Carolina Lunker Sauce
Russ Cobb was excited. It was July 16, 2004, the third and last day of the annual ICAST (International Convention of Allied Sportfishing Trades) convention, the major trade show in the sport fishing industry, and he had just received the first order for his new product, Carolina Lunker Sauce, a fishing attractant. Russ spied his brother Matt across the convention center, and ran over to him. “Hey, Matt,” he exclaimed. “I’ve got terrific news! Cabela’s is going to carry Lunker Sauce!” Cabela’s was the nation’s largest direct marketer and a leading specialty retailer of hunting, fishing, camping, and related outdoor merchandise. Matt gave Russ a high five. This was big news. Russ continued, “The buyer said that our product should be a great seller. The only catch is that he said our pricing was way too high. When I agreed to bring it down to $7.99, he signed on. We’re in business!” Matt paused. Bringing down the pricing was a major concession; he wondered if it was a smart move. At the same time, the Cobb family had agreed that if they did not have a meaningful order by the end of the ICAST show, they would shut down their fledgling company. Matt sighed, “Russ, this is great news. But I think we have to really analyze the pricing move. We don’t want to create a long-term problem just to get some business. I’m not sure cutting the price makes strategic or financial sense.”
The Freshwater Fishing Industry
Fishing was a popular activity in the United States. In 2001 more than 28 million people went freshwater fishing, about 13 percent of the population. While many people went fishing in a given year, most did so infrequently. Indeed, almost 57 percent of anglers fished just a few times a year. About 40 percent of anglers were serious anglers, who fished more than fifteen times a year on a recreational basis (see Exhibit 1). Less than 4 percent of anglers participated in fishing tournaments and were considered competitive anglers.
People went fishing for a variety of reasons. Casual anglers usually went fishing while on vacation. For them, fishing was simply a relaxing hobby. Serious and competitive anglers fished for their personal enjoyment and sometimes for money. Fishing tournaments served as a secondary source of income for competitive anglers, and sometimes a primary source of income. Payouts for major bass fishing tournaments reached $500,000 for first place. Though only a few anglers competed at this level, many participated in the numerous local lake tournaments with cash prizes exceeding $1,000. This represented substantial earnings for a competitive angler; the average annual household income for serious and competitive anglers was $50,000. Fishing was an art. Catching a fish depended on finding the right location and using the right bait and technique. For casual anglers, the process was highly variable; some days they caught many fish, other days they caught few. Serious and competitive anglers were far more consistent and sophisticated. They used advanced technology to improve the odds, and they had a deep knowledge of fish and fishing. Still, even for the best anglers, success in fishing depended on both skill and luck. Fish struck mainly out of hunger and reaction. They fed by ambushing their prey and were most active for a few hours in the morning and evening. They spent the rest of their day in a lethargic state feeding on opportunistic targets, such as dying shad or crayfish in open water. In this state, which lasted most of the day, fish were most difficult to catch. The U.S. freshwater fishing industry had retail sales of $21.3 billion in 2001, $10.2 billion for trips and $11.1 billion for equipment. Serious and competitive anglers spent most of the money, averaging $1,500 per person. While fishing remained popular, it was a declining industry. Increased competition for anglers’ time from other sports, video games, and the Internet had decreased the number of anglers making expenditures from 34.0 million in 1996 to 26.1 million in 2001. The declines had affected all segments of the industry relatively consistently; serious anglers were fishing less often and many casual anglers had stopped fishing altogether. Industry sales had declined along with the number of anglers; yearly sales per angler had declined from $1,112 in 1996 to $817 in 2001, reflecting the erosion. Fishing products were sold by a large number of retailers, but most sales were made by a small number of large players. Wal-Mart controlled approximately 60 percent of the market for fishing products. Most of the remaining market was controlled by mass merchandisers such as Bass Pro Shops, Cabela’s, Dick’s Sporting Goods, and Gander Mountain. Bass Pro Shops and Cabela’s also distributed catalogues. The thousands of independent tackle shops across the United States made up less than 15 percent of industry sales. Most retailers in the industry took a 40 percent margin. Though manufacturers could go directly to retailers, most used distributors. Distributors took a 20 percent margin. In addition, some fishing companies hired rep groups to ensure their products were properly stocked and promoted by retailers. Rep groups generally took a 15 percent margin. A small group of manufacturers produced the large majority of fishing products on the market. The largest player was Pure Fishing, a private company that owned dozens of brands and played in virtually every part of the industry. Other large players included Rapala and Strike
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King. Hundreds of small companies manufactured products, but none had any significant market share.
