Marketing Management

ZENITH PET FOODS, INC.

Synopsis

The opportunity for Zenith Pet Foods to pursue a market development strategy
for Show Circuit Frozen Dog Dinner is described in this case. Food brokers had
approached Zenith Pet Foods about the possibility of entering the household dog
food market in Boston. They had heard of a similar product being sold in
selected pet stores in the southwestern United States and believed that potential
existed in selling Show Circuit through supermarkets. The company has been
successful in selling Show Circuit to the kennel market and contracted a
consulting firm to develop a market entry program for introducing the product
on a limited basis through supermarkets to the household dog food market in the
Boston metropolitan area,

The apparent decision facing the company is to accept, reject, or modify the
proposed introductory marketing program. An implicit question is whether the
household dog food market represents an opportunity for the company.

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Marketing Management

1. How would you describe the household dog food market?

1. Dog food sales in the United States total $7.0 billion at
manufacturer’s prices. Nevertheless, fewer than one-half of dogs are
regularly fed prepared dog food.

2. About 36 percent of total dog food sales are made in supermarkets.

The remaining 64 percent is sold through pet superstores, discount
and mass merchandisers, warehouse clubs, pet stores, and
veterinarians. These percentages also apply to the Boston market.

3. There are about 50 dog food manufacturers and 350 dog food
brands sold in the U.S. However, five firms [Ralston Purina, Kal
Kan Foods, Nestle USA, Heinz, and Nabisco] capture 83 percent of
dog food sales.

4. The household dog food industry consists of four categories of food.

These categories and the percent of total dog food sales of each are
shown below:

CATEGORY PERCENT OF DOG FOOD SALES

Dry Dog Food 63%

Wet Dog Food 17%
Dog Biscuits/Treats 18%
Semi-Moist Dog Food 2%

5. Dog food manufacturers spend about 2 percent of their sales for

advertising. Annual advertising spending for established brands is
$7 to $8 million for nationwide media promotion. Spending for
introductory marketing programs for new products/brands is
substantially higher. Heinz spent $30 million to introduce Reward, a
premium canned dog food. Ralston Purina spent $34 million to
introduce Beneful, a premium dry dog food. Alpo Lite, a line
extension for Alpo canned dog food, was launched with $10 million
in advertising.
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Marketing Management

2. How might one segment the dog food market and where does
Show Circuit fit?
1. Due to the unusual characteristics of Show Circuit, it is important that
one determine the target market(s) for the product. These markets may
include: (1) extreme dog lovers, (2) dog owners concerned more with
nutrition than convenience and storage, and (3) owners of pedigree dogs.
Marketing Momentum Unlimited, the consultants hired to prepare a
marketing plan for Show Circuit, suggest that the target market for
advertising should be “singles and marrieds” between the ages of 21 and 54
with a household income greater than $25,000. Where would these people
purchase dog food? In supermarkets, mass merchandisers, pet food stores
or from veterinarians? These questions are important since the case states
that 36 percent of dog food sales are made in supermarkets; 64 percent in
the latter outlets. The initial reaction to this analysis is that the target
market(s) might be quite small and the distribution program misdirected.
Moreover, Show Circuit might be a “specialty-type” product.

2. Further analysis of the market should examine major dog food

categories (Exhibit 2 in the case) and how Show Circuit “fits.” An
attribute-market matrix is a useful illustration to determine the positioning
of Show Circuit in terms of an attribute comparison.

SEMI-
PRODUCT ATTRIBUTES DRY WET TREATS
MOIST

Ease of Preparation
Nutrition
Palatability
Price
Storage
Appearance

Is the product most similar to one dog food category? Or is it between two
categories? Is there (can there be) a frozen dog food category as the
consultant’s report maintains?
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Marketing Management

3. How might Show Circuit be positioned in the dog food market?

1. One might conclude that Show Circuit “fits” the wet dog food
segment based on the previous analysis; however, the product could
be positioned as somewhere between wet and moist. This is
consistent with the consultant’s program in that wet foods are
considered to be prime competitors (see ad in Exhibit 5 in the case).
The consultants belief that dry foods are a competitor is not
supported however (see the add in Exhibit 4 in the case).

