INTRODUCTION. 1 Merial is a joint venture between Merck & Co. and sanofi-aventis. 2 Merial.com

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1 INTRODUCTION Producers who raise a small number of animals and are oftentimes hobby farmers struggle to find ways to continue to operate with limited time availability and funds. This is especially true of sheep producers who well know how time consuming shearing can be. For those with small flocks or who live in an area with few sheep or shearers, just getting someone to shear can be a real problem. Shearing sheep is a major concern for any sheep producer. Sheep must be shorn at least once a year for the productivity of the animal. Shearing most often occurs in the spring, in order to reduce the chance for summer heat stress on the animal. Ninety percent of small sheep producers hire a professional shearer for their flocks. However, professional shearers are becoming increasingly more difficult to find, particularly within a producers preferred schedule. The central United States is home to 30,579 sheep producers with flocks under 25 sheep, but there are only 65 registered shearers. Because sheep shearing is so labor-intensive, alternatives to hiring a professional shearer are very important. Producers can now remove wool from their animals using a new, effective alternative, Shepherd s Solution. Shepherd s Solution is produced by Merial 1, a world leading animal health company. They are a forward-looking company with a proven record of accomplishment and are on the cutting edge of product development and innovation. In 2005, company sales were in excess of 1.9 billion. 2 The United States Food and Drug Administration (FDA) recently approved the use of a new product, Shepherd s Solution, in the United States sheep industry. Shepherd s Solution consists of two parts. First, there is a spandex retention blanket and second, the Shepherd s Solution injectable solution containing a naturallyoccurring protein. To use Shepherd s Solution, sheep are first injected with 2 ml of this protein and then covered with the retention blanket. The protein causes the wool to break and the blanket holds the wool until it is fully removed from the sheep, four weeks later. Shepherd s Solution is easy and safe for producers to use. In addition, the process avoids the possibility of needless injury and stress to the animal caused by traditional shearing. Finally, it allows sheep producers to shear sheep on their own time, without the inconvenience and expense of hiring a professional shearer. In September 2006, Merial hired Spartan Agri-Marketing to develop a marketing plan to introduce Shepherd s Solution into the United States sheep industry. Merial posed these marketing goals: Research the sheep industry and identify the greatest opportunity for sales among potential customers. Position Shepherd s Solution in a market segment where it will be able to flourish as the choice wool removal option. Maximize total return on investment for Shepherd s Solution. MARKET ANALYSIS Market Size/Location Producers raise sheep for three main reasons: meat, wool and/or hobby. Regardless of their purpose, producers must have their sheep shorn for the animals welfare. Merial will initially target sheep producers with flocks of less than twenty-five sheep. These smaller producers are the lowest priority for professional shearers and are most likely to benefit from the convenience of Shepherd s Solution. Shepherd s Solution is an easy and innovative system that allows producers to remove the wool themselves without the trouble of locating and hiring a traditional shearer. Spartan Agri-Marketing has selected three regions throughout the Midwest for the launch of Shepherd s Solution. During year one, the Eastern Region, consisting of Illinois, Indiana, Michigan, Ohio and Wisconsin, will be targeted. Year two will be the Central Region of Iowa, Minnesota, Montana and Nebraska. Finally, year three will be Kansas, Oklahoma and Texas, comprising the Western Region. Merial will market Shepherd s Solution through the retail outlet of Tractor Supply Company (TSC) and by catalog and online orders through both TSC and NASCO Farm & Ranch. Market awareness will increase by promotion through industry trade shows, local agricultural publications, the Merial, TSC, and NASCO websites, aggressive point of purchase promotions in TSC retail stores, and by educational outreach through veterinarians and Extension agents. Table 1 shows a breakdown of each targeted region, including number of sheep farms with less than twenty-five head of sheep and the total number of sheep on those farms. 1 Merial is a joint venture between Merck & Co. and sanofi-aventis. 2 Merial.com 1

