Sorrell ridge C14

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University of Toronto *

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MGMC14

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Marketing

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Feb 20, 2024

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docx

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Chapter Summary Chapter 8 This chapter talked about strategic alliances. A strategic alliance is when one company partners with another on a common goal. The connection causes them to function harmoniously together as one. There desired relationship continues indefinitely and they are willing to sacrifice to grow the relationship. A strategic partnership is favoured when the target has special needs, a potential partnership is able to meet these needs and the potential partner can establish barriers to exit. Alliances serve upstream and downstream to create an enduring competitive advantage and therefore leads to profit. Alliances rest on the notion of continuity to create an enduring competitive advantage. Constant communication is necessary to maintain the alliance, and older alliances may be more fragile as they believe they do not have to communicate nearly as frequently. Perceptions of procedures fairness build trust and they do so by enhancing non-economic satisfaction. Channel members one already knows may be a good opportunity for partnership. Partners are optimal when they have strengths and weaknesses that offset yours. Trust is not enough to build a partnership. It has a hidden downside. Trusting a partner may not build enough discussion for either parties to excel and one party may take advantage of another party’s trust and if suspicions begin to form, trust starts breaking and it may no longer be enough to keep the partnership together. Remember, alliances rely on ongoing and indefinite continuity. In contrast, structural features of the relationship, like goal congruence and mutual idiosyncratic investments helps keep the relationship performing when one party suspects the other of failing

to deliver on promises. A portfolio of relationships is important as firms need a mix of alliances to cover all bases effectively and efficiently. Chapter 11 Retailing is the set of activities involved in the selling of goods and services and a retail positioning strategy involves both demand-side and cost-side decisions. On the cost-side, retailers must choose between merchandise turnover or margins. While both of them are good decisions, it is difficult/impossible to do both optimally. On the demand side, retailers must the focus of service outputs for the target consumer. Together with the cost-side and demand side decisions, the retailer constitutes its retail position. Retailing strategically involves managing a multi-channel shopping experience that is increasingly demanded by consumers. The internet is a now a well-established retail outlet. Direct selling provides an alternative method of going to market when interpersonal ties are vital to building a consumer relationship. Hybrid shopping is when a customer uses more than one retail outlet to complete their shopping. Retailers have a lot of power, and manufacturers recognize that. As a result, retailers may use tools like forward buying on deals, slotting allowances, failure fees and private branding to further their interests. Introduction Sorrell ridge is a Jam manufacturer that sells “healthy” jams. They do so by providing sugar free jams that are of significantly higher quality. Their products contain more fruit than competitors

and they use less water. The water they do use is directly from fruit and this leads to 6 cents more in production costs. This is the brand when compared to others in terms of jam content: They primarily sell 10- and 18-ounce containers with 20 flavours and have adopted the name “fruit spread” to further capitalize on the USP. As a result of their natural ingredients, Sorrell Ridge jams last for up to 18 months. Sorrell Ridge uses Natural food distributors to sell their jams and Natural food distributors sell to Natural food stores. The jams are marked up by 25% at the distributor level and 40% at the retailer level leading to a price of $2.59 in 1984. Sorrell Ridge was bought out by Allied Old English for $75,000 and they plan to expand into the supermarket sector. Problem definition Sorrell ridge has an issue. They want to distribute to supermarkets and compete with large brands like Smucker’s, however, the fees to hire brokers that can help them compete with market dominators are expensive and they have higher requirements. Choosing the right option can either lead to Sorrell ridge’s success or failure as large competitors are already entering the sugar free space and these brands not only have reference power through significant brand recognition, but they also have the ability to spend more on marketing and distribution.

