29 Jun MKTG 320 Case Study Assignment
Question
Clover Valley Dairy Company In the fall of 1978, Vince Roth, General Manager of the Clover
Valley Dairy Company, was considering whether a newly developed multipack carrier for yogurt
was ready for market testing and, if so, how it should be tested.
Since 1930, the Clover Valley Dairy Company had sold, under the trade name Valleyview, milk,
ice cream, and other milk by-products—such as yogurt, cottage cheese, butter, skim milk,
buttermilk, and cream—in Camden, New Jersey. The raw milk was obtained from independent
farmers in the vicinity of Camden and was processed and packaged at the Clover Valley Dairy.
Clover Valley’s sales had grown steadily from 1930 until 1973 to an annual level of $3.75
million. However, between 1973 and 1977, a series of milk price wars cut the company’s sales to
$3.6 million by 1977. During this time, a number of other independent dairies were forced to
close. At the height of the price wars, milk prices fell to 75 cents per half-gallon. In the spring of
1977, an investigation of the milk market in Camden was conducted by the Federal Trade
Commission and by Congress. Since then, prices had risen so that Clover Valley had a profit for
the year to date.
Clover Valley served approximately 130 grocery store accounts, which were primarily members
of a cooperative buying group or belonged to a 10-store chain that operated in the immediate
area. Clover Valley no longer had any major chain accounts, although in the past they had sold to
several. Because all three of the major chains operating in the area had developed exclusive
supply arrangements with national or regional dairies, Clover Valley was limited to a 30 percent
share of the Camden area dairy product market.
Although Clover Valley had a permit to sell its products in Philadelphia, a market six times the
size of Camden, management decided not to enter that market and instead concentrated on
strengthening their dealer relationships. In addition, it was felt that, if a price war were to ensue,
it might extend from Philadelphia into the Camden area.
With the healthier market and profit situation in early 1978, Clover Valley began to look for
ways to increase sales volume. One area that was attractive because of apparent rapid growth
was yogurt. During the previous three years, management had felt that this product could help to
reverse Clover Valley’s downward sales trend, if given the correct marketing effort. However, the
financial problems caused by the loss of the national grocery chains and the price war limited the
firm’s efforts. As a result, Mr. Roth felt that Clover Valley had suffered a loss of share of yogurt
sales in the stores they served.
Since 1975, Mr. Roth had been experimenting with Clover Valley’s yogurt packaging with the
hope that a new package would boost sales quickly. All dairies in Clover Valley’s area packaged
yogurt in either 8-oz or 1-lb tubs made of waxed heavy paper. Clover’s 8-oz tub was about 5 in.
high and in. in top diameter, tapering to in. at base. The first design change to be considered was the use of either aluminum or plastic lids on the
traditional yogurt tubs. However, these were rejected because the increased costs did not seem to
be justified by such a modest change. Changing just the lid would not make their tubs appear
different from their competitor’s tubs, it was felt.
By 1976, Mr. Roth had introduced a completely different package for Clover Valley’s yogurt.
The 8-oz tubs were replaced by 6-oz cups, designed for individual servings. In addition, the new
cups were made of plastic and had aluminum foil lids. The 1-lb tubs were unchanged. No special
promotional effort was undertaken by Clover Valley, but unit sales of the new 6-oz cups were
more than triple the unit sales of the old 8-oz tubs (see Exhibit I-1). While the increased sales
volume was welcomed, the new plastic cups increased unit packaging costs from 7.2 cents to
12.0 cents. This more than offset the saving of 4 cents because of the reduction in the amount of
yogurt per container. Retail prices were reduced from 41 cents to 34 cents for the new 6-oz cup,
while the price for the 1-lb tub remained at 75 cents. The increased sales then increased the total
dollar contribution to fixed costs from yogurt by only 5 percent. (All dairies priced their yogurt
to give retailers a 10 percent margin on the retail selling price. Competitor’s retail prices for their
8-oz tubs remained at 41 cents.)
