In 2019, L&N's product mix included two lines: traditional beef jerky and meat strips. L&N's jerky was made from whole muscle beef and came in four flavors: regular, teriyaki, barbeque, and habanero. Strips were introduced as an extension to L&N's product mix in 2013. They were made from beef, turkey, and pork using restructured muscle. Strips were offered in three unique flavor combinations: chipotle-lime turkey, apple-walnut pork, and dark chocolate, and blackberry beef. In 2016, L&N's chipotle-lime turkey strip won a national award from the American Cured Meat Championships. In 2018, jerky accounted for 42% of L&N's revenue, strips for 58%. Since 2015, L&N wholesale prices for jerky and strips were $3 and $1, respectively. In 2017, L&N reduced its jerky package size from 2.2 to 2.0 ounces and its strip package size from 0.8 to 0.7 ounces to address rising material costs while maintaining prices. In 2019, jerky was sold in resealable pouches for $5.49 MSRP. Retailers frequently discounted jerky; the average retail price in 2019 was $4.99. Strips were sold in individual, vacuum-sealed packages for $1.99 MSRP. They offered fewer price discounts on strips; the average retail price in 2019 was $1.89. Although products were competitively priced against premium national brands, L&N had one of the highest price-per-ounce MSRP. Positioning and Customers In 2016, Ayers had convinced Ryan to reposition L&N's products. L&N situated itself as an artisanal heritage brand that made hand-crafted, better-for-you products, and it began promoting its products as high-quality, protein-rich, and all-natural. Its packaging emphasized grams of protein per serving, all-natural ingredients, and minimal processing. L&N's products were labeled as certified paleo, gluten-free, and grain-free. Its practices for meat sourcing practices allowed L&N to be the only national meat jerky producer permitted to label its products using three AGW (A Greener World) certifications: Certified Grassfed, Certified Non-GMO, and Animal Welfare Approved. Rather than using a Wild West theme to differentiate its products, L&N used bold graphics and vibrant colors. The primary colors of its meat steak strip packaging varied by flavor: apple red (apple- walnut pork); lime green (chipotle-lime turkey); and blackberry purple (dark chocolate and blackberry beef). In addition, L&N differentiated itself from other artisanal jerky brands-which usually used sophisticated, artistically rendered images-by using cartoon-rendered food icons. Branding choices positioned L&N products as offbeat and quirky. The market study that Ayers had commissioned showed that L&N had strong brand awareness among meat snack consumers (75% aided recall), which was comparable to competitors such as KRAVE, EPIC, Country Archer, and Chef's Cut. According to the study, 12% of consumers surveyed had purchased an L&N product at least once in the previous three months; 40% of those surveyed had purchased any meat snack during that period. Consumers who had purchased L&N's products tended to be college-educated, working adults with household incomes of $75,000-$99,999. Compared to the average meat snack consumer, L&N customers were more likely to look at ingredients before buying snack foods (42% vs. 28 %) and less likely to identify low price as important to their purchase decision (16% vs. 39 %). The study also suggested that L&N's customers were far more likely to look for labels like L&N's AGW certifications than the average jerky buyer was (39% vs. 27%). Exhibit 3 compares L&N customers to all customers who purchased meat snacks. As a subsidiary of KB Holdings, L&N enjoyed strong distribution. In the United States, 70% of supermarket chains, 44% of convenience stores, and 36% of independent grocers stocked at least one L&N product. KB Holdings managed reordering, restocking, and delivery for all retail accounts in exchange for 10% of L&N's revenue; typical grocery wholesaler distribution fees ran from 15% to 30%. L&N also considered its relationship with KB Holdings to be a major competitive advantage. Unlike independent, wholesale distributors that often represented several jerky brands, KB Holdings had a vested interest in L&N's long-term revenue and profit growth. L&N's jerky pouches were offered near other jerky products on hanger shelves. Strips were sold from L&N display boxes located near nutrition bars. Independent of KB Holdings, L&N managed its own advertising, consumer promotions, and trade promotions through a three-person sales and marketing team, which had developed successful point-of-purchase displays in convenience stores that increased impulse purchases. L&N's annual survey of distributors indicated strong satisfaction with product quality (95%), inventory turn (91%), relationship (88%), and trade promotions (81%). L&N's Integrated Marketing Communications Ayers arrived at Ham's office and sat down. She gave him a copy of her notes and budget and began to explain. "As you know, we conceptualize L&N's marketing communications strategy using three components: (1) strategic intent, including the communication goals and target audience; (2) strategic execution, including message/story and media; and (3) strategic impact, including budget and effectiveness metrics. In 2019, our goal was to build a preference for our products and increase the likelihood of purchase. We targeted mainly existing customers, but we also targeted consumers who expressed interest in jerky or meat snacks online. We shared our message primarily through paid and owned online media. We also used consumer and trade promotions to build demand." L&N's paid media included social media ads, search ads, and image-rich display ads. Its owned media included a mobile-friendly website and company-sponsored social media content that used a combination of