A1 Steak Sauce

A1 Steak Sauce Case

Problem

A1 Steak Sauce is a premier brand of Kraft Foods Inc. It was developed in 1830 and has been a leader in the steak sauce market with over a 50% share this past year. In 2006, A1 captured $150 million in sales with a regular retail price of $4.99, produced and sold in a 10-ounce bottle. A1 Steak Sauce has been able to excel in their market position by maintaining a superior brand image with strong brand loyalty, substantial sales, excellent margins and low competitor rivalry. A1's main competition is Heinz 57 sauce, which holds 16% of the market but did not compete with A1's strong appeal and flavorful taste.

In its current situation, A1 Steak Sauce must defend its product against Lawry's new steak sauce which is set to be released April 1. Lawry's retail price will be $3.99 in the production of an 11-ounce bottle. Lawry plans to launch an aggressive advertising campaign of $20 million as well as being placed in Publix's promotional ad for Memorial Day weekend with a 2 for $5 promotion. The sales from the Memorial Day weekend promotional ad accounts for 10% of A1 Steak Sauce's yearly revenues, combined with sales from the week of July 4. A1 steak sauce must come up with a way to generate enough sales to increase their market share by 10% as well as increase their volume/unit sales. A1 has come up with a few options to react to Lawry's plan. These include doing nothing to combat the release of Lawry's new sauce, matching the promotional effort with one of their own by offering a 2 for $4, or offering a2 for $5 promotions for their 10oz bottles.

Analysis

A1 must be able to respond to Lawry's competitive launch while at the same time maintaining its brand loyalty, sales, and stance in the marketplace. A1 must bring in $62,000,000 in operating profits with any option that is chosen in order to obtain the 10% growth wanted by management. My conclusion on this decision has been analyzed through the pros and cons of the listed options above, ensuring that A1 meets the 10% profit growth wanted by its executives.

The first option to analyze is to match Lawry's promotion with the implementation of a 2 for $5 promo. Lawry plans to attract the market with its lower cost steak sauce in an 11-ounce bottle. Lawry should be able to steer new customers to their product through this promotion because consumers will more than likely buy the cheapest steak sauce for the upcoming holiday(s). Along with this low price, Lawry will have similar packaging and taste with heavy advertising backing. With the implementation of their 2 for $5 promo, they plan to obtain 10% of the market share which would cause a loss to A1's profit. If A1 plans to match Lawry's promotion, they would be able to maintain their market share and compete with Lawry's competitive pricing. This tactic could also cause a loss of potential sales for Lawry's steak sauce because consumer trial and repeat purchases would be minimal since many buyers would tend to go for the brand and product that has been around longer with a stronger appeal.

Matching Lawry's promotion could also end in a loss to A1 steak sauce's brand. Cutting prices could be detrimental to A1's brand and hurt their financial stance in the market. A1 is able to have high levels of brand loyalty with higher prices and a quality product that consumers don't mind paying for. Implementing a 2 for $5 promo for A1 will result in profit loss of over $8,000,000 at current sales volume, which has only increased due to rising prices over the past few seasons. Seeing that A1 would lose this much with a 2 for $5 promo, a 2 for $4 promo would be out of the question. With this huge of a loss, A1 would need to find another way to sustain its market share without matching Lawry's promotional coupon.

The next option to analyze is to maintain status quo. A1 currently is the market leader in the steak sauce category and the new launch won't allow Lawry to immediately surpass A1's position. Since the barriers of entry are high because of brand loyalty, most of A1's audience won't be moved because of the cheaper product. However, any audience captured from Lawry's product would result in a loss of profit in A1's market share. A 10% gain of share from Lawry's product