Case Study #1: Class Or Mass?

Neptune Gourmet Seafood: Class Or Mass?

B BUS 470 B: Business Policy And Strategic Management

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Executive Summary
Neptune Gourmet Seafood is North America’s third-largest seafood producer that is
famous for its excellent company reputation built on the high-qualified supply market of
high-end seafood industry. The company is recently struggling with the challenge of the
excess inventory, which is mainly ascribed as the consequence of the improved fishing
equipment and related technologies and the fundamental environment changes. To solve
the issues, the management is considering whether the company should cut the current
price in half or have a large discount to take a clearance deal. In my opinion, dramatically
adjusting prices seems to be a good idea to clear inventory, but it can probably trigger
many issues to the company stability and future development. Thus, my primary
recommendation is to operate in the new-targeted markets in order to classify the various
market segments based on the consumption levels, specifically, the company should
separate the Seafood products into various packaging sizes to satisfying customers with
different purchasing powers – the company does not need to lower its high-end pricing
polices to clear inventory, instead, the company can improve its customers’ base to
acquire more market shares. Otherwise, if the company has considerations about the
expenses of entering new-targeted markets (the new packaging method may direct to the
cost of having new distribution system and inventory system), I suggest that the company
can clear the excess inventory by leasing the old freezer trawlers, having charity
contributions or entering new geographic markets.

Industry Dynamics
Revenue Channels
Neptune Gourmet Seafood’s marketing strategy is not only to provide high-qualified
seafood related products to U.S. grocery chains, like Shaw’s Supermarkets, and organic
food retailers, like Whole Foods Market, but also to build supply chains for the star
restaurants around its headquarter, Fort Lauderdale, and the biggest cruise lines that have
stong purchasing power. What’s more, the company owns a fish market that is close to its
headquarter. In conclusion, the company operates mutiple sources to maximize the ability
of facing market recessions and economic difficults. Here are the four main channels to
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generate revenues:

Sources of Revenue

4%

30%
U.S. Grocery Chains
33%
Large Wholesalers
Restaurants
Local Fish Market

33%

Competitions
Neptune Gourmet Seafood is titled as “The Best Seafood on the Water Planet,” due
to its high-performance. However, the marketing globalization makes the company have
to compete market shares with large outsiders, like China, Peru, Chile, and Japan, though
it mainly operates business in North America. The strong competitive forces lead the
company to suffer huge pressures to keep the title, and it makes the company become
more radical about its growth strategies to keep the title, for example, selling premium
brand at 25%-30% above the market regular value to keep brand awareness; carrying the
U.S. Association of Seafood Processors and Distributors (ASPD) Gold Seal of Approval
on all seafood products to acquire customers’ satisfactions; investing heavily on the new
fishing fleets and related technologies to expand company’s equity base.
Key Issues
These growth strategies indeed help Neptune Gourmet Seafood stabilize its
competitive advantages, but also bring some key issues that can harm the company’s
development. The improved fishing equipment and related technologies greatly expand
the catch amount that the new high-efficient freezer trawlers can super freeze fish to
negative 70 F to reduce the cost created by the freezing period. It seems to be good for
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the company to take advantages from the proper inventory amount to avoid stock out (we
all know that seafood products are mostly perishable, so excess inventory can cause
problems). However, the authorities come up with a new fishing law that seriously
changes the fundamental environment of the fishing industry. The law puts limitations to
fishing related companies to gain access to fishing areas that are close to the coast areas,
which mean that these companies have to go further out to the deeper sea to operate their
businesses – the deeper sea is the virgin territory for fishing industry, it means that
companies can undoubtedly increase the catch amount from these new rich fishing
grounds to increase inventory. Otherwise, it can significantly decrease the inventory
turnovers by consuming too much time in trips, and causes the company cannot clear its
inventory efficiently, so it makes the “proper inventory” become the “excess inventory.”
In conclusion, the company is facing the key issue of the excess inventory, and we can
clearly see what happens from this chart:
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Company Analysis
SWOT
After anaylazing the key issues of Neptune Gourmet Seafood, we can have an
overview about the company situation:

Neptune Gourmet Seafood’s improved production chain brings the excess inventory
that has touched the celling to 60 days’ supply, which is as twice much as the normal
level (a month), and the inventory amount is still presenting a rising trend. To storage the
excess inventory, the company does not only pay the additional storage fees and other
related fees (like extra power consumptions and fishing processing fees), but it is also
struggling with the perishableness of these seafood products – the company cannot sell
low-quality seafood products to damage its brand reputations. Moreover, the company
does not simply replace the old freezer trawlers with the new high-efficient freezer
trawlers. Instead, the company keeps the both equipment that can worsen the excess
inventory issue.
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Options and Recommendations

Management’s Decision

The management suggests cutting the current price in half or having a large discount
to clear the excess inventory. These strategies can definitely solve the issue, but they may
create a price war that will crush the whole fishing industry, and the company will have
to sacrifice more, compared with other competitors, because it is the bellwether.
Otherwise, the decreased prices will confuse the customers’ minds about the products’
quality and let them believe that the company used to earn a higher profit from their
wallets. Customers may lose their satisfactions about the company reputations and hardly
get back again.