Fishing Attractants
Anglers used fishing attractants to catch more fish. Very simply, a fishing attractant made the bait smell and taste good to fish, increasing fish strikes. Anglers typically used artificial baits rather than live baits to catch game fish because it was sportier. Anglers were not allowed to use live bait in most fishing tournaments. Indeed, only about 15 percent of anglers used live bait, such as worms and minnows. Artificial baits tested the angler’s skill more than live bait, as fish were more likely to strike live bait. Artificial baits were available in hard baits, such as crank baits, or soft baits, such as worms. Some baits, such as spinner baits,1 combined both hard and soft elements (see Exhibit 2). Anglers used different types of bait based on a number of variables, such as water clarity, time of year, type of underwater structure, and weather conditions. All artificial baits had a common problem, namely that they relied only on visual appeal and vibration. Attractants made artificial baits more lifelike. Fish could locate prey by sight and vibration or by the amino acid scent the prey exuded. Though smell was not critically important to a fish that was actively feeding or acting out of reaction, it could entice lethargic fish to strike. The taste of attractants could also give an angler the necessary few seconds to feel the fish on the line and set the hook,2 since fish can strike, taste, and spit out the bait in less than a second. Attractants also masked pollutants introduced to the bait by the angler’s hands, such as suntan lotion and the human amino acid L-serine, which were repulsive to fish. There were two types of attractants in the market. Some were integrated by the manufacturer into soft plastic baits. The others were applied to the outside of baits by anglers when fishing. This was a messy process, as the angler sprayed or dipped the bait with the attractant before every couple of casts. Spilled attractants were a problem because they were smelly, hard to clean up, and stained boat carpet. For attractants incorporated into baits, Berkley Gulp Series was the leading player, with more than a 40 percent share. Berkley Gulp was owned by Pure Fishing. The externally applied fishing attractant industry was highly fragmented, with dozens of players. Many anglers, especially serious and competitive anglers, created their own attractants because they were unsatisfied by the products on the market. Some of the leading players in the industry produced external attractants. Brands included Baitmate, Yum, Berkley PowerBait, and B.A.N.G. (see Exhibit 3). Each brand generally came in several flavors, and each communicated the same benefit: catching more fish.
1 Spinner baits typically have two blades that serve to reflect light into the water and send out vibrations to attract fish. The skirt on the spinner bait is supposed to look like a bait fish. Seen from beneath, the spinner bait looks like a bait fish that is swimming. Crank baits are imitation fish that you reel in (or “crank”). They run at different depths, and can be sinking, suspending, or floating baits. 2 Setting the hook means yanking on the line so the hook penetrates the fleshy and bony structure of the fish’s mouth.
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External attractants were generally priced between $3.99 and $5.99 per bottle. Inexpensive attractants were sold for less, sometimes less than $2.99. The most expensive attractants were $7.99 and $8.99 (see Exhibit 4). Attractants generally had a one-year shelf life. While anglers generally agreed that attractants worked in theory, there was considerable dissatisfaction with the products. There was no scientific proof that use of an attractant would increase the number of fish an angler caught, and it was difficult to credit the results of any particular day on the lake to the presence or absence of a particular attractant. Anglers were particularly skeptical of attractants applied to the outside of baits. There was reason to be skeptical because all the products were oil-based. Since oil and water do not mix, the oil scent trail floated to the surface while the bait drifted in the water below. The separation between the bait and scent trail made the bait less lifelike, which did not help the angler catch fish. In addition, the attractants washed off after a few casts and the time and effort required by the frequent reapplications meant that anglers used them infrequently, if at all. About 28 percent of all anglers used external attractants, including 65 percent of serious and competitive anglers. Casual anglers did not generally use them. The external attractant market was about $5 million in annual retail sales.
