A1 Steak Sauce Case Study

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Introduction

Chef Brookes of England originally created A1 Steak Sauce in 1824. He was chef to King George IV of England with his partner Chef Henderson Brand. Legend has it the king was so delighted with the sauce that he declared it “A1” and thus the name was born (Kerin & Peterson, 2010). In 1830, Chef Brand stole the recipe from Chef Brookes and began commercial production under the Brand & Co. label in 1831 (Wikipedia, 2011).

Today, A1 Steak Sauce is owned and manufactured by Kraft Foods (Kerin & Peterson). It is the leader in the steak sauce category with a 54 percent dollar share and 46 percent volume share (Kerin & Peterson, 2010). It has high brand awareness and asserts, “Nine out of ten steak houses serve A1” (Kerin & Peterson, 2010). This case will provide a summary and analysis of A1 Steak Sauce with an emphasis on pricing strategies as well as an assessment of the company’s strengths, weaknesses, opportunities, and threats.

Problem Identification

Summer holidays such as Memorial Day and Forth of July are essential for steak sauce brands because this is when a significant percentage of products are sold. Approximately 10 percent of A1 Steak Sauce volume is sold during each holiday week (Kein & Peterson, 2010). During these holidays, advertising competition is intense because retailers support only one brand in a particular category during a promotional week (Kerin & Peterson, 2010).

Lawry’s, a direct competitor to A1, is promoting a new steak sauce product beginning April 2003 (Kerin & Peterson, 2010). They want to aggressively advertise the new product with Publix on Memorial Day (Kerin & Peterson, 2010). Publix is the largest grocery store chain in the United States (Kerin & Peterson, 2010). A1 usually advertises with Publix on Memorial Day because this results in a majority of product sale. If Lawry’s is allowed to advertise with Publix, then A1 will not meet its 2003 fiscal profit target.

Chuck Smith, senior brand manager for A1, scheduled a meeting with his business team to assess the situation and formulate a plan (Kerin & Peterson, 2010). They will discuss marketing and pricing strategies in response to Lawry’s new product introduction. A1 wants to retain position as market leader in the steak sauce category.

Case Analysis

Kraft Foods is the largest food company in the United States and the second largest food company in the world (Kerin & Peterson, 2010). Kraft Foods has a portfolio of 67 major brands, each with over $100 million in annual sales (Kerin & Peterson). Their portfolio includes categories such as coffee, frozen pizza, cheese, candy, cereal, mayonnaise, and barbecue sauce (Kerin & Peterson, 2010).

Kraft Foods direct competitors include Unilever, General Mills, PepsiCo, and Nestle (Kerin & Peterson, 2010). Unilever is the largest consumer product company in the world, which owns and manufactures Lawry’s (Kerin & Peterson, 2010). Kraft Foods and Unilever aggressively compete in several food categories such as salad dressings, mayonnaise, and marinades (Kerin & Peterson, 2010).

Unilever has $50 billion in sales annually (Kerin & Peterson, 2010). The company portfolio includes products such as Dove, Slim-Fast, Vaseline, Close-Up, Breyers, and Axe (Unilever, 2011). The company’s financial goal is for 200 of their brands to have $1 billion in annual sales (Kerin & Peterson, 2010). Although Unilever’s revenue is $18,547 million more than Kraft Foods, their income after taxes is $957 million less than Kraft Foods (Kerin & Peterson, 2010).

Kraft Foods spends 15 percent of operating revenue on advertising (Kerin & Peterson, 2010). A1 advertising focuses on television spots running throughout the year (Kerin & Peterson, 2010). Customer promotions make up five percent of operating revenue (Kerin & Peterson, 2010). In addition, A1 supports a partnership with beef producers (Kerin & Peterson, 2010).

Retail margins are 30 percent for all A1 flavors (Kerin & Peterson, 2010). A1 has increased its price over the years and has a gross profit margin of 83 percent (Kerin & Peterson, 2010). Ten percent of revenue goes towards in-store promotional efforts and trade promotions (Kerin & Peterson, 2010).

The retail price for A1 Steak Sauce is $4.99 for a 10-ounce bottle (Kerin & Peterson, 2010). The A1 line includes a number of flavors, which are original, sweet & tangy, bold & spicy, thick & hearty, and smoky mesquite (Kerin & Peterson, 2010). The majority of sales are made of A1 original flavor (Kerin & Peterson, 2010).

The retail price for Lawry’s Steak Sauce is $3.99 for an 11-ounce bottle (Kerin & Peterson, 2010). However, Lawry’s is not A1’s biggest competitor. The retail price for A1’s biggest competitor, Heinz 57, is $4.79 for a 10-ounce bottle but the product is different in taste and appearance (Appendix A). Heinz does not market directly against A1; instead, they advertise a multifaceted brand message (Kerin & Peterson, 2010).

Lawry’s Steak Sauce will place enormous marketing weight to promote its new product (Kerin & Peterson, 2010). The company will allocate $20 million on advertising during the summer months (Kerin & Peterson, 2010). Although Lawry’s shelf pricing is significantly lower than A1 and Heinz, loyalty in steak sauce brand is high with limited competition (Kerin & Peterson, 2010).

Identifying the Root Problem Components

A1 Steak Sauce has several issues that will affect marketing and pricing strategies. The issues are brand awareness, pricing strategies, product promotions, financial allocation for advertising, and fiscal profit margins.

