MKT 5243 Nature Jerky Case One

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Southeastern Oklahoma State University *

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5243

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Marketing

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Feb 20, 2024

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MKT-5243-W2.2023FA 1 Meierhenry 1. Explain the basic facts of the case (i.e., the central character(s), the decision to be made, and what needs to be done before making a decision). The central characters of Promoting Land and Nature Jerky by John Quelch are Kathy Ayers and Tim Ryan. Kathy is the Vice President of Marketing and Communications. Tim is the CEO of the L&N Jerky C ompany. Kathy needs to make recommendations for the 2020 Marketing budget. Tim is responsible for making sure L&N meets its 7% operating profit. The L&J Jerky company is an independent subsidiary of KB Holdings and makes a variety of premium, all-natural, eco-friendly jerky. The product is distributed nationwide by KB Holdings. Ryan has to decide his marketing budget for next year and has to make decisions about allocating funds. Kathy was given three options to consider: 1. Reduce the promotion budget by 30%, 2. Increase consumer promotion by $200,000 or 3. Increase trade promotion by $200,000. Kathy needs to analyze the current promotion effectiveness and consider the impact of increasing consumer promotions and trade promotion on profitability and revenue. 2. SWOT analysis for L&N Jerky. STRENGTHS Eco-friendly Premium quality jerky Sustainable Natural ingredients: 3 AGW certifications Strong brand awareness with meat snack consumers Large distribution through KB Holdings WEAKNESS Only 2 product lines: jerky and meat strips Limited marketing budget Highest price per ounce MSRP KB Holding only distributes the product nationwide & no mention of exports OPPORTUNITIES Increasing Demand for all natural products by consumers Reach new markets Expand product lines Diversify from just jerky and meat strips THREATS Competitive meat jerky market. Economic factors such as consumer spending Tax changes Policy changes Beef industry changes Consumer tastes may change, and demand will decrease

MKT-5243-W2.2023FA 2 Meierhenry 3. Ayers believes consumer promotions are more effective than trade promotions. Is this true? I disagree with Kathy Ayers' belief that consumer promotion is more effective. From the revenue to cost multiplier of 2018 and 2019, it appears that the Trade promotions generates $4.65 dollars to 1 dollar of promotion. Compared to consumer promotions, this is a dollar more revenue per dollar spent. Consumer promotions only generate $3.65. So, I disagree with Kathy Ayers' belief that consumer promotion is more effective. However, the one-dollar difference may not be enough to determine if one is truly better than another. Also, the ROMI shows that trade promotions have a higher % return in 2018 and 2019 4. I calculated the revenue-to-cost multiplier for trade and consumer promotions for 2018 and 2019 by using the figures in Exhibit 4&5. 2018 revenue to cost multiplier Trade: 1,304,265 / 280,487 = $4.65 Consumer: 1,340,204 / 367,152= $3.65 4.64: 1 3.65: 1 2019 revenue to cost multiplier Trade. 1,368,495/294,300=$4.65 Consumer. 1,406,710/385,400= $3.65 4.65:1 3.65: 1 5. Calculate the return on marketing investment (ROMI) for 2018 and 2019 for trade and consumer promotions. The return on marketing investment (ROMI) from Exhibit 1 data 2018 gross profit margin $3163,050/9,585,000= 33% ROMI= (incremental gross profit gained – cost of marketing investment/cost of marketing investment Trade promotions: ROMI= (430,407 - 280,487) / 280,487 = 53.5% Consumer promotions: ROMI = (442,234- 367,152) / 367,152 =20.5% 2019 Gross profit margin 3,019,025/10,064,000=29.9% or 30% Trade promotions: (410,548, - 294,300) / 294,300 =39.5% Consumer promotions: (422,013– 385,400) / 385,400 = 9.5% 5. Based on my calculations below, my recommendation is the 3 rd option.

MKT-5243-W2.2023FA 3 Meierhenry Kathy s hould increase the trade promotions by $200,00 because it will result in the largest revenue increase of $930,000 and meet the 7% operating profit goal. The decrease of 30% in the promotion budget will cost the company revenue of $856,000, which is not worth the $410,000 savings. This plan will meet the 7% operating profit goal, but it is not the best option. The increase in consumer promotions results in revenue increase of $730,000 but falls short at 6.8% of the operating goal of 7%. (calculation below) CALCULATIONS: (Option 1) Decrease 30% promotion budget: multiplier forecast revenue 30% decrease revenue Owned &paid 700,000 490,000 trade 4.65 300,000 1,395,000 210,000 976,500 consumer 3.65 400,000 1,460,000 280,000 1,022,000 total 1,400,000 2,855,000 990,000 1,998,500 ( $856,500 ) Budget differences of $410,000 and revenue loss of 856,500 ( Option 2) Increase consumer promotions by $200,000: multiplier forecast revenue Increase consumer revenue Owned &paid 700,000 500,000 trade 4.65 300,000 1,395,000 300,000 1,395,000 consumer 3.65 400,000 1,460,000 600,000 2,190,000 total 1,400,000 2,855,000 1,400,000 3,585,000 730,000 Revenue increases 730,000 and no budget difference ( Option 3) Increase trade promotions by $200,000: multiplier forecast revenue Increase Trade revenue Owned &paid 700,000 500,000 trade 4.65 300,000 1,395,000 500,000 2,325,000 consumer 3.65 400,000 1,460,000 400,000 1,460,000 total 1,400,000 2,855,000 1,400,000 3,785,000 930,000 Revenue increases 930,000 with no change in budget. OPERATING PROFIT GOAL of 7% Forecasted revenue $10,480,000 decrease 30% less ( $856,500) consumer Add $730,000 trade Add $930,000 Revenue Gross profit 10,480,000. (100%) 3,144,000 (30%) 9,62,3500 2887,050 30% 11,210,000 3,363,000 30% 11,410,000 3,423,000 30%

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MKT-5243-W2.2023FA 4 Meierhenry Fixed cost Operating profit 2,600,000 (24.8) 544,000 (5.2%) 2,190,000 22.8% 697,050. 7.24% 2,600,000 23% 763,000 6.8% 2,600,000. 23% 823,000 7.21% Reference: Quelch, J., & Hartman, K. (2020, August 30). Promoting Land and Nature Jerky . Harvard Business Publishing Education. https://hbsp.harvard.edu/home

MKT 5243 Nature Jerky Case One

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