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Class or Mass

Prepared by Andrew Coatsworth

A. Executive Summary: Neptune Gourmet Seafood, a company founded by John Renser, has successfully
positioned itself as the premier supplier of seafood products in the United States. The companys Gold line of
products, which account for 30% of total sales, sells in premium grocery stores throughout the Eastern seaboard and
parts of the Midwest. An additional 33% of the goods are sold to wholesalers to distribute restaurants throughout
the United States. Neptune also sells 33% of its goods to restaurants and cruise lines within 250 miles of the Fort
Lauderdale Headquarters. The final 4% of sales are accounted for by a company owned market outside of Fort
Lauderdale. Despite historical success and an incredible reputation among customers, Neptune finds itself with
double its normal inventory. The issue is the result of a recent investment in state of the art fishing trawlers. As a
result of new fishing regulations as well as the desire to offer customers the highest quality goods, Neptune has been
forced to move off of the coast to fish. However, the new technology paired with richer harvest in the deep sea,
Neptune has doubled its inventory without matching demand. In order to fix this issue, Neptune must think in both
the short term and the long term. In the short term, Neptune should offer all of its customers temporary discounts.
For consumers, Neptune should offer a buy one get one free promotion. For commercial customers, Neptune should
offer a temporary discount of 35% on any purchases exceeding the clients previous order. In the long term,
Neptune should expand its product offerings to the West Coast, parts of Europe and Asia, and launch a significant
marketing campaign to attract customers who would not otherwise purchase seafood.
B. Industry Dynamics: By 2006, the seafood sales industry grew to $20 billion in yearly sales in the United
States. As a result of the size of the industry, companies have become very competitive and profit margins have
begun to shrink. A companys success is determined by their ability to utilize a competitive advantage: price or
quality. However, despite the competition, Neptune Gourmet Seafood has been able to establish itself as offering
customers with the highest quality products while becoming the third ranked producer in terms of sales. By earning
the reputation as a high quality brand backed up by the US Association of Seafood Processors and Distributors
Gold Seal of Approval on its entire product line, Neptune is able to command premiums of 25-30% on its products.
Neptune has continued to utilize its competitive advantage of quality by investing $63 million in its new fleet of
fishing boats to meet the demands of new regulations that require fishing to occur farther off of the shore (See
Appendix D).
C. Situation Analysis Summary: In response to new fishing regulations, companies have been pushed off the
coasts and required to fish in the deep sea. As a result of this new demand, Neptune updated its fleet of fishing
boats. However, the new technology on the boats has improved Neptunes ability to harvest high quality fish.
Despite historically high levels of demand for seafood, Neptune finds itself with twice the necessary inventory. The
company must now decide how to fix the inventory in both the short run and the long run in order to ensure
company success. Currently, with a 4.1% market share in the US, Neptune must find a way to double sales.
Executives are currently discussing options such as: private label brands, mass market brands, and a business model
inspired by Two Buck Chuck. In the end, Neptunes decision must preserve its most important competitive
advantage: the reputation of supplying customers with superior quality seafood.
D. Opportunities and Threats: As outlined in the case, Neptune has the opportunity to expand its market share as
a result of the increased levels of inventory. Potential actions to increase market share include: launching new mass
market brand either in the United States or Central America, extending its existing product line to the West Coast or
other markets abroad, new advertising, following through with the plan to launch ready to eat products, and
temporary discounts to customers (See Appendix A). However, there are also threats associated with these
opportunities. These threats include: exposure to new competition in new markets, changing fishing regulations, the
potential for a pricing war in the fishing industry, the potential for US seafood consumption to level off (See
Appendix b) and exposure to unknown risks associated with new market such as foreign exchange rate risk (See
Appendix A).
E. Evaluation Criteria and Definitions: The following criteria are used to determine the strategic actions that
Neptune should take in order to best eliminate the companys inventory issue (See Appendix B):
1. Brand Equity how will the companys reputation be impacted by the action
2. Increased Sales Volume will the action successfully increase the volume of goods sold to reduce inventory
3. US Customer Reaction how the companys current customer base responds to the changes
4. Competitor Reaction/Impact how the decision will impact competitors and how competitors might respond