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Segmentation analysis Sorrell Ridge, a “Healthy jam” producer, has 3 main segments. 1) The health-conscious a. This customer enjoys jams that are healthier and don’t contain sugar b. These customers may particularly look for jams with fewer artificial ingredients and more whole foods. 2) Premium Jam customers a. These are customers who want premium jams that have clean ingredients and premium quality. 3) Diabetic customers a. These people still want to eat jam but cannot consume sugar. This helps them enjoy a product they liked before they were diabetic. Sorrell Ridge does not care about age and gender, as their products are for everyone. They do, however, pay some attention to income. Their product is moderately priced at $1.79 with brands like Smucker’s and Polaner’s priced at between $1.69 and $1.79 at supermarkets. Therefore, their target is more on the average consumer income side who wants quality and is willing to pay a reasonable price. Market flow Sorrell ridge —> Distributor —> Natural Food Stores —> Customers

|-----Broker-----||<-------------Broker---------------->| Sorrell ridge —> Distributor —> Super Markets —> Customer Sorrell Ridge has 2 main distribution channels. Channel 1 leads customers through Natural foods stores. People who shop at Natural food stores tend to be less price sensitive and of higher income looking for healthy products. These customers generally fit in the “Health” customers. To reach these people, Sorrell Ridge will go through a distributor who will distribute to the natural food stores and finally reach the customer. This is the marketing flow diagram: Sorrell Ridge’s second distribution channel is similar. However, it relies on a broker. In this case, Bromar. Sorrell Ridge will go through a broker to bring the product to the supermarket. In this case, the retailers in the diagram are the Supermarkets instead of Natural food stores. The broker will then take a commission of 5% on the products they sell.

Agency theory In this case, Agency theory can be used to analyze the relationship between Bromar, Sorrell Ridge’s broker, the #2 broker for the channel and other brokers available to take on Sorrell Ridge. Agency theory identifies the issues that arise from a principle-agent relationship regarding different goals. In this case, Sorrell Ridge and Bromar might have the common goal of distributing the maximum amount possible to the retailer; Sorrell Ridge is trying to do so with minimized costs while the agent, Bromar, is seeking higher commissions and slotting fees. These goals do not completely align, and as a result, it may cause the parties in this relationship to act against the other party's goals, particularly when regarding slotting allowances, distribution strategies, and marketing efforts.

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Incentive analysis Sorrell ridge Their goal remains constant on both distribution channels. Sorrel ridge wants to optimize sales within their current production ability. Achieve growth goals and keep their image as a healthy jam alternative with 0 grams of sugar. Their net goal is to reach their customer base without significant distribution costs. Broker The broker's goal is to achieve the sales goal while optimizing the amount received from their sales commission. They are also the #2 broker in the market. Their goal would be to become #1. Helping a smaller brand like Sorrell Ridge and turning it into a multinational brand could boost the broker's reputation, particularly when Sorrell Ridge becomes a serious threat to Smucker’s as a direct result of Bromar’s distribution ability. Distributor (Natural food stores | and | supermarket channels) Buy and pass on products that are fast to sell and have a good reputation. They might prefer shelf-stable products as there is less risk of spoilage. Retailers (Natural food stores) Sell products that align with their values of “healthy” and natural/premium. Retailers (Supermarkets) Sell products that are able to move fast of revitalize a dying market. Jams are becoming less popular, and Sorrell Ridge’s “Fruit spread” has the ability to revitalize the market for jams with its unique selling point of no sugar. Customers (Natural food stores)

Support unique foods that promote health. Foods that are clean and have little to not preservatives, are organic, or are categorized as “healthy” or “clean”. These customers are relatively insensitive to the price so the “health” qualities of the food they are buying are more important than the comparative price. Customers (Supermarkets) These customers are price-sensitive. While some do care about health, they want the best possible price for optimal quality. These people may be more habitual buyers and, as a result, may choose brands they already know. The best way to get to these customers is through separating your brand from others, as Sorrell Ridge did. This may help reduce the “habitual buy” these customers prefer. Channel power Sorrell Ridge - (Reward power) They are a brand on the smaller end of the industry. They lack the reference power that they would need to hold bargaining power. They also lack coercive ability as a direct result of their size. The only real power Sorrell Ridge holds is Reward power. They have the ability to reward their brokers on when they perform well. Broker - (Expert, Coercion, Reward and Reference power) Bromar is an expert in Supermarket distribution within the regions Sorrell Ridge wants to distribute. They are number 2, and number 1 is taken by Smucker’s. They, therefore have expert power in the field and reference power from their standing in the market. Through their reference power, aka their reputation in the field, they also have coercion power and can demand higher

