Cerelae Sales Promotion

Breakfast cereal is a traditional breakfast food made from processed cereal

grains, primarily in Western societies. Warm cereals like porridge and grits
have the longest history. Ready-to-eat cold cereals, appearing around the late
19th century, are most often mixed with milk. In later years breakfast cereals
were fortified with minerals and vitamins. 
Packaged breakfast cereals were considerably more convenient than a product
that had to be cooked and as a result of this convenience (and clever marketing),
they became popular. Some companies promote their products for the health
benefits that come from eating oat-based and high-fibre cereals.
Between 1970 and 1998, the number of different types of breakfast cereals in
the U.S. more than doubled, from about 160 to around 340; the forecasted trend
for 2012 was 4,945 different types. In this highly competitive market, breakfast
cereal companies have developed an ever-increasing number of flavours.
Although many plain wheat, oat and corn- based cereals exist, other varieties
are highly sweetened, while some brands include nuts and freeze-dried fruit as a
sweet element. Many are marketed towards children, feature a cartoon mascot,
and may contain a toy or prize. The breakfast cereal industry has gross profit
margins of 40–45%, 90% penetration in some markets, and steady and
continued growth throughout its history.
Over 2016 to 2017, Americans purchased 3.1 billion boxes of cereal, mostly
as ready to eat cold cereal. In a $9.8 billion cereal market, cold cereal purchases
were 88% of the total (12% for hot cereals). Kellog’s and General Mills each
had 30% of the market share for cold cereals. Other companies with significant
presence and market shares are Post Holdings and Quaker Foods.

XYZ company has leading brands in the breakfast cereal category.

The file cerelae.xls has monthly data for years on 2014-2017 on:
a. Sales volume in thousand (18oz) packages
b. Spending on consumer promotions (number of redeemed
$1 coupons in a month)
c. Spending on trade promotions (monthly $ amount spent on co-op
advertising + display and slotting fees)

In order to reinvigorate growth in a stagnant and declining category due to

reduced consumption of sugary foods, the company has been running consumer
and trade promotions over the past few years. Their brand Cerelae makes $2.20
gross margin per 18 ounce package.
The company wants to assess the impact of promotion on sales volume.
Questions:
1. Plot a time series graph of the sales of Cerelae brand and identify the
trend and seasonality. Is the sales increasing, stagnant or declining?
2. Plot a time series graph of consumer promotion and trade promotion and
try to visually determine insights from the plot.
3. Using multiple regression method, examine the relationship of sales and
consumer and trade promotion. Graphically plot the actual sales and
forecasted sales. Interpret the model output for accuracy.
4. Is there a carryover effect of consumer and trade promotion on
subsequent time periods?
5. Introducing dummy variables for seasonality, use multiple regression
method to examine the relationship of sales, consumer and trade
promotion, lag effects, and month Trend. Graphically plot the actual sales
and forecasted sales. Interpret the model output for accuracy.
6. Determine the ROI or the lift in sales obtained from running $1 coupon
promotion.
7. The company at a point in time will be running any one of the following
consumer promotions
a) Coupon
b) Price Off
c) Bundle
d) Extra 15%
e) BOGO (Buy one Get one)
How will you determine that a particular type of promotion is effective?

Sales promotions are short term inducements designed to have a direct impact
on the buying behaviour of end-users and trade

Consumer Directed Promotions

1. Samples: Offer of a free amount of a product or service delivered door

to door, sent in the mail, picked up in a store, attached to another
product, or featured in an advertising offer
2. Coupons: Certificates entitling the bearer to a stated saving on the
purchase of a specific product: mailed, enclosed in other products or
attached to them, or inserted in magazine and newspaper ads
3. Cash refund offers: Provide a price reduction after purchase rather
then at the retail Shop: consumer sends a specified “proof of
purchase” to the manufacturer who refunds part of the purchase price
by mail.
4. Price offs: Offers to consumers of savings off the regular price of a
product, flagged on the label or package.
5. Premiums: Merchandise offered at a relatively low cost or free as an
incentive to purchase a particular product. A with pack premium
accompanies the product inside or on the package. A free-in-the-mail
premium is mailed to consumer who sends in a proof of purchase,
such as a box top or UPC code.
6. Prizes: Prizes are offers of the chance to win cash, trips, or
merchandise as a result of purchasing something. A contest calls for
consumers to submit an entry to be examined by a panel of judges
who will select the best entries. A sweepstake asks consumers to
submit their names in a drawing. A game presents consumer with
something every time they buy - bingo numbers, missing letters which
might help them win a prize.
7. Patronage rewards: Values in cash or in other forms that is
proportional to patronage of a certain vendor or group of vendors.
8. Frequency Programs: Programs providing rewards related to the
consumer’s frequency and intensity in purchasing the company’s
products or services.
9. Free trials: Inviting prospective purchasers to try the product without
cost in the hope that they will buy.
10.Tie-in promotions: Two or more brands or companies team up on
coupons, refunds, and contests to increase pulling power. Undertaken
jointly by companies benefitting one another
11.Product Warranties: Explicit or implicit promises by sellers that the
product will perform as specified or that the seller will fix it or refund
the customer’s money during a specified period.
12.Complimentary Products: CTV brands tying up with DTH companies
by offering connections with limited subscriptions during the ICC
2011 World cup. (Complimentary)Mobile Devices Co’s tying up with
wireless services Co’s to offer free talktime/downloads and vice versa.
(Complimentary)
13.Croon Promotions: Using one brand to advertise another non
competing brand.
14.Point of Purchase: Displays and Demonstrations: POP displays and
demonstrations take place at the point-of-purchase or sales.
15.Exchange Offers
16.Zero marginal cost promotions: Re 1/- tickets in Airlines, Multiplexes
and Resorts. Microsoft Office : Every 10th or 100th buyer gets a free
copy.
17.Meeting with Celebrities
18.Create an event
19.Price Protection
20.Buyback Guarantee
Trade Directed Promotions

1. Price offs: A straight discount off the list price on each case purchased
during a stated time period. To be offered by credit note if staggered
purchases by the trade.
2. Allowances: An amount offered in return for the retailer’s agreeing to
feature the manufacturer’s products in some way. An advertising
allowance compensates than for carrying a special product display.
3. Free goods: Most commonly used tool as the perceived value is higher
for the trade, whereas for the manufacturer, it is cost price. Offers of
Extra cases of merchandise to intermediaries who buy a certain quantity
or who feature a certain flavour or size.
4. Sales contests: A sales contest aims at inducing the sales force or dealers
to increase their sales results over a stated period, with prizes (money
trips, gifts, or points) going to those who succeed.
5. Gifts: Prizes or Gifts like Appliances and Electronics, office equipment,
delivery vans, foreign tours and Gold. The foreign tours should not be
encashed as the goods will get discounted in the market, triggering a
similar offer by other channel partners, leading to failure of the
promotion.
6. Trade shows: Industry associations organize annual trade shows and
conventions. Business marketers may spend as much as 35 percent of
their annual promotion budget on trade shows. Over 5,600 trade shows
take place every year, drawing approximately 80 million attendees.
7. Specialty advertising: Specialty advertising consists of useful, low-cost
items bearing the company’s name and address, and sometimes
advertising message that salespeople give to prospects and customers.
Common items are ballpoint pens, calendars, key chains, flashlights, tote
bag, and memo pads