5. Long Run Sustainability how the decision sets Neptune up for long run success
6. Short Run Sustainability how the decision ensures that Neptune can continue regular business operations
7. ASPD Impact how the decision will alter Neptunes relationship with the ASPD
F. Alternatives: As discussed in the case, the Neptune executive team offers various solutions to their inventory
problem including: offering private label products, a lower quality mass market brand titled Neptunes Silver,
modeling the company after wine producers and offering various tiers of products assuming that customers will
trade up to higher end products, and offering a the Silver product in lower end market such as Central America.
However, these alternatives assume that the company has an inferior product offering. Based off of the information
provided in the case, this is simply not true. The state of the art technology on the companys new fleet help to
ensure that the company harvests only the highest quality fish and effectively preserves the fish to guarantee
superior quality. Additionally, Neptune prides itself on the quality of its products. With this taken into
consideration, it will be incredibly difficult to successfully offer a Silver line (See Appendix F). Rather, Neptune
should attempt to exploit additional high end markets (See Appendix C).
i. Introduce Neptunes Silver into the US seafood market in an attempt to appeal to a mass market. This
alternative follows Rita Sanchezs proposal.
Pros: (a) A new label has the potential to reach a much wider body of customers; one that is not willing to
pay a premium for the Gold line. (b) The excess inventory could immediately be allotted to build the new line of
products.
Cons: (a) Offering an inferior product at a lower price point will both hurt Neptunes reputation as having
The Best Seafood on the Water Planet and cannibalize Gold line sales. (b) Neptune could harm its relationship
with the ASPD. (c) Neptune will expose itself to new competitors in the lower end of the market. (d) The new
product line will create the possibility of price wars in an industry with already shrinking margins.
ii. Introduce Neptunes Silver in lower end markets such as Central America. This alternative follows
Bernard Germains suggestion.
Pros: (a) A new label has the potential to reach a much wider body of customers in a previously untapped
market. (b) The excess inventory could immediately be allotted to build the new line of products. (c) Entering a
completely new, low end market would limit the damage to brand equity.
Cons: (a) Entering a completely new market could be prohibitively expensive and risky with exposure to
factors such as foreign regulations and exchange rate risk. (b) Neptune has no marketing presence in low end
markets such as Central America, therefore, customers may be slow to adopt the new product. (c) Although the
excess inventory could immediately be packaged, the new geographical region may not purchase the goods.
iii. Begin to offer existing product lines such as Neptunes Gold and the freshly frozen fish into West
Coast Markets. This would involve seeking out West Coast grocery stores, wholesalers, restaurants and cruise lines.
Pros: (a) Offering their products on the West Coast has the potential to reach a previously untapped large
market without sacrificing the quality of the goods. (b) Avoid potential price wars with competitors by refusing to
lower prices. (c) Potential to fix inventory issues both in the short run and the long run.
Cons: (a) Costs associated with expanding the brand including new shipping and packaging procedures.
(b) The West Coast may be slow to adopt the newly introduced products thus not fixing the inventory issue in the
short run.
iv. Offer a short term discount to customers: 2 for 1 for consumers and of 35% on any purchases exceeding
the clients previous order for wholesalers, restaurants, and cruise lines.
Pros: (a) Incentivizes customers to purchase more fish thus reducing the inventory in the short run.
(b) Builds brand equity with customers as they are able to purchase more of the goods that they demand.
Cons: (a) Temporary fix that will cut profit in the short term as margins will shrink on the lower priced
goods. (b) Competitors can easily replicate the discount program and potentially trigger a price war.
v. Begin to offer existing product lines such as Neptunes Gold and the freshly frozen fish into high end
markets abroad including parts of Europe and Asia. This would involve seeking out foreign grocery stores,
wholesalers, restaurants and cruise lines (See Appendix a, c).
Pros: (a) Please see Alternative iii pros. (b) Offering products on a global scale will greatly increase
Neptunes market presence beyond the expansion possible in the US.
Cons: (a) Please see Alternative iii cons. Note: these impact of the cons may be potentiated by the
expansion to a global market place (longer shipping routes, unknown customer tastes etc.). (b) Neptune will become
exposed to new competitors, regulatory environments, customer tastes, cultures, and foreign exchange rate risk.

