Hoppy Peanut Butter
Case Facts
 Hoppy Peanut Butter is one among five major players in Southern Florida
 There are six million households in the market
 Consumers make 1.2 trips/week to the grocery store
 The marketing department of Hoppy Peanut Butter has identified four possible strategies for increasing profitability in southern Florida sales region including
 Increasing advertising
 Either offering discount coupons for the product alone
 Offering discount coupons for the product when purchased in conjunction with jelly or jam
 Market research firm Informatrix indicates that consumer purchases of peanut butter and jelly can be modeled as a Markov process
 Each visit consumers made to a grocery store were classified into one of four states:
 Purchase neither peanut butter nor jelly;
 Purchase peanut butter but not jelly;
 Purchase jelly but not peanut butter;
 Purchase both peanut butter and jelly.
 Informatrix estimates the transition matrix for consumers as follows:

Next Visit Neither Butter nor Jelly Butter but not Jelly Jelly but not Butter Both Butter and Jelly
Current Visit Neither Butter nor Jelly 0.42 0.21 0.17 0.2 Butter but not Jelly 0.36 0.2 0.28 0.16 Jelly but not Butter 0.39 0.23 0.15 0.23 Both Butter and Jelly 0.51 0.13 0.12 0.24

 Consumer choice of peanut butter brand in southern Florida can be modeled as a Markov process, with the following transition matrix: Next Peanut Butter Purchase Hoppy Captain Hook Rif Reede's Laura's Others
Current Hoppy 41.00% 16.00% 17.00% 12.00% 8.00% 6.00% Captain Hook 25.00% 31.00% 19.00% 13.00% 7.00% 5.00% Rif 26.00% 17.00% 35.00% 10.00% 7.00% 5.00% Reede's 20.00% 15.00% 13.00% 39.00% 6.00% 7.00% Laura's 12.00% 13.00% 11.00% 10.00% 48.00% 6.00% Others 23.00% 19.00% 16.00% 12.00% 11.00% 19.00%
 Average wholesale price is $1.74 per unit for peanut butter
 Gross profit 9.24 % of sales i.e. 0.0924*1.74 = $ 0.160776 per unit
Scenario 1
“Hoppy increases advertising and offers discount coupons for peanut butter alone”
 Profit margin falls 9.24% to 8.38%.
 Transition probability matrix for consumer visit and consumer choice were found to be as below Next Visit Neither Butter nor Jelly Butter but not Jelly Jelly but not Butter Both Butter and Jelly
Current Visit Neither Butter nor Jelly 0.41 0.21 0.18 0.2 Butter but not Jelly 0.35 0.21 0.28 0.16 Jelly but not Butter 0.39 0.24 0.14 0.23 Both Butter and Jelly 0.5 0.12 0.13 0.25

Next Peanut Butter Purchase Hoppy Captain Hook Rif Reede's Laura's Others
Current Hoppy 43.00% 15.00% 16.00% 12.00% 8.00% 6.00% Captain Hook 26.00% 33.00% 18.00% 12.00% 6.00% 5.00% Rif 29.00% 16.00% 33.00% 10.00% 7.00% 5.00% Reede's 23.00% 15.00% 13.00% 36.00% 6.00% 7.00% Laura's 16.00% 12.00% 11.00% 9.00% 46.00% 6.00% Others 21.00% 19.00% 17.00% 13.00% 11.00% 19.00%

Scenario 2
Hoppy increases advertising and offers discount coupons for the peanut butter in conjunction with jelly
 Profit margin falls 9.24% to 8.45%.
 Transition probability matrix for consumer visit and consumer choice were found to be as below Next Visit Neither Butter nor Jelly Butter but not Jelly Jelly but not Butter Both Butter and Jelly
Current Visit Neither Butter nor Jelly 0.39 0.2 0.16 0.25 Butter but not Jelly 0.36 0.21 0.24 0.19 Jelly but not Butter 0.4 0.21 0.13 0.26 Both Butter and Jelly 0.52 0.11 0.12 0.25

Next Peanut Butter Purchase Hoppy Captain Hook Rif Reede's Laura's Others
Current Hoppy 42.00% 15.00% 16.00% 12.00% 9.00% 6.00% Captain Hook 24.00% 33.00% 18.00% 13.00% 7.00% 5.00% Rif 28.00% 17.00% 33.00% 10.00% 7.00% 5.00% Reede's 24.00% 14.00% 13.00% 36.00% 6.00% 7.00% Laura's 14.00% 12.00% 12.00% 10.00% 46.00% 6.00% Others 23.00% 18.00% 16.00% 13.00% 11.00% 19.00%