Suggested Decisions

My primary decision is to keep the high-end strategy and operate in the new-targeted
markets (new targeted
customers’ groups) in order
to classify the various market
segments based on the
consumption levels.
Specifically, dividing prices
into various price intervals to
attract customers with
different purchasing powers
by presenting its excellent
brand name and company
reputations. We can find the
supported evidences from the
steak market, which some
industry leaders build great
customers’ awareness by
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selling the high-end steaks, and then, they acquire market shares by widely selling
traditional and low-end steaks. Customers always follow the shopping inertia to buy the
products from the companies that have high-end products – even these customers only
want to buy lower class products. However, seafood products are not as the exactly same
as the steak products, because they are hardly classified by cuts or origins. Thus, I
recommend the company to only keep providing the high-end products, but packaging
these products in various sizes to let customers with lower purchasing powers can afford
the prices, because we all know that small-size box is always cheaper than large-size box
in seafood related industries. Based on this concept, customers can have more choices to
avoid the situation of making tough decisions about whether to buy an expensive large
box or not, and they will be able to afford the small size boxes of the high-end seafood
products.

If Neptune Gourmet Seafood has considerations about the expenses due to the new
packaging method, like additional shipping fees and labor wages, I still come up some
options with their derived issues:

Firstly, the company can lease its old freezer trawlers, which the company is using
the both freezer trawlers, to other fishing companies. It does not only reduce the
inventory pressure by decreasing the catch amount, but also brings stable rental earnings.
However, the improved catch amount of other fishing companies can compete the market
share, so the company’s remaining inventory may still meet the stock celling (the
inventory limitation), due to the reduction of customers’ base.

Secondly, the company can donate its seafood products to some non-profitable public
welfare organizations. It can be viewed as a CSR tool for the company to transfer its
nature to a green company in order to build good brand reputations. The most importantly,
although the company does not receive any directly profits from making charity
contributions, it can still get tax deductions from the tax level called “below the line” to
increase its taxable income. However, if the company donates the products with the high
labeled-prices, the customers may query about the pricing policies that can harm the
company reputations, because people usually believe that companies will not donate
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high-price products as the charity contributions, so these high-price products must follow
a “ridiculous” pricing policy.

Thirdly, the company can enter new geographic markets instead of only operating in
North America. In fact, this option is not about how to solve the excess inventory issue;
instead, it is more likely about introducing the company to a larger market. It is hard to
say what will happen, because it is a gambling about the trade-off between the new
business starting costs and the new market situations. However, it should be a thoughtful
idea to have economic wars with the competitive forces in their controlling regions.
Giving an example of China, which is one of the largest competitors of the company. As I
know, Chinese people have relatively strong purchasing power in seafood market,
because the mainstream keeps the different minds from Americans – Chinese people
believe that buying high-end seafood products are worth showing off and proving they
are rich, no matter whether they can actually afford; American people are usually willing
to buy something that they actually afford. As the leader company in fishing industry,
Neptune Gourmet Seafood takes great advantage in the brand names in North America. If
the company can heavily invest in the promotional process to let Chinese people know its
brand name, they will build strong customers’ base for the comapny in the Chinses
markets.

Alternatives Evaluation Matrix

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I develop a decision matrix to show the optimal strategy that Neptune Gourmet
Seafood should take to solve the key issue of the excess inventory with minimum
consumptions. In this matrix, I rank some key factors from 0 to 5, which the greater
advantages the company takes from the factor, the higher number the factor can get, for
example, having 5 points in “Potential Risks” means that using this decision can cause
few future risks to the company development, so it means that the company can get
strong advantages from it.

In conclusion, the new packaging method has the greatest performance, 28 points,
among these listed strategies, and it means that the company can invest the least
resources into the strategy to acquire the optimal returns. So, my final recommendation
for the company management is to keep the high-end quality and follow the new
packaging method to focus on new-targeted customers’ groups in order to increase
customers’ base without harming brand name.

Additional Information

Here is additional information that I do not use in the analysis process. However, I
believe that they may be important for the readers to understand, at least keep in minds.

The Ansoff Matrix

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Porter Five Forces