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Peter Franklin is the CEO of Nature Cola company located in Bridgeport

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Peter Franklin is the CEO of Nature Cola company located in Bridgeport (an imaginary;country). He is pondering about whether his company should introduce a new cola;drink which has no calories and can be considered as a healthy drink. He has a number;of options and is pondering over which of these options are the best.;Cola Market in Bridgeport;Bridgeport is a small country with a population of about 25 million. It has a mix of both;rich and middle class people. Nature Cola was started by James Franklin, father of;Peter in 1999. Because of the size of the country, multinationals such as Coco Cola and;Pepsi Cola did not consider Bridgeport as a viable market and there was no cola market;in Bridgeport until Nature Cola was formed. In the initial stages, it was difficult to;market the product, but by 2001, the market had picked up. The target market for;Nature Cola was the large middle class and Nature Cola was priced at $1 per bottle. A;bottling plant was commissioned which could produce 50000 litres of Cola every;month. With bottle size of 250 ml, it amounted to 200,000 bottles per month. The;demand for Nature Cola is currently at 200,000 bottles per month which is being met;by the existing bottling plant.;In 2005, Pepsi saw an opportunity to enter the market. However, it could not compete;directly in the market against Nature Cola as the price of Nature Cola was very low.;Pepsi positioned its cola drink as a gourmet drink and started selling the same through;restaurants and hotels as opposed to Nature cola being sold in shops and supermarkets.;In 2011, 3 years back, another company Low C Cola, was started by a local;entrepreneur, Benjamin. Benjamin lacked the financial clout of Pepsi or Nature Cola;and was not experienced in marketing aspects of cola. Though people liked the taste of;Low C Cola, its price was $2 per 250 ml and this company was struggling to market the;cola. It also had a bottling plant that has a capacity of 200,000 bottles per month but;sales have been stagnating at about 50,000 bottles per month.;Introducing a new drink called Zero Cola was mooted by Peter after he visited other;Western countries where he saw companies like Coco Cola and Pepsi Cola had;introduced zero calorie Cola with health benefits. This gave him the idea of introducing;this Zero Cola in Bridgeport. In order to induce the people to form healthy habits, he;studied the obesity rate in Bridgeport and found that it ranked very high in both;overweight category and obesity category. Thus, Peter felt that with proper education;of the population towards healthy habits, he can find a market for Zero Cola.;His research team developed a cola that had zero calorie and used that in test;marketing. A market research team was engaged at a cost of $200,000 to estimate the;possible demand for this Zero Cola. The market research team found that there is likely;to be good demand for the same which encouraged Peter to think carefully about the;introduction.;He formed a team consisting of CFO Joshua, Finance Manager Christian and;Production Manager Rasool to look into the feasibility of introducing this product.;FIN351e Copyright 2014 SIM University;CASE: NATURE COLA July Semester 2014;Page 2 of 17;Joshua, Christian and Rasool worked on the project and formulated the following cost;and sales estimates;Cost;Since the current bottling plant is running at full capacity, introduction of a new drink;would require a new bottling plant. This plant would require a large area as well as a;set of machinery. Currently the company already owns a large warehouse which cannot;be rented out to others. The team felt that this area can be used for locating the new;plant.;The search for machinery showed there are machineries available with different;capacities and different prices. The details of the machinery is shown in Table 1.;The cost includes the cost of machinery as well as installation costs. This machine can;be depreciated using straight line depreciation over a period of 5 years towards zero;salvage value. The resale value of these machines if sold at the end of the year over the;next 5 years is also shown in Table 1.;Table 1 Details of Machinery Available

 

Paper#26014 | Written in 18-Jul-2015

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