Carolina Lunker Sauce
In 1998, after an unsatisfying day of fishing, Russ Cobb, his brother Matt, and their father decided to create a new and superior fishing attractant. As serious anglers, they saw the need for a better product in the market and set about creating one. After their initial attempts fell flat, they located an organic chemist to help create the product formulation. The team worked to develop a product using pure prey oils, which contained the necessary amino acids to attract fish. The Cobbs spent five years on the project. After numerous rounds of development, they finally had a product that accomplished their goal: producing a fishing attractant that increased fish strikes. The product was better than existing attractants in two ways. First, it incorporated a timed-release technology. This meant that the attractant stuck to the bait and worked for about an hour, so an angler did not need to apply it so often, saving time and money. Second, the product was water-soluble, so it created a more lifelike scent trail, trailing through the water rather than on top, leading to more fish strikes. The new attractant had other distinguishing features. It was nonstaining and therefore easy to clean up. It did not take paint off a boat. It was not greasy, so anglers could handle the bait when threading the hook. Finally, an advantage for the Cobbs was that it was protected by patents. In early 2003 the Cobbs sent their product to local bass fishing competitors for field testing. All gave the product great reviews and recommended launching it. With the product complete, the Cobbs set to work creating a business. They found a suitable bottle, spill-proof top, and foam applicator, and had a package (see Exhibit 5), logo, and packaging insert designed. They identified a co-packer to produce the product, selected the name Carolina Lunker Sauce, and trademarked the name. Finally, they created the company as a limited
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liability corporation. The initial line of products included four scents: Garlic, Menhaden, Crawfish, and Threadfin Shad. The Cobbs decided to price the product at a high price point, $14.95, reflecting all the work that had gone into development. The variable product cost for the initial production runs was $4.00. With greater volumes, the variable product cost would decrease somewhat. At $14.95, this gave the Cobbs a healthy 55.4 percent gross margin. The Cobbs elected not to hire a distributor or a rep group. After debating positioning, the Cobbs decided to focus the marketing message on the product’s performance—Carolina Lunker Sauce would help anglers generate more strikes because it was a unique and powerful formulation.
Launch Results
In early 2004 the company started selling the product at local fishing expositions and tackle shops. It was relatively difficult to get distribution because people were skeptical about the high price point. In particular, the Cobbs found it difficult to attract the interest of the bigger distributors in the industry. As a result, they failed to achieve anything meaningful in terms of sales. The Cobbs decided to invest in a booth at the primary industry trade show, the ICAST. This event was attended by hundreds of industry insiders, including all the key buyers in the industry. The Cobbs set up a booth at the show and began promoting the product aggressively. They actively looked for buyers and enthusiastically pitched the product idea. Unfortunately, while many people were interested in the product, few stepped up to place any orders. By the morning of the third day, the Cobbs were starting to question the wisdom of launching the product at all; they had already invested a lot of time and money in the product, and without any substantial sales, there seemed little reason to continue. When Cabela’s expressed interest in the product, everything changed. At least one leading retailer was prepared to carry the product. For Russ, the opportunity was a clear win; while Cabela’s would need a retail price of $7.99, the product would be in the market and selling. Matt, however, wondered if the price was too low.
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Exhibit 1: Segmentation of Anglers
Percent of U.S. Population Competitive anglers Serious anglers Casual anglers Total 0.5 5.3 7.6 13.4 Percent of Anglers 3.5 39.6 56.8 100.0 Percent of Trip and Equipment Spending 23.4 63.4 13.2 100.0
Source: 2001 National Survey of Fishing, Hunting and Wildlife-Associated Recreation.
Exhibit 2: Types of Baits
Hard Baits Crank Bait Soft Baits Worm Other Baits Spinner Bait
