ORGANICKIDZ: MARKETING STRATEGY

For requirements of the course Written Analysis and Communication I (2011-12)

(Assignment -4) To Prof. Asha Kaul Academic Associate: Ms Shilpa Sawant

By

Harsh Raj
Section A

Date of Submission: August 13, 2011

INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD

Letter of Transmittal
From: XYZ, Management consultant, ABC Company.

To: Jane Walter, Founder, OrganicKidz, Calgary, Canada.

Date: September 20, 2009. Subject: Recommendation on the proposal made by the Costco buyer. Dear Ms Jane Walter, With regards to your request to analyse the proposal made (to you) by the Costco buyer at the Kids Expo in Las Vegas, the analysis of the same was done. All available options were analysed thoroughly based on relevant criteria and it is recommended to accept the proposal of the Costco buyer and supply them with the wide-mouthed bottles. Yours Sincerely, XYZ Enclosure: Report

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Executive Summary
OrganicKidz is facing a slow growth in baby bottles industry despite being the first company to move to bisphenol-A free steel bottles. The Companys challenge is how to convey the superior benefits of its product and manage its retail channels given its limited resources. The options considered are whether to reject or accept the offer made by a new market segment company, Costco and deciding the product line to be used (if offers accepted). The options have been evaluated based on companys growth-rate benefits, risks associated, inventory level concerns & impact on current customers. It is recommended that the offer is accepted and the wide-mouthed bottles are supplied to Costco.

[110 words]

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Contents
Executive Summary ............................................................................................................................... iii Situational Analysis ................................................................................................................................ 1 The Problem ............................................................................................................................................ 2 The Options............................................................................................................................................. 2 Criteria for Evaluation ............................................................................................................................ 3 Evaluation of Options ............................................................................................................................. 3 The Recommendation ............................................................................................................................. 5 Action Plan.............................................................................................................................................. 5 Exhibit ..................................................................................................................................................... 6

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Situational Analysis
Calgary-based OrganicKidz is a manufacturer of stainless steel baby bottles and is distributed (sold) in 12 countries. The companys challenge is how to convey the superior benefits of its product and manage its retail channels given its limited resources. During a tradeshow in the United States where the company had to make few key decisions about product promotion, a buyer from Costco, a large warehouse club chain, had shown interest in buying its products. Costcos business model depends on high sales volume coupled with quick inventory turnover, made possible by low prices and limited product selection among a wide variety of branded and private label products. Costco finances most of its new inventory purchases with supplier payment terms & invests the cash from its customers. The savings is then passed on to the consumers in the form of low prices. The benefit of this model is that the company is not required to maintain high levels of working capital or take out loans, with interest to pay suppliers. This clearly shows that the business model is quite stable.

OrganicKidz is currently having two product lines, the first to produce narrow-necked bottles, supplied to the speciality stores and the second is launched recently to produce wide-mouthed bottles to supply the mass-merchandisers. The current market share of OrganicKidz is only 0.052% (Exhibit 1) and there is a lot of untapped market which can be targeted with proper marketing strategy. Costco is a lower end market segment which deals with low price products and hence the higher end narrow-necked bottles cannot be supplied to them (as the cost of those bottles is quite high).

Initially, the major market share of baby bottles sold in US were captured by the bottles made from polycarbonate (95% share) but the market changed dramatically in April,2008 after Canada banned polycarbonate bottles as they leached bisphenol-A (BPA) when they were
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heated. OrganicKidz were the pioneers in the BPA-free bottle industry, launching the worlds first stainless steel thermal baby bottle but the company has not been able to reap much benefits of its first-mover advantage as the market share currently is very low. The marketing of these bottles has not been able to bring out their Unique Selling proposition (USP) of being a fantastic hygienic option, BPA-free, scratch and break resistant durable bottles. These can also be marketed as a long term investment as they transform into sippy cups and water bottles as the child grows. This concludes that a proper marketing strategy has to be put into place which requires funds.

OrganicKidz also needs funds to invest in second product line, pay off its loans & hire new staffs to manage billings & shipping. All these factors imply that the company is facing a financial crunch. Costco is offering an initial order of $20000-$40000 which is more than the initial orders of mass-merchandisers ($10000) and there is high probability that it will place subsequent orders worth much more. Although, the flip side is that OrganicKidz can lose its current customers as Costco is offering at comparatively lower prices; but the prices offered to the end-user has to be taken into account since the small businessmen (the customer of Costco) too will charge some profits from end-users.