2 Table 1: Regional Profiles Region States Sheep Farms (#) Sheep (#) Eastern Region IL, IN, MI, OH, WI 11, ,667 Central Region IA, MN, MO, NE 9, ,862 Western Region KS, OK, TX 8, ,742 Trends Market research conducted by Spartan Agri-Marketing has identified the following trends: The number of qualified professional sheep shearers will continue to decline. The need for an efficient, convenient way to shear sheep will remain stable. Ninety percent (90%) of sheep producers with 25 head of sheep or less hire a professional to shear their sheep. The number of farms with under 25 sheep will continue to increase. Customer Profile Tractor Supply Company and NASCO Farm & Ranch: Merial plans to market Shepherd s Solution to TSC and NASCO Farm & Ranch, a mail-order catalog and online supplier. Sheep producers in the designated regions often rely on these retailers to obtain shearing materials and other animal-related necessities. TSC will be the primary retail outlet, because the company has a vast number of store locations spread throughout the targeted regions. Merial will take advantage of the TSC distribution system located in Indiana to deliver Shepherd s Solution to retail stores. TSC retail stores and NASCO s mail order and online catalogs are easily accessible to sheep producers and will enhance the availability of products that would otherwise be difficult for producers to obtain economically. There are 325 TSC store locations throughout the targeted regions. Sheep Producers: Sheep producers are farm managers and owners who oversee all aspects of a sheep farm. Producers have long experienced the challenges associated with locating and hiring a professional shearer, or performing the back-breaking task of shearing themselves. Sheep producers will be targeted through trade exhibitions, key influencers, and promotions through TSC and NASCO. In the first three years, Merial will target sheep producers on approximately 30,000 farms. Veterinarians and Extension Agents: Key influencers are veterinarians and Extension agents who work with sheep producers to provide services that help producers maintain animal health, while maximizing efficiency. Both veterinarians and Extension agents read industry publications and are knowledgeable on new research and products. They work with producers and have a stake in flock health and farm management. Competitive Analysis Direct competitors of Shepherd s Solution are professional sheep shearers currently hired by small sheep farms. Hiring professional shearers inconveniences producers by forcing them to wait to shear their flock until a shearer is available to visit their farm or deal with the hassle of loading the sheep to travel to the shearer s location. This is increasingly becoming more difficult as the number of professional shearers declines. There are a mere 65 registered sheep shearers throughout the targeted regions according to the American Sheep Industry Association. 3 Shepherd s Solution will allow producers to remove the wool from their entire flock on their own schedule and on their own farm. The remaining ten percent of producers are indirect competitors who shear their flocks themselves. This can prove to be a physically painful and tedious task. Shepherd s Solution offers these producers a new alternative with less physical strain on the shearer. Shepherd s Solution also minimizes the amount of physical damage done to the animal during wool removal. Shearing can often lead to cuts and bleeding, and can subject the animal to teat and hamstring damage. Shepherd s Solution is a product designed to avoid these injuries and stresses. Refer to Table 2 for a more detailed competitive analysis. Table 2 Competitive Analysis per 25-Head of Flock of Sheep Shepherd s Solution Professional Shearer Individual Producers Hours of Labor Price $125 5 $130 $ Although the required hours of a professional shearer are low, oftentimes, the producer also has to spend those hours catching and handling the sheep for the professional. 5 This calculation is for the length of the four years that the blankets are usable. 25 sheep x $10 per blanket doses x 25 sheep = $500 per year / 4 years = $125. 2

