Nestlé Refrigerated Foods (A) :contadina Pasta & Pizza: Case Discussion
Nestlé Refrigerated Foods (A) :contadina Pasta & Pizza: Case Discussion
Nestlé Refrigerated Foods (A) :contadina Pasta & Pizza: Case Discussion
CASE DISCUSSION
Synopsis
Stephen Cunliffe, the president of the Nestlé Refrigerated Food Company (NRFC), is pondering
the introduction of a refrigerated pizza to the refrigerated food category. In the late 1980s,
NRFC had successfully pioneered the category with the introduction of refrigerated pasta and
sauces to the US market. The product was an immediate success, with sales of over $30 million
in its first year. Sales grew to $100 million by 1990, even with the entry of a strong competitive
product by Nestlé’s international rival, Kraft. At the time of the case, however, the pasta market
is showing signs of saturation and NRFC must decide whether to launch its newly developed
pizza product.
The case illustrates the new product development process followed by Nestlé for its
successful pasta introduction. It is an introduction to simulated test markets, and provides a
detailed explanation of the BASES model used in Nestlé’s new product forecasting. It outlines
the pizza business opportunity and questions whether NRFC should proceed with a product
launch. The case provides detailed market research data, permitting students to make inferences
regarding consumer demand.
Comparison of Pasta versus Pizza Market Research
• Process Comparison
Idea Generation/Idea Screening: The case does not provide any specific detail in
terms of how either the pasta or the pizza opportunities arose. In both products,
however, industry sources such as Restaurants and Institutions are quoted that lead
one to believe that some analysis was conducted.
• Concept Testing: NRFC conducted at least one extensive concept test for both products.
For pizza, two concept tests were conducted. The first test compared the pizza kit
configuration with an assembled pizza. Using a sample of 300 mall intercepts, the first
concept test was valuable in establishing market acceptance for the product and refining
the product’s form. The BASES II study comprised the second concept test and was
structured to include both before use and after use customer information about the
product. Additionally, the BASES II study segmented Contadina users from non-users to
get more precise information. By contrast, a single concept test was conducted for the
pasta product.
• Note: One can argue, however, that the pasta product did not need as extensive concept
testing because the “concept” of refrigerated pasta had already been established given the
success of Lambert’s Pasta & Cheeses. Moreover, although the pasta concept test did not
include customer feedback with after product use, it did include the product positioning
module (PASS) and the factor analysis.
Volume Estimation: Both products went through the same modeling
procedure.
There were considerable unknowns for both the pasta and pizza
products. Normative models were used for both products, when both
products were unknown to the market in a refrigerated format. Neither
product had reliable industry benchmarks for trial or market
acceptance. While BASES’s experience with dry pasta products
provided industry medians, “fresh,” refrigerated pasta was a very
different product. Similarly while pizza was a well-known product,
data on frozen pizza was of limited assistance when modeling future
refrigerated purchase and use.
Test Market: NRFC had a natural test market for its successful pasta product (ie.,
New York). The test market decision is pending for pizza.
Summarizing the above, one can argue that NRFC ignored much of Nestlé’s new
product development process, only conducting limited concept testing and
volume estimates. They may characterize NRFC as “lucky” with the pasta
product. Nestlé’s policy is to conduct a test market where there is high risk due
to substantial investment costs or product uncertainty. Some students realize that
Lambert’s experience was an effective product development and test market
for the product. It had refined its product, found its market niche, tested it, and
priced it through trial and error in the marketplace. All NRFC needed to establish
was an effective positioning and brand for the product given its national
distribution goals.
• Exhibit 4 versus Exhibit 13/14: Neither pizza concept exhibits as
strong a purchase intent as its pasta counterpart. Pizza's top two box
(those favorable to the concept) in this sample of males and females
was only 58% for the pizza kit and 52% for the assembled option (See
page 13). By contrast, Exhibit 4 shows the significantly higher
purchase intent for pasta. Looking at Exhibit 4, the pasta’s top two
box was 75% and the industry median was 61%. However, the later
BASES data (in Exhibit 21) conducted only among women is
stronger for the pizza and toppings option at 76% overall.
