Class- or Mass

Written Analysis and Communication I

Submitted to: Prof. Manaswini Acharya

Submitted by: Roll No.- 12PGDM-090 Section- B Date of Submission: Nov 5, 2012

From To Date

: Joseph Anton : Mr. Dan Wilson : 20th March 1994

Subject: Managing excess inventory issue This report includes a detailed analysis of the situation at hand and the different options available. The major criterions used for evaluation are our corporate brand and long term profitability and sales. After much analysis my recommendation would be to slash prices in a phased and methodical manner so as to protect our image as well as solve the excessive inventory problem.

Executive Summary
Neptune Gourmet Seafood is one of the largest seafood producers in North America. It is an upmarket brand charging a premium of over 25% over its competitors. Recently they made huge investment in technology to improve catching processes which lead to an increased inventory. They are now faced with the solution of this problem of excess inventory handling. Launching a new low price brand would cannibalize their premium brand so they should go in for a price reduction. This could be done in phases wherein they could employ an extensive marketing of their cost leadership and increased quality standards.

Word Count: 99

Table of Contents

Serial No.

Contents

Page No.

1 2 3 4 5 6 7

Situation Analysis Problem Statement Options Criteria Evaluations of options Recommendations Action Plan

1 1 1 2 2 3 3

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Situational Analysis
Neptune Gourmet Seafood is North America's third-largest seafood producer. It has nearly 4% market share. Neptune was an upmarket premium brand. Neptune had emerged as the supplier of choice to the best restaurants within 250miles of its Fort Lauderdale headquarters as well as to the biggest cruise lines, which together accounted for a third of the companys sales. Another 33% came from wholesalers that distributed the companys products to restaurants all over the United States. In fact, sushi bars from New York to Los Angeles increasingly bought Neptunes frozen fish instead of buying fresh fish and freezing it themselves. And, befitting the humble origins of founder John Renser, approximately 4% of Neptunes sales came from a fish market outside Fort Lauderdale that the company owned and operated. Neptune invested heavily to stay ahead of rivals. Stanley Renser, the companys largest shareholder, had recently expanded the firms equity base, although doing so had shrunk his share to 10%. The capital infusion allowed Neptune to invest $9 million in six freezer trawlers of the kind Hargrove had visited. Those ships autopilot mechanisms guided them to the best fishing grounds, manipulated fishing gear, landed catches, and reported data to shore. Other systems, along with new fishing equipment, ensured that only mature fish were caught and that the nets were not overfilled, thus reducing damage to the haul. As a result, Neptune increasingly landed only top-quality catches. This resulted in an increased inventory problem. The major factors to be considered while addressing this situation is the current brand image of Neptune and how it would affect/change when it implements the choice of decision it makes. People who are brand loyal and are connoisseurs of good sea food would see this as bold step and would understand the reasons of price cuts at the same quality. Economies of scales could be exploited when undergoing this approach of price cutting.

Problem Statement
Management of excessive inventory without affecting the brand image and profitability.

Options
1. Reduce the prices of the existing premium brand by 40-50% 2. Sell excess inventory to a wholesaler in some other market at lower price.

Page |2 3. Launch a low price brand 4. Dump excess inventory

Criteria
The two basic criterions used to analyze the options are Neptunes brand image as a premium segment player Long term profitability and sales

Evaluation of options
1. The reduction in the prices would lead to two things. The brand image of Neptune being the premium segment player would be eroded but at the same time ensuring that the quality is same as before, customer loyalty would be retained. It would initiate a price war but due to increased demands and the benefit of being a premium seller, customers would prefer Neptunes brand rather than going for other brands. Neptune could benefit from being the first mover in this situation.

2. It looks to be a viable option, by selling excess inventory as one time order at lower price in different market however it is a short term solution and the wholesalers would also be wary of a premium player selling its stock at such high discounts. This could dent Neptunes image and could lead to problems in the future.

3. Launching a new low price brand would be a challenging preposition as it would face competition from all corners and it would be difficult to counter it. Other players could use this as an opportunity to drive away the premium customers of Neptune at the same time compete in the low price segment. 4. Dumping the excessive inventory would not be a wise option as all the cost incurred in improving the catching process and the stocking cost would be lost. The brand image would not suffer much but the revenue lost in the disposal would not be accountable.

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Recommendations
Neptune should go in for the price cuts considering all the criterions for evaluation. Neptune has created its upmarket image and should aggressively pursue cost leadership along with quality which would lead to increased market share and customer delight.

Action Plan
Neptune should undertake the following steps: 1. They should undertake a marketing strategy to educate its different customers of their price reduction reasoning and improved quality. This could be pursued differently for different consumers. A repositioning of the existing brand could be done through innovative advertising. 2. To take care of profitability bulk offers could be given to major customers which would not only solve the excessive inventory problem but also reduced profitability. 3. First movers advantage could be exploited in obtaining the first share of the market. Once the other players follow in on those lines, the customers will no longer doubt the quality of seafood supplied by Neptune and realise the cost cuts are indeed due to better and improved technology. Then Neptune would benefit from its differentiating factor of being a premium player transitioning to a low-mid segment player.

Word Count: 945