3 Table 3 outlines the strengths, weaknesses, opportunities and threats for Shepherd s Solution. Table 3 SWOT Analysis Strengths: Allows producers to remove wool by themselves and on-site More convenient in comparison to traditional shearing Avoids animal injury and stress associated with traditional shearing Ergonomically beneficial to conventional shearing Opportunities: New product can displace traditional shearing methods and capture market share Shepherd s Solution leads to higher wool quality for producers The number of professional shearers is declining BUSINESS PROPOSITION Weaknesses: Requires additional labor hours when compared to traditional shearing More expensive per flock wool removal Threats: Overall number of sheep farms is decreasing Unforeseen competitors entering the market Lack of consumer knowledge could make penetrating market difficult Key Planning Assumptions Key planning assumptions for the Shepherd s Solution marketing plan include: The qualified number of professional sheep shearers will continue to decline in the targeted regions. It will be necessary for sheep producers to continue to shear their sheep for animal wellbeing. The number of sheep producers with flocks of under 25 head of sheep will continue to increase. Positioning Statement Shepherd s Solution provides a convenient, effective, do-it-yourself shearing alternative for sheep producers with small flocks, which also reduces animal stresses. Sales Objectives/Goals Table 4 Total Market Potential Potential Number of Sheep Potential Gross Sales (injections) Potential Gross Sales (blankets) Total Potential Sales IL, IN, MI, OH, WI Retailers and Producers 252,667 $505,334 $2,021,336 $2,526,670 IA, MN, MO, NE Retailers and Producers 232,862 $465,724 $1,862,896 $2,328,620 KS, OK, TX Retailers and Producers 191,742 $383,484 $1,533,936 $1,917,420 Table 5 Total Sales Market Share (percent) Bottles (20mL) Gross Sales (injections) Blanket Sales Gross Sales (blankets) Total Sales Year 1 Region 1 35% 8,844 $176,867 88,433 $707,468 $884,335 Total 8,844 $176,867 88,433 $707,468 $884,335 Year 2 Region 1 45% 11,370 $227,400 25,267 $202,134 $429,534 Region 2 38% 7,287 $176, ,788 $707,900 $884,876 Total 18,656 $404, ,055 $910,340 $1,314,410 Year 3 Region 1 60% 15,160 $303,200 37,900 $303,200 $606,401 Region 2 50% 11,643 $232,862 27,943 $223,548 $456,410 Region 3 40% 7,669 $153,394 76,697 $613,574 $766,968 Total 34,473 $689, ,540 $1,140,322 $1,829,778 6 Price is calculated based upon the cost of purchasing necessary shearing products through NASCO Farm & Ranch. 3

4 ACTION PLAN Product NASCO Farm & Ranch and Tractor Supply Company will be given the exclusive rights to sell Shepherd s Solution. Retail orders will be delivered through standard mail delivery services. Sheep producers can order Shepherd s Solution direct from NASCO and through the TSC retail outlet. Price Merial will sell Shepherd s Solution in quantities of 20mL (10 injections) bottles for $20. Spandex retention blankets will be sold for $8 apiece. These blankets have been tested to withstand four uses before they need to be replaced. Shepherd s Solution will sell through NASCO at $28 per 20mL bottle. Retention blankets will be sold through NASCO for $11.20 with an assumed forty percent product markup. TSC will offer Shepherd s Solution for $25 per 20mL bottle. Through TSC locations, retention blankets will be sold for $10 per blanket with a twenty-five percent product markup. Place During the three-year product rollout, Shepherd s Solution will be marketed by building upon each region, as referenced in Table 1. Product sales will occur exclusively through NASCO s online and mail catalogs, along with TSC stores. Promotional and awareness initiatives will be driven via trade shows, local agricultural publications, sales representatives and the Shepherd s Solution website. Promotions Shepherd s Solution s sales campaign will be launched through NASCO and TSC. These retailers will have the opportunity to purchase Shepherd s Solution for placement in their stores. In-store promotional media will be made available for TSC and will primarily consist of flat display signs listing product benefits and scientific information. Both NASCO and TSC will also have access to marketing materials for publication in local newspapers and direct mail initiatives. Awareness initiatives will be focused towards producers at industry shows, publications and online mediums. Sheep producers will be given the opportunity to experience Shepherd s Solution firsthand with on-site demonstrations. Demonstration videos will be available for viewing and sales representatives will be on hand to answer questions and assist in helping customers reach the point of purchase. Although sales promotions will be primarily a push strategy through NASCO Farm & Ranch and Tractor Supply Company, Spartan Agri-Marketing anticipates a stronger pull component from sheep producers as they build product awareness and request Shepherd s Solution. Based on Shepherd s Solution s target market, Spartan Agri-Marketing has created a promotional campaign of direct marketing efforts toward retailers, producers and key influencers in the targeted regions as shown in Table 6. Table 6 Promotional Strategies Sheep Producers: Displays Shepherd s Solution