet our return requirements. The decision-making process is time sensitive because

one of our competitors, Rigazzi Brands, has already tested a whole grain pizza concept and is not far from

introduction. Given these factors, we can either debut or suspend the product. Based on sales volume

estimates and situation analysis, I recommend that the company launch the pizza. The introduction will result
in a wholesales volume that exceeds our return requirements and these additional funds can be reinvested

into the firm.

Option I: Launch Whole Grain Pizza Product

The launch of a whole grain pizza kit will capitalize on the same consumer trends that prompted the

release of Cucina Fresca: growing demand for quick, customizable home meal replacements that are

refrigerated and available in tasty, whole grain options. Also, pizza is a core component of the Italian-

American food category that we cannot ignore because it is frequently purchased by customers on a monthly

basis. Our whole grain pizza product resolves the time- and health-related concerns of American consumers

in one of their favorite dishes (see Exhibit 1: SWOT Analysis for Whole Grain Pizza Product). The growing

demand for a whole grain crust has been addressed by local pizzerias and take-out franchises, but not in the

store-bought refrigerated pizza market. The immediate release of the pizza kit would allow us to penetrate

this market before Rigazzi and benefit from first mover advantages. As a result, our 1st year wholesale volume

estimates would exceed our return requirements by approximately $4.5 million (see Exhibit 2: Whole Grain

Pizza Concept Purchase Volume Estimate, Year 1 [Excellent]). The excess returns can be reinvested into the

firm and used to expand our manufacturing facilities or further extend our product line.

If the pizza kit is launched, the firm must consider the potential consequences. We must assess the

impact it will have on Cucina Frescas success and production, as well as the TruEarth image if the product

flops (see Exhibit 1: SWOT Analysis for Whole Grain Pizza Product). Likewise, we must review the potential

consequences if the wholesale volume estimate is calculated using the percentage repurchases when the

product is perceived to be of mediocre or average quality (see Exhibit 3: Whole Grain Pizza Concept

Purchase Volume Estimate, Year 1 [Mediocre, Average].

Option II: Do Not Launch Whole Grain Pizza Product

The competitive environment of the pizza market and quality-related issues discovered in the BASES

studies indicate that the whole grain pizza product should not be launched. Although the market generates

high sales, it is extremely crowded and dominated by powerful players like Kraft and Nestle. Furthermore, the

ability to market a tasty whole-grain pizza crust and communicate its benefits will be difficult because the
American public perceives whole grains to be less appetizing than white flour. Attempting to change

consumer preferences is timely and costly.

By foregoing the release of the pizza kit, the company can focus solely on Cucina Fresca. The

operating facilities will not have to worry about manufacturing two different product lines and our

distribution infrastructure will not be overworked (see Exhibit 1: SWOT Analysis for Whole Grain Pizza

Product). Likewise, our marketing team could concentrate on attempting to revive the pasta meals. This

product has proven to be successful at one time. Investing all of our resources into the pizza product could

be both disastrous and expensive considering we have no experience in this market category. However, by

shelving the pizza, an opportunity is lost because our company would be ignoring the needs of a potentially

profitable market. The health-conscious trend is not going away and our firm needs to expand our product

line in order to retain our leadership as a gourmet, healthy alternative.

Recommendation
At this time, our company would benefit the most by launching the new whole grain pizza product.

By not launching the pizza kit, our investments and time can be focused on expanding the pasta line and

retooling the marketing campaign to improve sales; however, in order to diversify the TruEarth brand name,

innovation is needed. Although the pasta market may seem safe, we must venture into new categories in

order to raise brand awareness, seek new customers, and increase our profits.