The Problem
How should Jane Walter respond to the Costco buyers request?

The Options
1. Reject Costcos offer. 2. Accept Costcos offer Supply them wide-mouthed bottles.

Criteria for Evaluation

The Criteria for evaluation of the options with decreasing order of priority are: 1. Financial benefits & growth of the company (in terms of tapping market share). 2. Effect on Inventory level Effect should not increase the inventory level concern. 3. Effect on current customers Impact should not be negative. 4. Risk & Return Analysis.

Evaluation of Options
1. Reject Costcos Offer. a) Financial benefits & growth The growth of organicKidz currently, is very slow as the market share captured in almost 1 year is only about 0.052% (Exhibit 1). Rejecting Costcos offer will lead to continuation of the slow growth & low market share in the industry (Exhibit 2). b) Effect on Inventory level After the addition of second product line the inventory level concerns are already high. c) Effect on current customers No effect on current customers. d) Risk & Return There is a risk of slow growth in future. Costcos offer could also be grabbed by other competitors of organicKidz.

2. Accept Costcos offer and supply them wide-mouthed bottles. a) Financial benefits & growth rate Accepting the offer will lead to higher market share, higher sales revenue and increased growth in comparatively lesser timeperiod (Exhibit 2).

b) Effect on Inventory level The inventory level concern wont be high as the warehouse clubs usually stacked their merchandise on wooden pallets within in a large, unadorned warehouse themselves. c) Effect on current customers There wont be any effect on speciality stores as the product line is different. However, there can be negative reactions from massmerchandisers initially. This can be mitigated by proper communication with them and explaining them that prices for the end-consumer will be almost same due to the profits extracted by the small businessmen. d) Risk & Return Although, there is a risk associated that Costco might not place a subsequent order but if optimum quality product is supplied there is a high probability of getting an order worth twice the cumulative sales since the company started. The business model of Costco is quite stable, so future risks in dealing with Costco is not high.

Financial benefits & Growth Rate

Effect on Inventory level

Effect on current customers

Risk & Return

High Risk, Low Return

Reject the Offer

Accept the offer

High Risk, High Return

= Fulfilling the Criteria Criteria not fulfilled

= Limited use or unknown

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The Recommendation
It is recommended to accept the proposal of Costco and supply them with the widemouthed bottles. Costco should be supplied products of optimum quality as per the price received to attract subsequent orders.

Action Plan
1. Accept the offer of Costco, supply wide-mouthed bottles and leverage the first mover advantage. 2. Arrange for funds to invest in the second product line in order to meet the demands of Costco. 3. Communicate with mass-merchandisers & explain them that the price at which enduser will purchase the bottles (supplied to Costco) will be almost same as there will be profits extracted from end-users by the small businessmen too. 4. Invest the monetary gains from Costcos orders to pay off loans, hire more staffs & put in place a better advertising strategy. [1097 words]

Exhibit
Exhibit 1

Current market share of feeding accessories in baby-care supplies industry = $500,000,000 So, Current market share of baby bottles in baby-care supplies industry = $500,000,000 / 4 = $125,000,000 (Assuming, equal market share of baby bottles, baby bottle liners, breast pumps and pads) Current market share of organicKidz = $65000/$125,000,000 * 100 = 0.052 %

Exhibit 2

Projected sales by the end of 2009 (if company rejects the offer) = $100,000 Average sales revenue from 1st order of Costco = ($20000 + $40000)/2 = $30000. Probability of getting one subsequent offer during that period = 0.8 (Assumed, given in the case that probability is high) Projected sales by the end of 2009 (if company is able to get at least 1 subsequent offer in that period from Costco) = $400000 * 0.8 + $65000 + $30000 = $415000 Growth in sales (after rejecting the offer) in that period = (100000-65000)/65000 * 100 =53.48% Growth in sales (after rejecting the offer) in that period = (415000-65000)/65000 * 100 =538.46% As the market is a mature, assuming the growth rate to be 1 % per annum (low) Market share of baby bottles at the end of year, 2009 = $125 mn + $125 mn * 0.01 * 3/12 = $125.3125 mn Market share of organicKidz at the end of year without the offer = (100000/125312500)*100 = 0.079 % Market share of organicKidz at the end of year with the offer = (415000/125312500)*100 = 0.33 %