2. The positioning issue is also relevant in terms of market (category)

concentration. According to case Exhibit 1, three companies capture
90.0 percent of the wet market; two companies capture 85.0 percent
of the semi-moist market. Assuming these percentages also apply to
the Boston market, then the opportunity for Show Circuit is
reduced.

3. Positioning has direct implications for pricing. The consultants

believe that Show Circuit’s quality suggests a “premium price.”
However, premium pricing is a relative term; that is, premium to
what? Case Exhibit 2 shows that the price per ounce for wet food
ranges form $0.052 for Kal Kan to $0.038 for Alpo. Case Exhibit 2
shows that the price per ounce for semi-moist dog food ranges from
$0.057 for Kibbles ‘N Bits to $0.05 for Moist & Meaty. If Show
Circuit is positioned as a wet dog food, a suggested premium price to
the consumer for a 15-ounce tub would be $0.78 to $0.80 ($0.052 x 15
oz.) to be comparable with Kal Kan Pedigree. Alternatively, if Show
Circuit is positioned as a semi-moist dog food, then a suggested
premium price to the consumer for a 15-ounce tub would be $0.85 to
$0.90 ($0.057 x 15 oz.) to be comparable with Kibbles ‘N Bits.

4. Pricing can also be examined from the perspective of Bil Jac, a

frozen dog food sold in selected supermarkets in Dallas, Texas. This
product carried a retail price of $2.29 for a two-pound package (or
7.2 cents per ounce) and $4.19 for a five-pound package (or 5.2 cents
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Marketing Management

per ounce). Clearly, Bil Jac is priced higher than Kal Kan Pedigree
and Alpo in the wet category. Bil Jac is priced higher than Kibbles
‘N Bits. On average, Bil Jac is priced at 6.2 cents per ounce which
translates to a Show Circuit price of 93 cents per 15 ounce tub
($0.062 x 15 oz.)

4. What is the market potential for Show Circuit?

1. The previous analysis comes full circle to a fundamental question:

“Where and what is the market potential for Show Circuit?”

2. The case states that the Boston market has 1.2 percent of the dog
population. Since the total dog food market, at manufacturers’
prices, is $7.0 billion, the Boston market can be estimated to have a
dog food potential of $84.0 million (0.012 x $7.0 billion). This total
must be carved into the various types of categories of dog food.
Furthermore, since Show Circuit will be sold only through
supermarkets, the totals must be reduced further (36% of dog foods
are sold by supermarkets). Given these data, Exhibit 1 in this note
can be constructed. As indicated, dog food sales potential sold
through supermarkets in Boston is an estimated $30,240,000.

3. Depending upon how Show Circuit is targeted, its Boston market

potential will vary. If Show Circuit is targeted at wet food, then
potential is $5,140,800, if as a semi-moist food, then the potential is
$604,000.

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Marketing Management

EXHIBIT 1

ESTIMATING TOTAL AND CATEGORY DOG FOOD SALES POTENTIAL

IN BOSTON AT MANUFACTURER’S PRICES

DOG FOOD NATIONAL PERCENT OF EST DOG SUPERMARKET SUPERMARKET

CATEGORY SALES DATA* DOGS** FOOD SALES PERCENT*** DOG FOOD
DRY $4.410 B 1.2% $52.92MM 36% $19,051,200
(63% of TOT)

WET $1.190 B 1.2% $14.28 MM 36% $5,140,000

(17% of TOT)

SEMI-MOIST $0.140 B 1.2% $ 1.68 MM 36% $ 604,800

(2% of TOT)

TREATS $1.260 B 1.2% $15.12 MM 36% $ 5,443,200

(18% of TOT)
TOTALS $7.0 BILLION 1.2% $84.0 MM 36% $30,240,000
* Category percentages based on case Exhibit 1.
** Assume a relationship between the percentage of dogs in a geographical area and the percentage of total food consumed.
*** Supermarkets account for 36% of dog food sales.

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Marketing Management

5. What are the marketing program economics for Show Circuit?

1. The marketing program economics for Show Circuit will depend on

one’s targeting/positioning analysis and recommendation, the suggested
list price chosen, and the choice of introductory market entry promotion
strategy (see case Exhibit 6).