commissions and fees. As a result of all of this, they have the ability to reward well-performing brands with lower fees or other benefits; hence, they also hold reward power. Distributors - (Reward power) Distributors have the ability to control the flow of goods and serve as an intermediary between Sorrell Ridge and the retailers. They have the ability to distribute products and manage logistics efficiently. Retailer (Natural foods) – (referent power) Natural foods stores hold referent power. People instinctively think of the correlation between Natural foods stores = Healthy/Whole Foods or premium foods. This means they can influence buying decisions, particularly for Sorrell Ridge’s market segment. This offers Sorrell Ridge a dedicated market base for their market segments. Retailer (Supermarkets) – (referent and reward power) Supermarkets are essential for most brands to expand their customer base. Supermarkets can influence product placement, reputation and, as a result, sales. They hold referent power as people shop at supermarkets for their regular items and staples. They hold a large customer base and can contribute significantly to brand sales.

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Gap analysis Supply Side gaps Sorrell ridge is a small brand, as a result, they currently lack the ability to adequately meet the demands that may be required of them is they were to enter the supermarket channel without compromising their quality. A rapid expansion could strain the existing manufacturing process. Demand side Gaps As noted above, there may be a supply shortage. The immediate availability of a product is an important deciding factor for the customer. If the product is unavailable, they won't be able to purchase it even if they wanted it. Delays in product distribution could lead to customers choosing competitor products like Smucker’s low sugar or others. Options analysis Option 1: Find another broker. However, the largest broker in Southern California was already representing a competitive brand. Pros: The jams would be cheaper to sell and as a result, Sorrell Ridge would be a more competitive brand. It would also reduce the cost of marketing the product. It still ensures market penetration with lower upfront costs. Given how Bromar rejected Knott’s for reduced fees, it is unlikely that they would budge for Sorrell ridge, other smaller brokers may appreciate Sorrell Ridge’s USP and offer better deals.

Cons: There are a limited number of top brokers, and Bromar is the best one available. Top brokers are able to launch with a “Bang”. For example, Bromar can get to 90% of account for 90% of grocery volume within three months of the introduction. Option 2: Propose a less expensive launch program to Bromar and hope that they would still agree to represent the line. Pros: Sorrell Ridge would be able to work with Bromar and achieve significant market penetration with while controlling costs. Furthermore, they would be able to strengthen relations with Bromar and potentially increase their ability to expand in the future. By sticking with Bromar, they can ensure other significant competitors don’t take hold of this valued distributor. Cons: It is unlikely that Bromar will accept the counter offer as was shown in their track record of having rejected Knott’s. Bromar has reference power, and it knows its value. Negotiating may lead to a stalemate and require other options like 1 and 2. Furthermore, Sorrell Ridge may not be able to match the production needs adequately and rapid growth a partnership with Bromar’s may provide. As discussed in the demand side gap analysis, customers expect availability. Option 3: Sell through grocery distributors or a middleman who would take title to the product. However, this approach would cause the retail price to be 25% higher. Pros: It may provide a faster route to certain areas and it removes the need for slotting allowances and direct negotiation.

Cons: It would increase the retail price by 25% and that may affect consumers that are price sensitive. Most shoppers at supermarkets are price sensitive and a price over 25% more expensive than their competitors may lead to customer segments choosing competing brands over Sorrell Ridge. Furthermore, brokers are generally better and getting through the initial phase of mass distribution, and their earnings are based on commissions over just margins. Brokers are generally more incentivized as they work as partners, while distributors buy on reference power of the brand. Brokers have expert power, while distributors don’t, and they have the ability to leverage relationships distributors may not have. There are 2 optimal options, namely options 1 and 2. Given the benefits of option 2, it could be the optimal choice, however, it is important to note that the chances of being unsuccessful are high. Therefore, utilizing the number option number 1 might be the optimal alternative in the case of rejection. Furthermore, it must be considered that Sorrell Ridge may not have the production capacity to meet the demand Bromar’s will create, and therefore, choosing other brokers at the moment may prove to be better, allowing for more time for Sorrell Ridge to grow its production capacity. It can even be argued that Sorrell Ridge should choose option 1 over Bromar’s regardless of the cost of Bromar, as it allows them a slower growth path, giving them time to expand their production capacity.

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Sorrell ridge C14

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