Research Analysis Neptune Gourmet Seafood
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Neptune Gourmet Seafood Company faces a challenging situation. The company has excess inventory of fish and is not sure what needs to be done. Strategists within the firm have suggested involving price cuts and introduction of a second less expensive line of fish products.
Neptune gourmet seafood is a vertically integrated firm and fits the categories of an oligopoly. There are several firms already within the fishing industry. There are high barriers of entry to enter the fishing industry. Fixed costs include investments in fishing vessels, processing plants and salaries of its employees. Variable costs to the firm include delivery costs, cost of goods sold and costs of direct material, e.g. the cost of buying tin for packaging its cans. Shipping firms have these high barriers of entries to start a fishing firm.
Porter’s Five Competitive Forces
1) Threat of New Entrants – The easier it is for new companies to enter the industry, the more cutthroat competition there will be. For Neptune Gourmet Seafood, its industry possesses high barriers to entry with high fixed costs and government restrictions to fish by granting licenses to operate.
2) Power of Suppliers – This is how much pressure suppliers can place on a business. Neptune being vertically integrated utilizes its own supply division and logistics processes to facilitate delivery of its products.
3) Power of Buyers – This is how much pressure customers can place on a business. Neptune’s customers include restaurants and store customers. Neptune thus must focus on its large volume sales to restaurants and its low volume sales to store customers. Combining the power that exists between these two buyers results in a much larger impact that affect the company’s margins and volumes.
4) Availability of Substitutes – What is the likelihood that someone will switch to a competitive product or service? Substitutes within this industry are plentiful. However Neptune uses its pricing strategy to set itself apart and positioning itself as a firm that produces premium products for sale.
5) Competitive Rivalry – This describes the intensity of competition between existing firms in an industry. The number of firms that exist within the seafood firm is limited but not few. This industry has reached its maturity with very little potential growth available. Thus, Neptune Gourmet positions itself as a high end firm and prides itself on high quality and a superior product that sets it apart from its competitors.
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Given the predicament Neptune Gourmet Seafood is facing, it should focus on short term objectives and take a cautious approach. Neptune Gourmet Seafood has spent a lot of resources in branding, product placement, distribution, patenting its fish freezing process and becoming “The Best Seafood on the Water Planet.” Price cutting will endanger these achievements. Price discrimination for its restaurants and store customers can cause a loss in market share in either of its customers. Introduction of a second, more affordable line of product will cause internal cannibalization thus reducing sales. If Neptune Gourmet seafood focuses on long term goals such as increasing its capacity, it maybe gambling too much and may overestimate its current market. Having more inventory does not mean it will generate an equal return on investment.
After having analyzed this article, I propose implementing a customer appreciation sale. This sale will involve a promotion of its products, where customers can buy two (pounds, number of cans, crates etc.) and get one free. This will tempt its customers to buy two products and getting one free thus availing of the promotion. Sales will increase, the firm will not have to incur additional channel costs and inventory will not perish or lay on the table. Customers will feel they are the reason this sale has occurred and this is a way of giving back to them. This is a great opportunity as customers from other competitors may switch to Neptune, seeing a company that is customer centric.