Case Study

1/25/2012 Submitted to: Mr. Imran Hafiz

Giant Consumer Products: The Sales Promotion Resource Allocation Decision

Submitted by: Maria Iftikhar Javeria Taqriq Khaula Basalat Iram Iqbal Kundan Wasim Ali Husnain Rubbani

1 temporary price reduction to consumers. and gross revenue was under plan by 3.8%. They also have to make decision about Natural Meals™ that should that brand be promoted or not. Information was provided on past promotions that had been run on Dinardo™ 32 and Dinardo™ 16 to evaluate how the past promotions had fared. recently FFD has encountered a shortfall in sales volume and gross revenues. Allan Capps has met with Byron Flatt. Consumers were just buying less and they were buying in a different product mix than expected. offering a Page retailer’s weekly circular. However. it promoted organic food type. the standard was to fund retailers for providing an end-aisle display. but were not because consumers switched to the promoted FFD item instead.  The Natural Meals™ Brand: This is a selection of organic frozen foods. Since. Now. This section accounted for roughly 25% of the frozen food division’s revenue (almost $150 million per year). Sanchez was also concerned about the indirect cost of cannibalization—non-promoted items in FFD’s product portfolio that would have normally been purchased. Allan Capps. Byron Flatt has suggested undertaking a sales promotion. with a compound annual growth rate of 2. Along with that there are other decisional criteria about method of promotion to retailers. There are two main categories in FFD:  Dinardo’s™ Brand: This brand generated over $425 million in revenues annually.9% behind plan. Cannibalization was also a problem. This brand offered spaghetti & meatballs. In execution mode. and featuring the lower price to consumer (PTC) in the . it was quite appealing to the health-conscious consumers. it is the use of quality ingredients and seasonings that made Dinardo’s™ meals taste better than those of other producers. and chicken cacciatore. Moreover.6%. the CEO of GCP. Thus one product may take sales from another offering in a product line. BCP’s vice president of sales to discuss the shortfall in FFD’s results. for it has expanded successfully over the past 30 years. is hesitant about running a trade sales promotion with retailers. FFD sales volume was 3. were wondering whether GCP’s above-industry average growth could be maintained. More importantly. lasagne. Frozen food division of GCP plays a vital role in regards to profits. Cannibalization is a phenomenon that results when a firm develops a new product or service that steals business or market share from one or more of its existing products.This case practically provides an opportunity to get familiar with formulating and implementing sales promotion. analyst in Wall Street.

95 7.06 Oct.06 Dec. Therefore we won’t compare Natural Meals™ with Dinardo™ 16 and 32.07 July.08 Aug.07 Dec.6125 92643.07 Sep.07 May.08 Apr.08 July.06 Nov. The peaks in both graphs show when each product was promoted (Dinardo™ 32 was promoted 4 times and Dinardo™ 16.07 Apr. 5 times).755 4125425 -211491.08 Mar.07 Oct.08 June. instead will carry out a separate study to check the effects of promotion of Natural Meals™ on its sates and if it is feasible or not.07 June.07 Feb.08 May. Decision about Natural Meals™ Considering promotion Impact of Natural Meals Average monthly incremental volume for NATURAL Average % Store promoting Average Monthly Incremental Volume/ Promo Point Incremental Volume from 25% promo point Revenue change from promotion Variable cost change from promotion Promotion cost change from promotion Marketing Margin Change from promotion 705251.08 Feb.07 Jan.9 2316098.06 Jan.07 Nov.07 Aug.35 2645230.08 2 . If we closely study this graph we’ll see the other Dinardo™ products and Natural Meals™ products have quite a steady market but FFD faced a lot of fluctuation in the sales of Dinardo™ 16 and Dinardo™ 32.12000000 10000000 8000000 6000000 4000000 2000000 0 Dinardo 32 Dinardo 16 Dinaro's Other Natural Meals This is the graph showing total sales of GCP’s frozen food department over 2year spam.07 Mar.65 634726.1 Page Sep. Each time when one was promoted sales of the other got cannibalized yet sales of Natural Meals™ proved to be unaffected by promotions and got steady throughout 2 years.