vi. Launch an advertising campaign in the US in an attempt to draw attention to Neptunes products and
convince consumers who may not otherwise purchase seafood to try the companys goods (See Appendix e).
Pros: (a) Potential to expand the customer base in the US without sacrificing quality or the companys
relationship with the ASPD. (b) Attempt to steal market share from non-seafood companies and expand the seafood
industry. (c) Ability to fix the inventory issue in the long run.
Cons: (a) Potentially exorbitant advertising costs without effectively expanding the demand for seafood.
(b) The strategy may be easily replicated by competitors.
G. Alternatives Evaluation Matrix Analysis: (See Appendix B). Note: the alternatives with the highest rankings
were considered for the final recommendation. Although Recommendation 2 fell in line with the higher ranked
alternatives, it has been disregarded as Neptune currently does not have the ability to launch a low end product.
H. Recommendations: Short Term: In the short term, Neptune should offer its customers temporary discounts in
an attempt to clear out the current high levels of inventory. Although the profit margins on the sale items will
decrease, it is very likely that inventory levels will decrease significantly. Additionally, Neptune should begin
conducting market research in the West Coast, parts of Europe, and parts of Asia by supplying stores, wholesalers,
and restaurants with complementary samples of fish in preparation for the long term recommendation.
Long Term: Although the recommendation suggested above will likely improve Neptunes inventory issue in the
short run, the company must find new customers in order to ensure long run stability. As outlined in the alternatives
matrix, expanding to offer a Silver line is simply not possible as Neptune harvests only the highest quality fish and
cannot risk damaging its stellar reputation. With this fact taken into consideration, the best alternatives for Neptune
include: expanding to the West Coast, Europe, and Asia, while also launching a new marketing campaign. Neptune
offers incredible seafood products that can thrive in markets with tastes for high end products (See Appendix a).
Additionally, an advertising campaign that informs the public of the health benefits of seafood when compared to
other animal proteins could help to capture new customers (See Appendix d, e).
Although these three recommendations have the potential to be very costly, as the pro forma income statement
shows (please note the listed assumptions), if Neptune successfully doubles its sales, profit can grow by nearly $100
million (See Appendix G). While this projection is highly inaccurate as it assumes that the cost structure does not
significantly change, it provides a benchmark that will help Neptune set it budget for this expansion plan. Neptune
must also keep the companys long term sustainability in mind and potentially accept reduced or negative profits in
the first year of the expansion. However, as the expansion and advertising begins to take hold, Neptune can begin to
move towards the goal of doubling its market share.
I. Key Implementation Actions:
1) Inform customers of the temporary discount program and begin fulfilling new orders. Additionally, Neptune
can begin to contact and ship promotional goods to stores, restaurants, and wholesalers in Europe and Asia.
2) Discontinue the discount program while working with the executive and legal team to create partnerships and
draft legal documents with stores, restaurants, and wholesalers on the West Coast and in Europe and Asia.
3) Project the increase in sales based on the new partnerships. Work with the fishermen and production plants to
ensure that they are fully prepared for the new levels of demand.
4) Begin producing and shipping goods to the preexisting and new customers.
5) Evaluate the sales figures to determine if further action is necessary. If it is deemed that further action is
necessary, develop an advertising campaign with the marketing team in order to continue to drive the demand for
seafood up.
J. Impact to Competitive Advantages and Likely Competitor Response: These recommendations and
implementation actions work to fully leverage Neptunes main competitive advantage: the companys reputation for
offering the highest quality seafood. By not compromising the quality or price of the goods, Neptune will maintain
its brand equity while also expanding to new markets. Additionally, while Neptune will expose itself to new
competitors in the new markets, it will prevent price wars in the seafood industry. These competitors will not be
able to match the quality of Neptunes goods and thus will struggle to respond. Although they may be able to
capture lower end customers, Neptunes products are targeted towards high end customers. Finally, if Neptune
chooses to follow through with the advertising campaign, competitors may follow with their own. However, they
again will be unable to match Neptunes quality and reputation. As a result, this reactionary advertising will struggle
to impact Neptunes high end customer base.