Analysis
Normal scenario
 Steady State Probabilities for Butter Purchase were found to be as below Neither Butter nor Jelly Butter but not Jelly Jelly but not Butter Both Butter and Jelly
Long Run Behavior 42.15% 19.51% 17.76% 20.58%

Long Run Hoppy Captain Hook Rif Reede's Laura's Others
Market Share 26.96% 18.66% 19.42% 15.82% 12.50% 6.64%

Probability of Buying Peanut Butter per Visit = 19.51+20.58 = 40.09%
Assumption: No of cases bought with every purchase 1
Weekly Peanut Butter purchase by 1 customer = 1.2*0.4009*1= 0.4811
Probability of Buying Hoppy's Peanut Butter = 26.96%
Weekly Peanut Butter purchase from Hoppy's = 0.2696*0.4811 = 0.1297
Average Price of each case = $1.74
Gross Margin per case = $0.1608
Gross Profit Per Week per customer for Hoppy's = 0.1608*0.1297 = $0.0209
Total Number of Customers in area = 6,000,000
Gross Profit Per Week for Hoppy's = 6,000,000*$0.0209 = $125,105.31
Scenario 1
“Hoppy increases advertising and offers discount coupons for peanut butter alone”
 Steady State Probabilities for Butter Purchase were found to be as below Neither Butter nor Jelly Butter but not Jelly Jelly but not Butter Both Butter and Jelly
Long Run Consumer Profile 41.33% 19.67% 18.20% 20.80%

Hoppy Captain Hook Rif Reede's Laura's Others
Market Share 29.63% 18.41% 18.55% 14.92% 11.85% 6.64%

Probability of Buying Peanut Butter Per Visit = 19.67 + 20.80 = 40.47%
Assumption: No of cases bought with every purchase 1
Weekly Peanut Butter purchase = 1.2*.4047 = 0.4857
Probability of Buying Hoppy's Peanut Butter = 29.63%
Weekly Peanut Butter purchase from Hoppy's = 0.4857*.2963 = 0.1439
Average Price of each case = $1.74
Gross Margin per case = 0.0838 *1.74 = $0.1458
Gross Profit per Week per customer for Hoppy's = $0.1458*0.1439 = $0.0210
Number of Customers 6,000,000
Gross Profit Per Week for Hoppy's = 6,000,000*$0.0210 = $125,892.64
Scenario 2
Hoppy increases advertising and offers discount coupons for the peanut butter in conjunction with jelly
 Steady State Probabilities for Butter Purchase were found to be as below Neither Butter nor Jelly Butter but not Jelly Jelly but not Butter Both Butter and Jelly
Long run consumer profile 41.74% 18.18% 16.01% 24.07%

Hoppy Captain Hook Rif Reede's Laura's Others
Market Share 28.56% 18.34% 18.56% 15.30% 12.60% 6.65%

Probability of Buying Peanut Butter per Visit = 18.18+24.07 = 42.25%
Assumption: No of cases bought with every purchase = 1
Weekly Peanut Butter purchase =1.2*42.25*1 = 0.5069
Probability of Buying Hoppy's Peanut Butter = 28.56%
Weekly Peanut Butter purchase from Hoppy's = 0.5069*.2856 = 0.1448
Average Price of each case $1.74
Gross Margin per case =0.0845*1.74 = $0.1470
Gross Profit per Week per customer for Hoppy's =$0.1470*0.1448 = $0.0213
Number of Customers = 6,000,000
Gross Profit Per Week for Hoppy's = $127,707.99 Conclusions
Based upon the above analysis, we can easily see that in case of scenario 2, Hoppy’s peanut butter is able to earn more profit as compared to normal scenario or with scenario 1.
In scenario 2 also we can consider 2 sub scenarios for analysis sake
a) Only the margin on butter sold with jelly decreases
b) Margin on all the butter sold is decreased Profitability Analysis Gross profit/week Gross profit/year Advantage from Strategy
Current Scenario $125,105.31 $6,505,476.33 -
Ad & Disc butter $125,892.64 $6,546,417.12 $40,940.79
Ad & Disc butter + Jel $127,707.99 $6,640,815.26 $135,338.93
Ad & Disc butter + Jel-2 $132,862.90 $6,908,870.81 $362,453.69

It can be clearly seen in strategy 2 analysis of both the scenarios give a better profitability or increase in profitability. So, Hoppy’s peanut butter should use the strategy 2 i.e Hoppy increases advertising and offers discount coupons for the peanut butter in conjunction with jelly or jam.