GOOD FOODS, INC.: “Introduction of Electrical Appliances”
Good Foods, Inc., primarily a food manufacturer, was considering a
long range plan to undertake the manufacturing and marketing of
small electrical appliances.
Product Lines: Good Foods marketed a wide range of food
products. Among the best known were the “Ann Anderson”
line of cake, frosting, and brownie mixes. Good Foods also marketed
a number of cereals, flour products, frozen and refrigerated
foods. The name “Ann Anderson” was one of Good Foods’
prime assets. It had been carefully cultivated with over twenty
million dollars having been spent to put the name across to the
public.
Small Appliance Project: In 2006 a special project was started in which a group of engineers developed prototypes of various electrical appliances. Four products, a toaster, electric frying pan, iron, and coffeemaker were developed.
Several consumer tests of these four appliances had been conducted throughout the product development process. All four appliances compared favorably with competitors during home-use tests. These tests were conducted with appliance owners throughout the United States. While the new appliances were not major break-throughs in design, they did incorporate the most up-to-date features that characterize competitive appliances. All of Good Foods’ home-use tests were conducted “blind”: the appliance owner was not told who manufactured the appliances.
The competition in the appliance business was characterized as
intense with many firms sharing the market. Several
large manufactures such as General Electric, Sunbeam, Toast Master
and others were well established in the traditional appliances
distribution channels (appliance outlets, discount houses, hardware
outlets, etc.) Annual growth rate for small
appliances has been approximately 8% during the past ten
years. Table I indicates the pattern of sales for the
last few years by product type. Good Foods’ executives considered a
10% penetration of this market potential a real
possibility.
Good Foods, Inc. decided to competitively price the new line with
the leading sellers in the field. The average unit
selling price at retail was determined to be $45. In
other words, consumers would pay $45 to purchase any of the 4 new
appliances at their local supermarket. This pricing
policy allowed a 55% mark-up on the retail selling price for the
supermarkets. This mark-up represented a substantially
higher margin than supermarkets receive on items such as cereal,
canned goods, etc. Good Food Inc.’s unit costs are about
the same for all four products. Management expected this
margin to be a major incentive for the supermarkets to handle the
new appliance line.
Because Ann Anderson was such a well-established brand name, only
moderate advertising was planned for the new line. It was argued
that homemakers visit supermarkets at least once a week and that
they naturally will notice the appliance display. An
advertising budget of $5.5 million a year was proposed for the
first few years of new product introduction. A product manager from
the cereal division was chosen to handle the marketing of the new
line. (Cost data for the project are given in Table
II.)
TABLE I
Kitchen Electrics
Sales Patterns and Projections (individual units)
Product
Type 2008 2009 2010
(estimated)
1.
Irons 9,915,000 9,475,000 9,600,000
2.
Coffeemakers 8,200,000 8,500,000 8,800,000
3.
Toasters 5,800,000 6,200,000 6,600,000
4.
Blenders 4,900,000 6,100,000 5,900,000
5. Can
Openers 5,100,000 5,500,000 5,800,000
6.
Mixers 4,560,000 4,900,000 5,100,000
7.
Frypans 2,975,000 3,300,000 3,500,000
8.
Broilers 2,770,000 2,640,000 2,500,000
9.
Cornpoppers 1,850,000 2,200,000 2,600,000
10. Slicing
Knives 2,500,000 2,100,000 2,000,000
______________________________________________________________________
TABLE II
Cost Data
_____________________________________________________________________
Variable
Costs: Cost/Case
a
Transportation $7.20
Broken
Goods .60
Warehousing 2.00
Parts and
Materials 66.00
Packaging 6.20
Labor and
Overhead 14.00
Fixed Costs:
Bldg. Mach. &
Equip.b $9,850,000
Start Up Costs
c 1,300,000
Maintenance
(annual) 200,000
Other Expenses
(annual) 100,000
______________________________________________________________________
a Six units were
packaged in one case. For example, six
coffeemakers are to be shipped in one case.
b To be depreciated over 10 years – standard accounting practice.
c These costs represented the costs to develop the prototypes, conduct consumer tests
and other cost incurred in the new product development process.
________________________________________________________________________________________________
Questions
Evaluate the decision of Good Foods' management to enter the appliance business. What factors weigh in favor of the decision and what factors weigh against the decision?
Has an adequate market/financial analysis been presented? Support your position.
feedback on
Operations Management question
GOOD FOODS, INC.: “Introduction of Electrical Appliances
Evaluate the decision of Good Foods' management to enter the appliance business.
Wish list and feasible list ,
As Given case study Good Food Inc., primarily a food manufacturer company thus
With a Tagline – “The Good food Meets with Good friends.”
And accordingly identify the Appliances that can be introduced in the market.
In my Opinion Good food company entering in market must
What factors weigh in favor of the decision and what factors weigh against the decision?
The factor which is in favor are as follow.
The factor against the decision.
Has an adequate market/financial analysis been presented? Support your position.
In my opinion Information is lacking .
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