Appendix
Table of Contents:
A. SWOT Analysis
B. Alternatives Evaluation Matrix
C. Ansoff Matrix
D. Industry Dynamics and 5 Cs Analysis
E. Stakeholder Analysis
F. Root Cause Analysis
G. Financial Projections with Ratios
H. Outside Research
a. Globalization of US Fishing Industry
b. Per Capita Seafood Consumption in the US
c. Per Capita Seafood Consumption in China, UK, Portugal, and US
d. Will the US be Able to Double its Seafood Consumption in the Name of Public Health? By
Simone Baroke
e. UK Finally Overcomes its Fish Phobia by Simone Baroke
A. Neptune Gourmet Seafood SWOT Analysis
I. Strengths
North Americas third largest seafood producer ($820 million in sales and 4.1% market share)
New fleet of state of the art fishing vessels that allow for environmentally sustainable fishing methods and
new freezing methods that give the company a competitive edge
New fleet increased the ability to land top-quality catches and allowed the company to be awarded
Connoisseurs Choice top rating for the 10th year in a row
Great public perception; customers view Neptune products as premium goods
Able to sell products at a significant premium
Dominate most seafood segments in terms of quality
Products sell at the best restaurants within 250 miles of Fort Lauderdale purchase from Neptune
Proven demand in restaurants all throughout the US
Able to attract capital infusion from investors
Demand for goods at an all time high
Only company to have ASPD Gold Seal of Approval on every product they sell
II. Weaknesses
Customers are extremely demanding and require very high quality goods
Frozen and processed fish products sell only on the eastern seaboard and some parts of the Midwest
Forced to invest heavily in order to remain ahead of competition
Inventory problem with new fleet; normal inventory is around 20-30 days but has recently shot up to 60
Internal disagreement about which route to take in order to fix inventory issue
Selling a Silver Line could potentially cannibalize Gold Line sales or lower the overall brand image
III. Opportunities
Expand Frozen and processed fish products to the west coast or abroad where there is high demand for
seafood
Plans to launch ready-to-eat fish based meals
Increasing demand for fish (demand at an all time high)
Expand to include a Silver Line of products
Increasing sales at own storefront
Offer limited discounts to lower inventory levels
Seek out strategic partnerships with wholesalers to help increase demand around country/globally
Increasing inventory as a result of the upgraded fleet of fishing vessels
IV. Threats
Tough competition in areas such as China, Peru, Chile, and Japan

Tough fishing laws that reduce access to fish near the coast
Lowering prices may create a price war among competitors and lose the fishing industry a significant
amount of money
B. Alternatives Evaluation Matrix

Criteria

Importanc
e (1-3; 1
being low,
3 being
high)

Rec 1:
Introduce
Neptune
Silver in
existing
market
(-) Hurts
reputation

Brand Equity

Increased Sales
Volume

(0) May gain


new customers
but also
cannibalize
existing sales

Customer
Reaction (US)

Competitor
Reaction/Impac
t

(0) Sends
mixed
messages
about brand
(+) Neptune
becomes more
competitive

Long Run
Impact
(Sustainability)

Short Term
Impact
(Inventory)

ASPD Impact

Summation

(-) Could lead


to price wars
and impact
margins
further
(+) Likely to
clear excess
inventory

Rec 2:
Introduce
Neptune
Silver in low
end market
(abroad)
(0) Neptune
most likely
unknown in
these markets
(+) Spreading
sales to new
markets

Rec 3: Expand
existing
product lines
to the west
coast

Rec 4: Offer
consumers a
short term
discount

Rec 5: Expand
to high end
markets
abroad

Rec 6: Launch
new marketing
campaign

(+) Build
equity with
other high end
consumers
(+) Spread to
previously
untapped
market

(0) Short term


offer

(+)Build
equity with
other high end
consumers
(+) Spread to
previously
untapped
market

(+) Potential to
expand
customer base

(0) Does not


directly
impact US
consumers
(-) Exposes
Neptune to
new
competitors
(+) Helps to
expand market
share