this category does not need any promotional tactics. so it does not have any margin for promotion. We have to choose the one that will give us more marketing margin and will least cannibalize others sale. Risking the brand image would mean that giving the chance to other brands to capture market.4 2900022. Promotion of this category can affect the brand image as well.16 1333028. marketing margin would move in negative direction resulting overall decline in the marketing margin of FFD. Average monthly volume for: When the item is ON promotion When the Item is NOT on promotion When Nothing is ON promotion Incremental Volume from Promotion Revenue Change from Promotion Variable cost Change from Promotion promotion cost change from promotion Marketing margin change from promotion Dinardo 32 10460942.418.5 Page 600865.04 2848750.3 550722.741. it would not be a wise decision of promoting Natural Meals™.5 6816235 7542113.23 550722.7 6129540.24 3 .884.89 3857002. So. Another reason is.As the impact of promotion of Natural Meals™ is considered. Promotion of Dinardo™ 16 and Dinardo™ 32 considering Cannibalization effect: Now we are left with to either chose Dinardo™ 16 or Dinardo™ 32 to promote to increase our sales and maximize our profits.8 2918828.6 8237351.72 1953170.2 7542113. more appropriately niche market. with customers who are interested in least processed food.24 Dinardo 16 424773 3857002.6 3782918.8 5647722.8 Dinardo 16 6210220.5% of marketing margin and 25% overall FFD sales. With such a strong customer base and brand image. Natural Meals™ are representing a major chunk with 6.27 2159933.6 2353217.172 Considering within-brand cannibalization Effects of promotion Average monthly Volume When the other Dinardo's item is ON promotion When Nothing is ON promotion Volume change from promotion of other item Revenue change from promotion of other item variable cost change from promotion of other item promotion cost change from promotion of other Product Dinardo 32 5740724.24 1.774 600865. It has already captured a huge market share.381.8 1801389.24 3. it does not have any variety in sizes so it has a fixed retail cost.6 3432229. Revenue is not changed with that large amount but on promotion cost is increased by relatively larger amount.

Major threat in promoting these products was brand switching and premium image because promoting on product means creating less demand of the other product. It also increases the consumer base. it is a crucial decision that which brand should be promoted.Marketing Margin change from promotion of other product Total brand impact from promotion on top-line revenue Total Effect of D32 promotion Total effect of D16 promotion Total brand impact from promotion on Marketing Margin Total effect of D32 promotion Total effect of D16 Promotion 1899167. Dinardo™ 32 is a pack which serves 4 persons and that is a family pack. These all packages are provided by FFD to fulfil the demand of each customer who is willing to buy rather than spending that amount in any expensive restaurant. Dinardo™ 32 is decreasing the revenue and Dinardo™ 16 has positive impact on it. Data is shows that:      Promoting Dinardo™ 32 marketing margin is increased by almost 3 Millions in comparison with Dinardo™ 16 which increased Marketing Margin by almost 1 million on promotion.5 -157786. Calculating brand impact on top line revenue. Dinardo™ 32 has a larger negative impact on Marketing Margin.56 -1368850. It shows that Dinardo™ 16 is not cannibalizing Dinardo™ 32 on promotions but promoting Dinardo™ 32 means cannibalizing the other brand.3 -2107810. Dinardo ™16 is packing for 2 persons and Dinardo™ 8 is per person pack. Above tables are drawn from last 2 years data of these products to calculate which item should be promoted.62 4787735. Dinardo™ 16 and Dinardo™ 8oz.448 Decision has to make within these two brands that which brand should be promoted? Dinardo™ brand is offering three kinds of packages: Dinardo™ 32.77 1864804. Dinardo™ 16 has smaller impact as compared to Dinardo™ 32. because every individual living with family or alone can buy according to his need. which is actually the return on marketing investment. These two brands in case of promotion can increase the gross revenue and marketing margin separately but they are cannibalizing each other that are why. Page 4 .

but in those months when Dinardo™ 16 is promoted.000 10.000 8.000.000 12.000 0 Dinardo 32 dinardo 16 14. These graphs clearly indicate that in those 4 months when Dinardo™ 32 was promoted.000. March 07.000. Considering this fact under consideration.000 8.000. So.000.It can be shown in the graphs below as well 14.000.000 6.000 10.000.000 4.000.000. Sept 07. this sales volume graph is also depicting very clearly that cannibalization impact of Dinardo™ 32 is higher than Dinardo™ 16.000 6.000 12.000.000. there is no significance impact on Dinardo™ 32.000 2. Page 5 .000.000 4. sale volume of Dinardo™ 16 was cannibalized and its sales volume fell down drastically. promoting Dinardo™ 32 would not be a wise decision.000 2.000. Feb 08.000 0 Dinardo 32 Dinardo 16 The two graphs above shows sales revenue of past two years. Reason could be when pack of 4 is available at cheaper rate then why should not buy that and buy a packing of 2 servings.000. Nov 06.

000 20.000 40.000 70.000 50.000 30.000.000.000 60.000. These products are not giving the desired Return on marketing investments. So. marketing funds are typically 'risked. It is not like the other 'return-on-investment' metrics because marketing is not the same kind of investment. the contribution attributable to marketing (net of marketing spending). After promotion their marketing margin would rise but due cannibalization impact it would again come down to the usual level of margin." "ROMI is a relatively new metric. divided by the marketing 'invested' or risked.000. Actual decline in marketing margin of FFD is due to these two brands because other brand like Natural meals™ is making a reasonable marketing margin.90. Instead of moneys that are 'tied' up in plants and inventories.000 80.000. these two brands need to be promoted at optimal level.000." It involves all the costs related to investments as well as related to product cannibalization. But after promotion of Dinardo™ 32 an increase is expected in marketing margin without cannibalizing the margin of Dinardo™ 16.000.000. to increase that level of margin. Planned Marketing is so high for these both categories.000.000 0 Dinardo 32 Marketing Margin Planned JULY August After promotion Marketing margin calculated here is actually “RETURN ON MARKETING INVESTMENTS”. Page 6 .000 10.' Marketing spending is typically expensed in the current period.