Exhibit 1: SWOT Analysis for Whole Grain Pizza Product

Strengths
Highly selective about ingredients
Existing infrastructure for coupons, magazine
advertisements, in-store demonstrations
Existing formal 4-step process for research and
development
Incremental investment for pizza less than pasta Only received 10% favorable to product in overall
Higher awareness of pizza product among
Cucina Fresca customers
Successful market experience in launching new
products (brand name awareness)
Existing manufacturing equipment and
distribution infrastructure to get fresh food to
shelves quickly
Easy preparation, but gives customers the chance
to be involved in the cooking process
Weaknesses
Pizza kit only feeds 2-3 people
Consumers have to buy toppings separately
Limited selection of toppings and varieties offered
Considered too expensive ($12.38 vs. $10.09 for
other refrigerated options, $11.72 for takeout)
taste, texture, and quality
Limited time to product expiration (similar
refrigerated manufacturing issues as Cucina
Fresca)
o If using same equipment, this may lead to
bottlenecks in both operating facilities and
distribution network
 Permits customers to customize
Refrigerated pizza is considered tastier, more
authentic than frozen pizza
Is a product for the whole family (8.6/10 in mall-
intercept)
28% of home-trial users believe there is no need
for improvement
33% of respondents in mall-intercept considered
the TruEarth name a favorable advantage
Opportunities
Leverage relationship with North Dakota durum
wheat supplier to supply wheat for pizza dough
Expand serving size options
o Offer single serving sizes for individual meals;
whole pizzas to feed a family
Expand topping offerings
Contract with local cafes and other gourmet
specialty restaurants to offer products in other
store formats
Create a packaged bundle which includes Cucina
Fresca and the pizza kit
Leverage TruEarth brand name to enter the pizza
market
o TruEarth is well-liked and considered to be
high quality Utilize this to demonstrate the
benefits/product attributes of the pizza
product
Exhibit 2: Whole Grain Pizza Concept Purchase Volume Estimate, Year 1 (Excellent)
Total Purchase Intent
Definitely would buy
% of Definites who actually buy
Definite Purchases
Probably would buy
% of Probables who actually buy
Probable Purchases
Trial Rate
Marketing Plan Adjustment
Target Households
Cucina Fresca Pasta Customers
a Definitely would buy x % of Definites who actually buy: 80% x 18%
b Probably would buy x % of Probables who actually buy: 30% x 43%
c Definite Purchases + Probable Purchases: 14.4% + 12.9%
d Target Households x 11%: 58,500,000 x 11%
Threats
Health conscious mindset (e.g. low carbohydrate
diet) has hurt key demographics in pizza demand
Consumers may not purchase additional toppings
Rigazzi has tested a pizza concept and is
preparing to introduce it
Competitors may quickly replicate whole-grain
pizza kit and price them lower to win larger share
of the market
Nestle and Kraft dominate the frozen-pizza
market
Our pizza doughs quality may not be
comparable to freshly made takeout
Pizza market is extremely crowded (options
include takeout, delivery, refrigerated)
If product succeeds, product facilities may
struggle to manufacture two lines (Cucina Fresca
placed on back burner, limited production)
If product fails, damage to TruEarth name may
make it harder to launch new products in future
18.00%
80.00%
14.40a%
43.00%
30.00%
12.90b%
27.30c%
58,500,000
6,435,000d
Non- Cucina Fresca Pasta Customers 52,065,000e
Customer Awareness 50.00%
Non-Customer Awareness 12.00%
All Commodity Volume Distribution (ACV) 40.00%

Marketing Adjusted Trial Rate

Cucina Fresca Pasta Customers Adjusted Trial Rate 5.46f%
Non- Cucina Fresca Pasta Customers Adjusted Trial Rate 1.31g%
Cucina Fresca Pasta Customers Trial Purchases 351,351h
Non- Cucina Fresca Pasta Customers Trial Purchases 682,051.5i
Total Trial Purchases 1,033,402j,k