(+) More
access to high
quality goods

(0) Does not


directly impact
US consumers

(+) Increase
demand for
fish

(-) Exposes
Neptune to
new
competitors
(+) Helps to
expand market
share

(-)
Competition
can respond

(+) Likely to
excess
inventory

(-) Unlikely to
initially clear
excess
inventory
(+) No
lowering of
standards

(-) Unlikely to
initially clear
excess
inventory
(+) No
lowering of
standards

(-) Most likely


will take time
to catch on and
be costly
(+) No
lowering of
standards

(-) Jeopardizes
gold rating

(0) Unknown

-4

(-) Exposes
Neptune to
new
competitors
(+) Helps to
expand market
share

(+) More fish


will be sold
potentially
increasing
demand in the
long term
(+) More
goods at a
cheaper price
(-) Potential
short term
price war
(0) Build
customer
relationships
but short term
offer
(+) Likely to
clear excess
inventory
(0) Unknown

(+) Appeal to
customers who
may not
otherwise
purchase fish

(+) Helps to
expand market
share

Conclusion Neptune is best suited to consider Recommendations 3-6 as the firm simply does not have a low end
market offering. Neptune must continue to hold itself to the highest quality standards in order to continue to please
their customers. Based on the criteria above, Recommendations 3-6 all positively contribute towards the company.
It will require further analysis to create a strategic plan.

Existing Markets

New Markets

C. Ansoff Matrix
Existing Products
Market Penetration
Offer temporary discounts to
increase demand in the short
run. However, with already
shrinking margins and high
competition, this must be a
very limited time offer
Market Development
Target the west coast
Expand sales abroad looking
for untapped markets that
demands high quality seafood
Launch a new marketing
campaign

New Products
Product Development
Follow through on ready to eat
meals
Add the Silver Line of
products to capture the lower
end of the fish market

Diversification
Offer new products such as the
Silver Line abroad

Conclusion Neptune must decide if the company should pursue new products or new markets. However, as a
result of the existing quality of its products, the firm is best suited to pursue new markets. Additionally, with a
current 4.1% market share in the US and the need to double this share, the firm will need to globalize in order to
clear the increased inventory levels.
D. Industry Dynamics and 5 Cs
Industry Dynamics
$20 billion industry in the United States
o Goods are sold through multiple channels including grocery stores, wholesalers, restaurants, and
small markets/storefronts/specialty shops
o Very tight margins for fishing companies with high levels of competition
o Customers are willing to pay premium for high quality goods
o Technology is key to maintaining a competitive advantage
5 Cs Analysis
Context
Competitors
Customers

Collaborators
Company

Highly competitive industry with shrinking profit margins. Customers at the high end of the
market are very demanding yet they are willing to pay a premium for high quality goods
Other fishing companies both in the United States and on an international scale. These
competitors may be more appealing to consumers as they offer lower prices yet lower quality
goods
Current: grocery stores, restaurants, wholesalers, cruise lines, individuals (both from the
storefront that Neptune owns and at grocery stores)
Potential: grocery stores on the west coast and internationally, more individuals (increase direct to
consumer presence)
Government and regulatory agencies, wholesalers, restaurants, grocery stores
Differentiates itself from competitors by offering high quality goods at a premium price. Utilizes
sustainable and high tech fishing methods to ensure that customers have access to top quality
goods

Conclusion With the current level of competition taken into account, Neptune must continue to capitalize on its
competitive advantage: the superior quality of its goods. Although this will prevent them from reaching the mass
market, other producers and fishing companies already control this low end segment. Rather than go after the low
end segments, Neptune must work to expand the existing customer base without sacrificing quality.

E. Stakeholder Analysis
Stakeholder
Jim Hargrove (Marketing
Director)

Importance (0-10 scale)


7

Rita Sanchez (Sales


Director)

John Renser and Stanley


Renser (Founder and Largest
Shareholder)
US Association of Seafood
Producers and Distributors

10

Nelson Stowe (Legal


Counsel)

Bernard Germain (COO)

Sandy McKain (Head of


Consumer Business)

Pat Gilman (Head of


Institutional Business)

Managing the institutional


portion of Neptune

Customers

10

Having access to high


quality seafood at fair prices
even if they are forced to pay
a premium

Concerns
Hargrove is concerned that
lowering prices will damage
the high quality image the
company is working to
preserve. Hargrove is also
concerned that the
companys recent
investments are not paying
off.
Sanchez is concerned about
the inventory pile up and the
impacts that it will have on
the business. She believes
that prices must be lowered
as soon as possible in order
to clear the increased
inventory
Maintaining the brand image
and competitive edge that
Neptune currently has
Managing the US and global
seafood policies relating to
quality and price
Providing legal advice for
Neptune and the Renser
family

Managing business
operations and ensuring that
the company maintains its
high quality image
Managing the consumer
portion of Neptune

Desired Benefits
Hargrove hopes to maintain
the brand image while also
fixing the inventory issue.