display booths will be multi-purposed targeting producers. Displays will promote Shepherd s Solution and provide the opportunity for direct inquiries to Merial sales representatives. Advertisements Merial will enhance product awareness through strategic placement of at least two insertions per publication in Hobby Farms Magazine and The Banner Sheep Magazine, reaching at least 110,000 readers nationwide. Website Producers will be able to access up to date information on the Shepherd s Solution blog and website. Streaming video and promotional downloads also will be available. Newspapers Merial will provide web conferences for newspapers and local journals to create opportunities for feature stories highlighting Shepherd s Solution as an innovative solution for sheep shearers. Retailers Sales Calls existing Merial sales representatives will build professional relationships with retail suppliers of NASCO Farm & Ranch and Tractor Supply Company. They will create product awareness and provide scientific data on the benefits of Shepherd s Solution. Website Retailers will have access to information through a Shepherd s Solution retailers website. Exclusive to the website will be up-to-date information, sales strategies and scientific data designed with the retailer in mind. Key Influencers Veterinarians and Extension Agents Web Conferences Merial will host web conferences to introduce Shepherd s Solution. Additional conferences will be hosted periodically for product updates and latest information. Sales Calls Existing Merial sales representatives will build professional relationships with veterinary professionals, clinic technicians and extension agents to create product awareness. They will be provided with scientific data regarding the benefits of Shepherd s Solution. Table 7 shows a detailed promotional budget. 4

5 Table 7 Promotional Budget Tactic Year 1 ($) Year 2 ($) Year 3 ($) Public Website $6,232 $2,556 $2,750 Retailers Website $1,145 $1,532 $1,750 Show Sponsorships and Vendors $5,225 $10,750 $14,000 Marketing Media $24,750 $46,237 $65,875 Magazine Advertisements $30,748 $45,936 $64,342 Totals $68,100 $107,011 $148,717 FINANCIAL ANALYSIS Cost Benefits The budget reflects all outgoing and incoming cash flow as outlined in Table 8. Table 8 Operating Statement Year 1 ($) Year 2 ($) Year 3 ($) Gross Sales (Table 5) 884,335 1,314,410 1,829,778 Cost of Goods Sold (Blanket: $5.25 and Solution with 552, ,220 1,093,065 bottle: $1.00) Operating Expense (labor, utilities, storage, shipping) 44,217 93, ,364 Sales Representative (supplemental salary and expenses 40,000 80, ,000 for surveys) Gross Margin 247, , ,350 Promotional Expenses (Table 7) 68, , ,717 Net Income Before Taxes 179, , ,633 Taxes (21%) 37,655 53,108 59,983 Profit or Loss 141, , ,650 Return on Investment 24% 23% 18% MONITORING & MEASUREMENT As the consumer knowledge of Shepherd s Solution expands, Merial intends to increase sales and improve market share. For this to happen, market research will occur to evaluate the benefits of broadening the geographical base of the product, along with the possibility of expanding into alternative animal species, such as llamas and alpacas. Table 9 outlines how Merial will measure marketing goals while Table 10 describes contingency strategies. Table 9 Monitoring and Measurement of Marketing Goals Return On Investment: Analyze income statements quarterly to evaluate profitability Look for inefficiencies in production and distribution Awareness and Public Relations: Create informational brochures and customer surveys to mail to target market Promote website in farming magazines and include contact information Sales and Penetration: Check product orders during the peak-season and the off-season to discover areas of strong and weak sales Check with carriers to monitor product turnover Review market share Customer Satisfaction: Talk with store managers and NASCO representatives to discover customer acceptability Monitor questions and comments through the company website promoted in advertisements and on the product label Research customer evaluations Table 10 Contingency Plan Key Target Goal Higher Than Expected Lower Than Expected Return on Investment Research and expand target market Decrease production, increase promotional tactics and education Sales Increase production, geographic base Increase awareness and education, along with visibility and alternative species Awareness Re-evaluate promotional expenses Increase advertisements in trade magazines and circulation of informational tools Satisfaction Improve weaknesses by communicating information to manufacturers, while working through retailers to improve relationship 5

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