Repeat Purchase Inputs

Repeat Purchase Occasions 2.00

Repeat Rate, by Product Services

Excellent Product 49%

Repeat Volume, by Product Scenario

Excellent Product 1,012,733l,m

Total Purchases 2,046,135n

Total Sales Volume

Retail Sales Volume $25,331,151.30o
TruEarth Sales Volume $16,465,248.35p
In Excess of Return Requirements $4,465,248.35q

e Target Households x 89%: 58,500,000 x 11%

f Trial Rate x Customer Awareness x ACV: 27.3% x 50% x 40%
g Trial Rate x Non-Customer Awareness x ACV: 27.3% x 12% x 40%
h Target Households x Cucina Fresca Pasta Customers Adjusted Trial Rate: 58,500,000 x 5.46%
i Target Households x Non- Cucina Fresca Pasta Customers Adjusted Trial Rate: 58,500,000 x 1.31%
j Cucina Fresca Pasta Customers Trial Purchases + Non- Cucina Fresca Pasta Purchases: 351,351 + 682,051.5
k Rounded down because cannot include 0.5 of a household
l Total Trial Purchases x Repeat Purchase Occasions x Excellent Product Repeat Rate: 1,033,402 x 2.00 x 49%
m Rounded down because cannot include 0.96 of a product
n Trial Purchases + Repeat Purchases: 1,033,402 + 1,012,733
o Total Purchases x Average Spent per Purchase: 2,046,135 x $12.38
p Retail Sales Volume x (1-Food Retailers 35% Gross Margin): $72,835,811.1 x (1-0.35)
q
TruEarth Sales Volume Minimum Return Requirement: $16,465,248.35- $12,000,000
Exhibit 3: Whole Grain Pizza Concept Purchase Volume Estimate, Year 1 (Mediocre, Average)

Inputs from Exhibit 2

Trial Rate 27.30
Total Trial Purchases 1,033,402
Repeat Purchase Occasions 2.0

Repeat Rate, by Product Services

Mediocre Product 21%
Average Product 37%

Repeat Volume, by Product Scenario

Mediocre Product 434,028.84r
Average Product 764,717.48s

r Total Trial Purchases x Repeat Purchase Occasion x Mediocre Repeat Product Rate: 1,033,402 x 2.0 x 21%
s Total Trial Purchases x Repeat Purchase Occasion x Average Repeat Product Rate: 1,033,402 x 2.0 x 37%
 Total Purchases
Mediocre Product 1,467,430t,u
Average Product 1,798,119v,w

Total Sales Volume

Retail Sales Volume (Mediocre Product) $18,166,783.40x
TruEarth Sales Volume (Mediocre Product) $11,808,409.21y
Retail Sales Volume (Average Product) $22,260,713.22z
TruEarth Sales Volume (Average Product) $14,469,463.59aa

Based on these wholesales volumes, the average product perception meets our return requirements.
We would gain $2,469,463.59 in extra cash if we were to launch this product. However, the mediocre product
does not meet our return requirements (off by $191,590.79). We are only off of our return requirements by a
small margin (1.596%bb); thus, we may consider taking on this initial loss for the first year. Considering the
growth rate of Cucina Frescas retail sales between the 3rd quarter of 2006 and 2007 (194.44%cc), we may
predict that the initial sales volume will grow between the first and second year of the product launch. Our
future sales volume will most likely cover our initial return requirements in the 2nd year and our losses from
the 1st year.

t Total Trial Purchases + Mediocre Product Total Purchases: 1,033,402 + 434,028.84

u Rounded down because cannot have 0.84 of a purchase
v Total Trial Purchases + Average Product Total Purchases: 1,033,402 + 764,717.48
w Rounded down because cannot have 0.48 of a purchase
x Total Purchases for Mediocre Product x Average Spent per Purchase: 1,467,430 x $12.38
y Retail Sales Volume for Mediocre Product x (1-Food Retailers 35% Gross Margin): $18,166,783.40 x (1-0.35)
z Total Purchases for Average Product x Average Spent per Purchase: 1,798,119 x $12.38
aa Retail Sales Volume for Mediocre Product x (1-Food Retailers 35% Gross Margin): $22,260,713.22 x (1-0.35)
bb
(TruEarth Sales Volume (Mediocre Product) Return Requirement)/Return Requirement: ($11,808,409.21-
$12,000,000)/$12,000,000
cc [{ (2007 Retail Sales-2006 Retail Sales)/(2006 Retail Sales)} + 1] x 100%: [{($35,000,000-

$18,000,000)/($18,000,000)} +1] x 100%