Sanchez hopes to clear the


inventory by lowering the
prices by 40-50%. This can
be done with a new product
line Neptunes Silver to
reach the mass market.
Long term company success
in an increasingly
competitive industry
Protecting consumers and
ensuring that they pay fair
prices for quality goods
Helping to protect the
company from legal
repercussions and ensuring
long term success. Also,
maintaining a good
relationship with the ASPD
and not putting the company
at risk of losing their gold
rating
Fix the inventory problem
without sacrificing the brand
equity
Ensuring that consumers
have access to high quality
products. Believes that a
segmented selling strategy as
utilized by wine makers (i.e.
Two-Buck Chuck) will work
for the fishing industry
Ensuring that institutional
consumers have access to
high quality products
The ability to purchase
Neptune products knowing
that they are receiving the
highest quality seafood on
the market

F. Root Cause Analysis Diagram

G. Financial Projection with Data Points

Projected balance sheet assuming that sales double without significant cost structure changes. Although inaccurate,
this show that Neptune can accept losses on both the top and bottom line in the short run in order to boost long term
sales. The projected 2007 revenue can serve as a benchmark to see potential revenue growth if sales are
successfully doubled. The discount program will significantly lower revenue in 2007 while the expansion plans and
advertising will significantly increase expenses for 2007.

Neptunes Income Statement as a Percentage of Sales

Income Statement year to year growth rates

a. Globalization Breakdown of the US Fishing Industry


Source: http://clients1.ibisworld.com.offcampus.lib.washington.edu/reports/us/industry/competitivelandscape.aspx?entid=81#MSC

As the graphic suggests, the United States fishing industry is highly globalized with exports accounting for 90% of
revenue. The same database states that this is because US fish commands higher prices abroad. This suggests that

there is a significant opportunity for Neptune to offer its high quality products abroad as they may be able to
increase their premium pricing in foreign markets.
b. Per Capita Seafood Consumption in the US
Source: http://clients1.ibisworld.com.offcampus.lib.washington.edu/reports/us/bed/default.aspx?bedid=41

Although the graphic suggests that Neptune is correct in saying that demand for seafood is at an all time high in
2006, the projections show that this demand will level off. With decreasing demand in the US, it is clear that they
must consider new markets to sell off the increased inventory.

c. Per Capita Demand for Seafood in Foreign Markets


Source: http://portal.euromonitor.com.offcampus.lib.washington.edu/portal/statistics/tab

Although the graphics above show fluctuation, it is evident that the per capita consumption of seafood in countries
such as China, the UK, and Spain are much higher than the US. Also, these countries are projected to increase their
consumption of seafood in the near future, suggesting that there is a significant opportunity for Neptune to sell
abroad. As previously mentioned, it will be very difficult for Neptune to double its market share in the US. The
company can exploit these high levels of fish consumption abroad in order to significantly increase sales.

d. Health Consciousness in the US


Article by Simone Baroke from Euromonitor

This article points to research that suggests that Americans can lower their risk of adverse health impact by
increasing their consumption of fish. Despite this research, meat still significantly outsells fish. Although sales still
lag behind, this report suggests that the proper marketing tactics could convince Americans to increase their
consumption of fish. If Neptune begins to position itself as a healthy protein producer and a meat alternative, the
company may be able to raise health awareness in the US. As a result of this awareness, Neptune can create new
customers without the need to expand abroad. While it may be difficult to convince consumers to decrease their
consumption of meat, the article concludes by references increasing fish consumption.

e. Increase of Fish Consumption in Europe


Article by Simone Baroke from Euromonitor

Although the article suggests that fish consumption is on the rise in European countries and is generally much higher
than consumption in the US, the author states that proper promotion could further increase consumption. This
article is significant because it suggests that an increase in demand paired with proper marketing greatly increase
demand. Neptune has the opportunity to enter this growing market while also evaluating the impact of new
advertising.