• See that the attribute ratings of those favorable to
either the kit or the assembled pizza more closely
resemble the delivered/takeout heavy users rather
than the frozen pizza users (Exhibit 14), providing
further support that this product will be purchased by
the delivered/takeout market.
• Exhibit 6: For those favorable, the pasta product was liked for its
product characteristics, i.e., its general variety, filled variety, its
product quality (packed fresh, freshness dated), and convenience
(quick, fast, saves time, easy to prepare). Those unfavorable tended to
like the product for the same reasons but not to the same degree (e.g.,
30% of favorables like the time saving attributes, but only 23% of the
unfavorables). Concerning dislikes, 74% of favorables disliked
nothing, with 3% thinking the product was too expensive. Among
unfavorables, 23% thought the product too expensive and 24%
disliked nothing about the product.
• Exhibit 15: The majority of the pizza market is expected to
come from delivered/takeout (75%), frozen pizza (16%),
and fresh pizza (5%). Further, only 60 of the 115 favorable
to the concept said they would substitute Contadina.
• Exhibit 18: Although the Contadina product is targeted at
the delivered/takeout user, respondents claim they would
most often replace frozen pizza purchases (38%) rather than
home delivered (19%). This seems to contradict the findings
from Exhibit 15 above.
• Exhibit 6 and 19: Favorables to the pizza concept liked it for many of
the same reasons as the pasta product, specifically freshness and the
ability to “create their own pizza” (adding toppings, variety of toppings).
However, there is “more to dislike” about the pizza than pasta. Twenty-
one percent of “favorables” thought it was too expensive and only 49%
disliked nothing about the product. Price resistance is even strong among
unfavorables with 44% stating the product was too expensive and only
15% disliking nothing about the product. Overall concept uniqueness is
similar for both pasta and pizza.
• Exhibit 20: Emphasizes the product’s pricing and
positioning issues, specifically that respondents do not
believe that this product would taste as good as
delivered/takeout (7.3 overall, 7.9 favorables, 6.6
unfavorables); respondents do think it would taste better than
frozen (9.0 overall, 9.3 favorables, 8.1 unfavorables), and
respondents do not think the product is good value for the
money spent (6.8 overall, 7.4 favorables, 4.8 unfavorables).
• Exhibit 20: Emphasizes the product’s pricing and positioning issues,
specifically that respondents believe that this product would taste as
good as delivered/takeout (7.3 overall, 7.9 favorables, 5.5
unfavorables); respondents do think it would taste better than frozen
(9.0 overall, 9.3 favorables, 8.1 unfavorables), and respondents think
the product is good value for the money spent (6.8 overall, 7.4
favorables, 4.8 unfavorables).
• Exhibit 23: The price issue comes up again. Even among
“favorables,” the leading suggested improvement is to lower
price (23%), with 33% of unfavorables suggesting the price
be lowered. “Favorables” like the product convenience more
than its taste and seasonings. “Unfavorables” are once again
focused on price issues.
Exhibit 24: Highlights the pricing issue. Per the exhibit, NRFC expects its pizza to sell for about
$8.00 with toppings. Without toppings the pizza sold for $6.40. The data indicates:
• $6.32 is the price “favorables” typically pay.
• $6.75 is the price delivered/takeout users typically pay.
• $5.72 is the price “unfavorables” typically pay.
• $5.73 is the price frozen users typically pay.
• Contadina pizza favorables are likely delivered/takeout users, with unfavorables
resembling the frozen users. Additionally, at a $6.40 price point (without toppings) the
Contadina product is priced only marginally below the superior takeout/delivered product.
• For the pasta estimates, BASES forecasted at 27% repeat rate for a mediocre pasta product.
• The forecasted repeat rate is only 22% for the pizza product.
• Supporters of the rollout, however, may counter that the 22% repeat rate is a function of available substitutes
as opposed to real product quality.
Comparison of Pasta and Pizza Product Opportunities
On the surface, the pasta and pizza opportunities appear similar. However, further analysis reveals
significant differences in product positioning, distribution, sales, and brand equity.