First, A1 Steak Sauce is the best selling brand in the category. It is the original steak sauce in the industry, which is dominated by a few competitors. The company holds 54 percent of the steak sauce in dollars (Kerin & Peterson, 2010). The remaining competitors make up 46 percent of steak sauce dollars divided between them. Introduction of Lawry’s may reduce A1’s percentage instead of the remaining competitor’s percentage.

Second, Publix may let Lawry’s advertise on Memorial Day. Lawry’s will offer a two-for-$5 promotional price point (Kerin & Peterson, 2010). If Lawry’s enters into an alliance with Publix, then revenue of A1 Steak sauce will significantly decrease. A1 sells about 10 percent of volume on Memorial Day weekend (Kerin & Peterson, 2010).

Third, it is standard practice that manufacturers cover the cost of in-store price reductions in order for retailers to keep their margins constant on a percentage basis (Kerin & Peterson, 2010). Price matching is an option but will significantly decrease profit margins. In addition, existing customers may hold out purchasing A1 until the price drops again.

Evaluation of Alternatives

A1 Steak Sauce has several alternatives to evaluate, which are categorized as offensive or defensive strategies. Offensive strategies include encirclement, flanking maneuver, or frontal assault. Defensive strategies include decreasing the incentive for attack or increasing structural barriers. In addition, the company can formulate a novel marketing concept in reply to Lawry’s.

First, encirclement may immerse Lawry’s with product availability, strategic pricing, and variety of flavors. Second, a flanking maneuver will attack Lawry’s weakest area and capitalize from the strategy. Third, a frontal assault will cause A1 to price match and copy the promotions of Lawry’s.

A risky maneuver is to decrease the incentive for attack. A1 Steak Sauce will considerably drop its prices, which will slash Lawry’s prospects of future revenue. However, it will decrease A1’s prospects of future revenue as well.

Increasing structural barriers will retard Lawry’s marketing and advertising strategies. A1 Steak Sauce can enter into formal agreements with distributers and suppliers or be involved in backward vertical integration. A1 will try to decrease costs by increasing scale economies. The company can introduce new products into the market, which will arrest entry by competitors.

A1 Steak Sauce can negotiate ideal shelf placement and sustain a greater percentage of space in the steak sauce category. The company can procure end cap displays, specifically near the meat and beef aisles. In addition, the company can collaborate with major restaurant chains to place A1 on every table and include it in the ingredients list.

Consumers who are indifferent to steak sauce brand may purchase based on price alone. Acquiring new consumers will be financially advantageous because of loyalty to their brand. A1 Steak Sauce can offer samples of steak sauce in supermarket kiosks. Capturing the palate of new consumers through samples can result in longitudinal sales.

SWOT Analysis

(S)trengths

A1 Steak Sauce’s high quality and brand awareness distinguishes it from the competition, which is limited to Heinz 57, Lawry’s, and various private label brands. The company enjoys the largest percentage of market share in the steak sauce industry. A1 holds the title of being the original steak sauce in the industry. Consumers highly associate A1 with barbeque foods such as steak. “Nine out of ten steak houses serve A1” (Kerin & Peterson, 2010).

(W)eaknesses

A1 Steak Sauce is strongly associated with steak and not other meats. This makes brand extension difficult. Past efforts in brand extension were unsuccessful. A1 is used during meals that include hamburger and steak, which is infrequent. Combined with a small serving size, a bottle of A1 will last a considerable amount of time.

(O)pportunities

A1 Steak Sauce can strategically market and advertise during television cooking programs. There are dozens of cooking shows in addition to a television network. Forming partnerships with television shows will be paramount in successful brand awareness. A1 is available worldwide. The company can market and advertise in other countries and languages. This will guarantee brand awareness at an international level.

(T)hreats

A1 Steak Sauce’s most immediate threat is the introduction of Lawry’s. A1 does not want to be runner-up on Memorial Day advertising. Lawry’s offers an 11-ounce bottle of steak sauce for $3.99 compared to A1’s 10-ounce bottle for $4.99. If beef prices continue to rise, consumers will be price-conscious on related condiments.

Recommendation

A1 Steak Sauce has a competitive advantage due to large profit margins, brand awareness, and availability at retail stores and restaurants. The large profit margin allows A1 to adjust their pricing strategies during the summer holidays. However, price matching can be sabotaging because existing consumers may hold out to purchase until the prices drop. Effective pricing strategies are essential for attracting new consumers to the A1 Steak Sauce brand. The company should advertise to new consumers because these individuals are more likely to purchase other brands. Offering a bundled package with meats will keep profit margins high and add to the appeal of a premier product.

A core competency is A1’s ability to have a recognized and distinguished brand position. Existing consumers are not likely to switch brands on one of the biggest grilling days of the year. Existing consumers enjoy the flavor of A1 and, therefore, will be skeptical experimenting with other brands. New consumers may purchase a steak sauce brand based solely on the lowest price. Capturing the palate of new consumers will be possible by offering samples of A1 Steak Sauce prior to the summer holidays.

A1 has strong sustained relationships with retail stores and restaurants. This gives A1 priority in advertising during the summer holidays. In addition, if Lawry’s advertises on Memorial Day but does not have expected sales, then retail stores will lose revenue as well.

A1 Steak Sauce is the leading brand in the industry. The company can price it higher than its competitors due to its high quality and brand awareness. Decreasing the price will reduce the perception of quality, which is paramount to the brand.

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