VIDEO CASE: GaGaSherBetter: Coming to a Market Near You?
Read this case study than answer the questions at the end must be at least a page long. Double space APA style This is the reference for the textbook.
Textbook - Boone, Louis E., and David L. Kurtz. Contemporary Marketing, 16th Edition. Cengage Learning, 2013. ISBN: 9781305341562.
Everyone likes ice cream-or sherbet. But suppose you could have the best of both, in one cup or cone? And what if you could buy your favorite treat at your local market? Jim King, founder and CEO of GaGa, is doing his best to see that your frozen dessert wishes come true. Nearly 10 years ago, King-a former TV news anchor-began experimenting with his grandmother GaGa's recipe for lemon sherbet. He made a few batches and peddled them to retailers in his home state of Rhode Island before stopping in at Munroe Dairy, a home-delivery dairy farm. The owner ordered 500 pints on the spot-and GaGa was in business. Suddenly, King and his wife Michelle had to figure out how to make and store a large batch of the "Sherbetter"-Jim's name for the product, which he described as "sherbet but better." Eventually, Jim purchased a batch freezer for $2,800 at an IRS auction.
Once the Munroe Dairy order was filled, the Kings had to decide where and how to sell their product-directly to consumers, via wholesalers, or to retailers. Early on, they tried selling through an ice cream company. "We sold zero," recalls Michelle. Consumers would have to pay about $100 for a six-pint order instead of $4.99 for a pint at the grocery market, because the cost of shipping was astronomical-the SherBetter had to be shipped overnight in a heavy box with dry ice. The television shopping networks HSN and QVC also invited the Kings to sell their product on television; as a former news anchor, Jim would be a natural on camera. But the Kings declined-again because of the high cost of shipping directly to consumers.
Jim also researched the possibility of becoming a retailer himself-opening his scoop shop. But he quickly realized that the business model just wouldn't work for his company. Successful scoop shops must be located near a beach, lake, or other recreational area, and have no other direct competitors nearby. Furthermore, in the New England area, ice cream shops are mostly seasonal. Jim also determined that the projected expense of purchasing and maintaining a building and property was too high for GaGa. In addition, ice cream shops generally offer a wide variety of products, including ice cream, sherbet, frozen yogurt, diabetic-friendly and dairy-free frozen desserts, smoothies, shakes, and more. GaGa just had SherBetter-albeit in a growing array of flavors.
So the Kings decided that retailers would be the best outlet for their product. "Basically, we're a marketing agency," Jim comments. Jim works with a broker who arranges for Jim and Michelle to meet with retailers and demonstrate GaGaSherBetter at their stores, giving out free samples and promoting the product. If the retailers and their customers like the product, it is added to the grocery shelves. The smaller or specialty markets like Whole Foods generally stock GaGa, because the Kings can't afford the huge slotting allowances charged by larger supermarkets. Jim explains that a slotting fee in the frozen section of a large supermarket chain could run as much as $35,000 to $40,000 just to place one product on the shelf at 600 to 800 stores. Jim notes that Whole Foods, which doesn't require a slotting allowance, may initially ask for free products to see if they will sell. "That's affordable," acknowledges Jim. "We can make that back pretty quickly." Not only is the cost of putting a product on the shelves of a large supermarket chain prohibitive, those customers aren't necessarily the consumers who would buy GaGa anyway. "Because we are a super-premium product and perceived as expensive, we don't sell well" in those stores, Michelle points out. "People who go into a market like that are looking for a deal." So they've decided to target the specialty markets, because that's where their true customers shop.
Looking to the future, Jim believes that ultimately GaGa could become an umbrella brand for a wider range of products, by building out the current line of SherBetter products and eventually adding new categories. He also wants to make a second stab at the wholesale food service channel since the first attempt didn't work out. He tried to make a push into food wholesaler Sysco but was unsuccessful-largely because the price of GaGa was double that of Sysco's price for super-premium ice cream. "Restaurants are more concerned about price," says Jim. He's now searching for a wholesale outlet connected with a nationwide restaurant chain that would agree to put GaGa dessert on the menu.
For now, Jim remains focused on the job at hand-getting GaGa into the stores. "We've got this great name," he remarks. "We've got this great product."
QUESTIONS FOR CRITICAL THINKING
1. Experience has taught the Kings that smaller, specialty markets are the strongest retail outlets for their GaGaSherBetter. Under what conditions might they begin to make a successful move into the larger supermarket chains?
2. How might the right wholesaler ultimately create marketing utility for GaGa?