humor antl emotional (feel-good) appeals. For example, the L&N website shared information about sustainability practices as well as funny animal pictures and videos. L&N had recently finished negotiations with a company to outsource a portion of paid and owned media. The company specialized in targeting and delivering marketing content using marketing automation, artificial intelligence, and machine learning. By outsourcing, L&N estimated it would reduce its 2020 paid and owned media budget from $700,000 to $500,000. L&N invested heavily in consumer promotions, which were pull marketing communications intended to induce end users to purchase L&N's products at the point of sale. Consumer promotions also encouraged trial among new customers; L&N commonly used digital coupons (e.g., buy-one-get- one and cents-off) and instant savings stickers on packages. L&N also invested in social media contests in which participants earned money to be donated to a sustainable nonprofit organization. For example, L&N invited participants to share pictures of nature via social media. It then selected five entries as finalists and asked followers to vote for their favorite. L&N donated $50,000 to the preferred nonprofit of the winning photographer and $10,000 to the nonprofit of the runner-up. L&N alternated promotions monthly so that it offered consumer promotions during even months (February, April, June, August, October, and December). Ayers explained, "Consumer promotions will drive most of our revenue generation. We get a lot of positive feedback on social media when we offer promotions that consumers like. Our customers especially love to re-share contests and promotions that benefit social and environmental causes they support. Our loyal customers are one of our greatest assets." L&N also invested in trade promotions, which were push marketing communications designed to motivate retailers to sell products to consumers and to maintain distributor relationships and loyalty. L&N's trade promotions included discounts off invoice prices, free cases with minimum orders, shelf talkers (i.e., signs attached to a shelf that were designed to attract a customer's attention, and performance discount incentives for verifiable merchandising/advertising support). L&N regarded this effort as key for getting retailers to carry L&N products; it estimated that half its accounts would discontinue carrying L&N's products without them. L&N alternated promotions monthly; it offered trade promotions during odd months (January, March, May, July, September, and November). Ayers explained: "I am not sure about the effectiveness of our trade promotions. Our trade partners tell us that our timing, duration, and frequency of trade promotions are very effective and that our shelf talkers and vibrant packaging are distinct visuals. In addition, thanks to KB holdings, we have fewer out-of-stock issues and higher inventory turn-over rates than our competitors do. However, although our goal is for retailers to pass along discounts to stimulate demand rather than build their own inventory, we cannot control how our partners manage their inventory or stock our products." Ham told Ayers. "I just finished these estimates. Using historical sales records, expected organic growth, and the 2018 and 2019 monthly marketing expenses (Exhibit 4), I estimated incremental revenue for trade and consumer promotions (Exhibit 5). I think this information will help you estimate ROMI for promotions for the 2020 budget, which includes $700,000 for owned and paid media, $400,000 for consumer promotions, and $300,000 for trade promotions. Unfortunately, I do not have the data to calculate incremental revenue for media spending." Ayers thanked Ham for the information. Decision As Ayers walked back to her office, she reflected on Ryan's request during their earlier meeting: I want you to estimate L&N forecasted 2020 operating profit (Exhibit 1) using three options: reduce L&N's total promotion budget by 30%, increase L&N's consumer promotions by $200,000, or increase L&N's trade promotions by $200,000. Because we can reduce our paid and owned media budget by 30%, the first option explores whether we can achieve our profit goal by reducing promotion spending. Options two and three, increasing consumer promotions and increasing trade promotions, respectively, would reallocate the savings from the paid and owned media budget to promotions. I want to invest all the savings into one category, to maintain existing programs while increasing investments in new programs. I do not want to invest more money into both consumer and trade promotions because it will split the focus of your team. Ayers replied, "Beyond these calculations, we must consider both strategic and financial issues. L&N must differentiate our products from those of our competitors. Our positioning and emphasis on better-for-you ingredients have been effective, but the competitive landscape is changing." I Exhibit 1: L&N Consolidated Income Statement Revenue 2018 ($) $9,585,000 2019 (expected) ($) 2020 (forecasted) ($) $10,064,000 $10,480,000 Variable Costs Raw materials $4,715,820 $5,253,538 $5,470,560 Production $747,630 $785,012 $817,440 Distribution $958,500, $1,006,425 $1,048,000 Gross profit $3,163,050 $3,019,025 $3,144,000 Fixed Costs Wages $843,480 $896,000 $920,000 Marketing $1,293,975 $1,358,000 $1,400,000 G&A $277,965 $272,000 $280,000 Operating profit $747,630 $493,025 $544,000 4. Evaluate Ryan's proposed options. What are the financial and strategic implications of each? Which do you believe Ayers should recommend? 5. Ryan's proposed options have a near-term, tactical orientation. Looking beyond 2020, what recommendations do you have for L&N to support longer-term, sustainable growth through 2025? 6. Share any additional insights and recommendations