07 July.06 Jan. And as far as Dinardo™ 16 and 32 are concerned.08 Page 7 . Natural Meals™ because they have a steady market unaffected by other products and only people having a palate for organic healthy food will buy then no matter the price at which it is available to them.08 Mar.06 Nov.07 Feb.07 May.08 June. Dinardo™ 32 will cannibalize sales of Dinardo™ 16 at a much higher rate than that harm Dinardo™ 16 will bring to Dinardo™ 32. Therefore the optimal decision will be to promote Dinardo™ 16 to give an immediate sales boost and attain targeted sales.07 Jan.07 Dec.07 Oct. Sep.07 Apr.07 Nov.12000000 10000000 8000000 6000000 4000000 2000000 0 Dinardo 32 Dinardo 16 Therefore as a conclusion to all this discussion above we’ll suggest Giant Consumer Products to promote Dinardo™ 16 rather than Dinardo™ 32 or Natural Meals™.07 June.06 Oct.08 Aug.08 May.07 Mar.08 Feb.07 Aug.07 Sep.08 July.08 Apr.06 Dec.

FFD ‘s popularity makes it in a strong position to influence retailers to promote their desired brand. Purchase time acceleration (stockpiling) and Brand switching (potentially including switching from GCP’s products too). Page 8 in total sale they will bring are worth this opportunity cost. In the short run this promotion will just give increased ROMI to the company but in the long run these increased ROMI can be used to build brand image in a better way than now by ways such as advertising. And as the market will grow the retailers will have an increased traffic for FFD’s product line and increased traffic means increase in their own revenue. Promoting these products will intern increase traffic in their areas and will increase their sales. That might to some extent reduce margins of other FFD products but the increases be a win situation for all parties. they can stockpile things at lower rates then regular days and save valuable dollars. as promotions will improve the possibility of brand switching this implies that there is a long term incentive in it in the shape of a greater customer base. Retailers can attract more traffic on promotion and FFD can earn a marketing margin on promotion on Dinardo™ 16 and Natural Meal™. And as for customers. packaging enhancements and new product introduction. Therefore promotion at this instance will .e. To get the best from this promotion the company should promote Dinardo™ 16 because by promoting that FFD can attain their required targets without cannibalizing sales of Dinardo™ 32 and Natural Meals™. Start with the firm. These three points in themselves explains the interest of three parties i.Question 1: Would the promotion end up being a ‘win’ for not only FFD but also for retailers and consumers? The promotion will expectedly have 3 impacts    Increase in overall growth (market growth). retailers and customers. retailers on the other hand have sensed a upward trend in the sails of GCP’s products. This might cannibalize sales of FFD’s other products but this opportunity cost will be little as compared to the customer this promotion will get who before will be using some other company’s product. Stockpiling at lower cost than regular days means an increased chance of saving money on favourite products and will leave customer better off at the end of a shopping day. firm.

This will create an expectation in customers that their products are sold for lower price or that it can be sold on lower prices and when units on promotion will end the prices will again come to regular one it will have a effect similar to inflation and the demand might reduce below the normal levels Keeping in view these two possibilities.hit some pre-establish target? As mentioned in the case study that if we give “off invoice pricing” to the retailers that can results in two situation that are against producers interest. This will increase the sails and retailers will indirectly help in increasing sales because increased sales mean increased compensations for them. “off invoice pricing” has more negative affects then it have its benefits. Compensation should not be based on set targets instead they should be given on the total sales a retailer makes. Retailers should only be compensated only for the actual sales during the promotion period. Page 9 . They retailers can charge same price to consumer to increase their own margin because PTR is reduced and PTC (price to customers) is high. Then they might do two things: 1. Therefore it will create a win-win situation for both parties and consumers will get their favourite products at reduced price. thus reducing the sales of period after promotion. Thus the optimum strategy here will be “pay-for-promotion”. 2. This will motivate retailers to buy in bulk when the price is low and they might stock some excess units to sell in the future but when the promotion will end retailers might be still using the stockpiled unites. The customer might purchase your products but their satisfaction will reduce and instead of directly blaming the retailers as a human psyche they will get frustrated with the brand and if this situation pertains to all the promotions a time will come when promotions will lose their effects on sales until the retailers don’t change their unethical practices. The 2nd thing a retailer can do is to keep charging the promotion price even after the promotion is over making the consumer to believe that their trusted products are “on deal”.e.Question 2: How should FFD structure ---------------------------------. The retailers can indulge in forward buying i. purchasing product in bulk when it is on promotion and getting a lower price to retailer PTR (Price to retailers).

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