Mr. Roth felt that both the change to plastic and the convenience of the smaller size were
responsible for the increased sales. However, he was disappointed with the high packaging costs
and began to look at ways of reducing them, without changing the package much further. He felt
another package change would be too confusing to consumers. Because of the economies of
scale needed to produce plastic containers, costs could be reduced if more units were produced
and sold. Mr. Roth felt that packaging a number of cups together would make the 6-oz cups
easier to carry home, which might increase sales, and would certainly reduce packaging costs.
By 1978, work had begun on developing a multipack holder to hold six cups together. A single
strip of aluminized plastic would serve both as holder and as the top for two rows of three yogurt
cups. A single cup could be readily separated from the others in the pack. Dairy personnel
constructed wooden models of several different cups for use with the holder and with plasticmolding experts, choosing one that would mold easily and cheaply. Eventually, some of these
carriers were made to order for testing in the plant and among Clover Valley employee families.
Several problems soon became apparent. The holder did not always fasten securely to all six
cups in the multipack. While the holder strip was being put on, the side walls of the cups were
slightly compressed, causing some cups to crack at the edges. When consumers tried to remove
one of the cups, they sometimes pulled the top from an adjacent cup. The problem was the
strength of the aluminized plastic, which made it difficult to tear even when perforated. The multipack was redesigned and again tested in the plant and by employee families. It
appeared that the new package was performing satisfactorily. Negotiations with Clover Valley’s
carton supplier resulted in an estimated price of 8.5 cents for the first 100,000 units. Thereafter
unit costs would drop to 7.5 cents per 6-oz cup.
Mr. Roth decided that the best multipack carrier presently possible had been designed. His
attention then turned to methods of testing the new packs for consumer acceptance. Mr. Krieger,
his father-in-law and president of Clover Valley, sent him the following letter concerning market
testing: January
February
March
April
May
June
July
August
September
October
November
December Unit Sales of Yogurt- 8oz Tubs (6oz after June 1977)
1974
1975
1976
1977
1,203
3,531
7,899
996
3,561
7,629
960
3,258
6,677
853
3,888
6,081
861
4,425
5,814
915
4,044
12,726a
978
3,546
13,422
1,254
3,696
15,105
1,212
3,561
23,601
1,740
1,485
4,731
23,214
1,437
2,928
4,499
22,146
1,347
3,528
6,177
17,916 January
February
March 1974
3,882
4,015
4,061 Unit Sales of Yogurt- 1lb. Tubs
1975
1976
3,715
3,937
3,596
3,833
3,670
3,285 1977
3,725
3,510
3,344 1978
18,594
20,187
20,676
20,199
18,420
14,424
16,716
16,716
18,657
– 1978
2,971
3,232
2,866 April
May
June
July
August
September
October
November
December 3,573
3,310
3,252
3,383
3,721
3,415
3,276
3,865
4,110 3,405
3,482
3,376
3,366
3,307
3,275
3,450
4,650
3,908 3,333
3,609
3,366
2,837
2,616
2,729
2,816
3,375
3,386 3,503
3,101
3,537
3,827
3,103
2,871
3,028
2,796
3,086 3,392
2,390
2,094
2,589
2,384
2,895
– *** a = 6oz. Tubs ***
Dear Vince, Concerning the market test of the new cups and carriers, I have a few suggestions
that may be helpful, although the final decision is yours. I think we should look for a few outlets
where we are not competing with the other dairies, perhaps the Naval Base or Bill’s Market.
Actually, if we use Bill’s, then the test could be conducted as follows:
1. Give Bill a special deal on the multipacks for this weekend.
2. In the next two weeks, we’ll only deliver the multipacks and no single cups at all.
3. In the third week we’ll deliver both the packs and the single cups.
4. During the third weekend we’ll have someone make a survey at the store to determine its
acceptance.
5. Here is how it could be conducted:
a. Station someone at the dairy case.
b. After the shoppers have chosen either single cups or the multipacks, question them.
c. If they chose the multipacks, ask them why.
d. If they chose the single cups ask them why they didn’t buy the packs.
e. Thank them for their help and time. Questions for Discussion:
1. Should the new multipack carrier be tested? 2. If a test is judged necessary, what should be the criteria for success or failure? 3. How useful is the proposed test in addressing the management problem? What changes,
if any, would you recommend?
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