2. Exhibit 2 in this note shows the estimated contribution for Show Circuit
on a per case and a per tub basis, assuming Show Circuit is priced on the
high-end of the wet and semi- moist dog food categories and at the Bil Jac
price. Exhibit 2 does not include the coupon cost (which is variable) since
this cost is part of the promotion strategy. If the coupon cost is included,
then the coupon redemption will cost $0.12/case or $0.01 per tub. These
figures are based on the consultant’s estimate that 1 in 10 coupons
distributed would be redeemed with each coupon valued at ten cents.
(NOTE: A 10% redemption rate seems high, but can be used for analysis
purposes.)

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Marketing Management

EXHIBIT 2
ESTIMATED SHOW CIRCUIT CONTRIBUTION
PREMIUM PRICED PREMIUM PRICED
Wet Dog Food Semi-Moist Dog Food
CASE TUB CASE TUB

Price to Consumer $9.60 $0.80 $10.80 $0.90

Price to Retailer $7.488 $0.624 $8.424 $0.702

(22% Gross Margin)

Broker Commission ($0.524) ($0.044) ($0.590) ($0.049)

(7% Commission)
$6.964 $0.58
Zenith Unit Revenue $7.834 $0.653

Production + Freight +
Packaging Costs* (Given) ($6.37) ($0.531) ($6.37) ($0.531)

CONTRIBUTION $0.594 $0.049 $1.464 $0.122

BIL JAC
Pricing

CASE TUB
Price to Consumer $11.16 $0.93

Price to Retailer $8.70 $0.725

(22% Gross Margin)

Broker Commission ($0.609) ($0.051)

(7% Commission)

Zenith Unit Revenue $8.091 $0.674

Production + Freight + ($6.37) ($0.531)

Packaging Costs*

CONTRIBUTION $1.721 $0.143

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Marketing Management

3. A simple break-even analysis can be performed using the three price

(contribution) estimates and the two promotion spending levels of
$400,000 and $600,000, plus the need to pay a slotting fee of $30,000,
given in the case. Representative calculations are shown in Exhibit 3
in this note.
EXHIBIT 3
BREAK-EVEN CALCULATIONS
PREMIUM PRICED $430,000 $630,000

WET DOG FOOD BE = 430,000/ $0.594 BE = $630,000/$0.594

$0.594 = 723,906 CASES = 1,060,606 CASES

x $6.964 x $6.964

= $5,041,281 = $7,386,060
PREMIUM PRICED
BE= $430,000 / $1.464 BE= $630,000 / $1.464
MOIST DOG FOOD
= 293,716 CASES = 430,328 CASES
$1.464
x $7.834 x $7.834

= $2,300,971 = $3,371,190
PREMIUM PRICED
BE= $430,000 / $1.721 BE= $630,000 / $1.721
BIL JAC
= 249,855 CASES = 366,066 CASES
$1.721
x $8.091 x $8.091

= $2,021,577 = $2,961,840

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Marketing Management

 If Show Circuit is positioned as a PREMIUM PRICED WET DOG

FOOD and $630,000 ($430,000) in promotion and fees is spent to
introduce the product, then:

B/E S-O-M @ $630,000 = $7,386,000 / $5,140,000 = 143.7%

B/E S-O-M @ $430,000 = $5,041,281 / $5,140,000 = 98.1%

 As a PREMIUM PRICED SEMI-MOIST DOG FOOD

B/E S-O-M @ $630,000 = $3,371,190 / $604,800 = 557.4%

B/E S-O-M @ $430,000 = $2,300,971/ $604,800 = 380.5%

 As a PREMIUM PRICED WET DOG FOOD at Bil Jac Pricing

If Show Circuit is “positioned as the finest dog food available at any price,”
is priced identical to Bil Jac and the product targeted at the wet dog food
cateory, then:

B/E S-O-M @630,000 = $2,961,840 / $5,140,000 = 57.6%

B/E S-O-M @430,000 = $2,021,577 / $5,140,000 = 39.3%

It is clear from this analysis that the moist dog-food category is likely to be
unprofitable for Show Circuit. However, there exists a remote possibility for the
wet dog food segment. A lot depends on the quality of the introductory
promotion program and the amount spent.