• Product Positioning
While pasta and pizza are both “ethnic Italian food products,” we need to recognize that there are significant
differences in their familiarity and acceptance by the American consumer. Pasta (other than macaroni,
spaghetti, etc.) as a convenient main meal side dish was relatively unknown at the time of Contadina’s
introduction. Consumers either bought dry pasta and cooked both sauce and pasta, or went out to dine at a
restaurant. While fresh pasta was highly valued, high quality convenient pasta was not available through
common grocery outlets. Moreover, NRFC’s pasta product was already a proven success through Lambert’s
Pasta and Cheese. Therefore, when NRFC launched Contadina pasta and sauces, it captured a premium
position, the “gold” standard in refrigerated, gourmet, pasta.
By contrast, pizza was widely available. Most consumers either bought/consumed fresh pizza or frozen pizza
available in grocery stores. One can argue that pasta had few, readily available, convenient substitutes, and
subsequently Contadina pasta filled a legitimate market void. Alternatively, there were many sources of high
quality, convenient pizza, with delivered/takeout at the high end of the quality spectrum and frozen pizza at the
lower quality, emergency use end of the spectrum. Contadina pizza cannot “own” either quality or convenience,
the two key attributes that customers want from pizza. Therefore, while pasta filled a real need, refrigerated
pizza fills the “middle,” and may end up “stuck in the middle” as supported by the pizza market research.
Distribution
Cunliffe created an aggressive rep organization for the pasta product that arguably was more capable of
selling refrigerated food products. Given this expertise they should be able to secure even more shelf
space for the pizza product. Moreover, given finite shelf space, the introduction of pizza may prevent
other competitors from entering.
Branding
With pasta, NRFC capitalized on Nestlé USA’s existing Contadina brand which captured the Italian, home
cooking image. Customers accepted that pasta, especially tortellini, angel hair, etc., is part of the Italian
food segment. However given the acceptance of pizza into main stream eating habits as demonstrated by the
thousands of pizza outlets, it is important to question whether it is part of the same “ethnic food segment,”
or whether it is as American as apple pie, and therefore question whether this Italian ethnic brand extension
makes real sense.
An effective argument is based on the differences in the purchase occasions between pasta and pizza.
Pasta as supported by the research is a dining experience, either as a main meal or a side dish. The
experience is upscale ¾ “pasta and Chablis.” By contrast the pizza-eating occasion is generally
characterized as an emergency, fast-food occasion. The experience is more often “beer and pizza.”
Therefore, it also question the strength of the cross selling opportunities even though both products are
branded as “Contadina.” Again, Contadina’s pasta offerings are upscale (fettucini, alfredo sauce, etc.). The
proposed pizza offerings are more mundane ¾ pepperoni, vegetables, sausage instead of more upscale
toppings (eg. sun-dried tomatoes, feta cheese, etc.).
Competitive Positioning
• In favour
• The product launch generally cite two competitive positioning issues. Firstly, the significant first mover advantages
that accrued to Contadina pasta. Given its quick development cycle, NRFC was able to be first to market. When
Kraft entered with DiGiorno, Contadina was able to retain share and maintain price. Despite a strong competitive
threat, supported with heavy consumer couponing and a 90-day shelf life, Contadina pasta achieved its goal of
maintaining at 2:1 market share ratio in its key national markets. Secondly, those in favor of the launch argue
that Kraft has test marketed a refrigerated pizza product and is ready to launch. Should NRFC fail to launch pizza,
this time NRFC will be the “also-ran” in the category.
• Against an immediate launch may argue that NRFC should go to test market to investigate price resistance, to
understand potential penetration among users/non-users of pasta, and/or to manage Kraft’s potential entry into the
category. They minimize the threat of Kraft’s entry because Kraft earlier tested both their pasta and pizza products
concurrently. If pizza was a clear winner, Kraft would have entered the refrigerated food market with pizza, not
pasta. Moreover, if Kraft were to launch nationally during NRFC’s test market, then Kraft would incur the
pioneering costs and establish the category. NRFC will not capture first mover gains, but similar to DiGiorno,
grow the category and realize a profit. If the Kraft product launch failed, and the test market was questionable,
then NRFC has only invested in the test market (If NRFC can avoid factory investment).
•
Should NRFC Launch Contadina Refrigerated Pizza?