Some might agrue that Show Circuit will draw from both wet and semi-moist
categories, thus expanding the “market” denominator. Using the previous
analysis and assuming Show circuit is priced like Bil Jac at $0.93/tub and
$11.16/case, the dollar break-even “market” share ranges from 25.2 percent to
51.5 percent. Again, a lot depends on the introductory marketing program.

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Marketing Management

6. What does an appraisal of the introductory promotion program

tell us?
1. The evaluation of the introductory promotion program follows directly
from the previous discussion. The apparent promotion objectives are to
(1) create awareness of a new brand, (2) obtain distribution through
supermarket outlets, (3) motivate trial through coupon redemption and
through the emotional impact of TV. These are stated in the MEDIA
PLAN section of the consultant’s proposal. More subtle points must be
also examined such as the program’s positioning strategy.

2. POSITIONING STRATEGY. The proposal states that Show Circuit

will be positioned as “the finest dog food available at any price and the
only thing you would feed your dog if he were truly a member of the
family.” This may be true, but it is not clear that the benefit-cost
comparison is in Show Circuit’s favor.

Examining the appeals in the program indicate that the product is positioned
against WET and DRY foods (see Exhibits 3, 4 and 5 in the case). This is not
entirely consistent with the positioning analysis addressed earlier, at least for dry
food. Furthermore, it might be questioned whether the appeals used are
desirable, believable or exclusive enough to generate interest in the product. This
has implications for the coupon program.

3. MEDIA SCHEDULING AND PLACEMENT. The program planned

seems to miss a sizable portion of the target markets with the daytime
TV scheduling. Aren’t most 21-54 single/married people working?
Other issues include? (1) What is the effect of insertions in Better Homes
& Gardens? (2) How intensive is the TV schedule?

4. TRADE PROGRAM. A major issue here is whether the proposed

program will gain distribution. Trade promotion materials emphasize
the popularity of dog food, the acceptance of Show Circuit by dog
breeders, and the consumer advertising. A major problem is that
brokers must deal with frozen food buyers and not the pet food buyers.
Therefore, education is necessary. How receptive will the frozen food
buyers be given that (1) typically competition for freezer space is severe,
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Marketing Management

and (2) many frozen food items are not specialty items and those that are
would probably have higher margins. Not only is distribution in
question, but space is important. If adequate space is not available, will
the impulse buyer be reached?

5. COUPON PROGRAM. As discussed earlier, an extension on the break-

even analysis discussed earlier can be applied to the coupon program.
The consultants estimated that 1 in 10 coupons distributed would be
redeemed with each coupon valued at $0.10. On average, then, coupon
redemption will cost $0.01/tub or $0.12/case. Since this is a variable cost,
coupon redemption should be subtracted from the contribution.
Therefore, the new contribution per case will be $0.12 less. This will
increase the break-even volume.

7. ADVERTISING SPENDING LEVEL. It is also appropriate to consider

the promotion expenditure itself, excluding the slotting fees. The $400,000
expenditure for the Boston market is equivalent to $33.33 million for a
national introduction (0.012X = $400,000; X = $33.33 million). A $600,000
expenditure for the Boston market is equivalent to $50,000,000 for a
national introduction. As described in the case, Heinz spent $30 million to
introduce Reward; Ralston Purina spent $34 million to introduce Beneful.
Neither product pioneers a “new category” - frozen dog food. Therefore, it
would seem that Show Circuit is under spending at the $400,000 level for
the introduction which further places the market entry in jeopardy. The
$600,000 spending level seems more appropriate. However, the analysis of
the marketing program economics above indicates this amount is likely to
be unprofitable.

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Marketing Management

MORAL

1. A market opportunity analysis can be enhanced if the “market” can be

structured into its component parts or segments:

U.S. Dog Food Market

Boston

Pet Stores, Others Supermarkets

Treats Canned Dry Semi-Moist

2. One of the most important decisions any organization makes is the choice
of markets it elects to serve. The choice commits the organization to:

 A set of customers
 A set of competitors

3. The requirements for an effective market segment are:

 Measurability
 Accessibility
 Substantiability
 Durability
 Defensibility
 Responsiveness to marketing action –
Product/Service, Promotion, Distribution, Price

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