IIMK EPGP 04: Marketing Communication Management Assignment 3: : Submission | Date: 24 June 2013 By: Aabhas Zaveri | Roll

ll No: EPGP EPGP-04C-001

About the Grant Consumer Products (GCP) The case explains the sales promotion strategies of the Frozen Foods Division (FFD) of Giant Consumer Products. Focus of the case revol revolves around the multi-disciplinary disciplinary facets of brand management and sales promotions. FFD is the key contributor to GCP GCPs profits which have been successfully growing over past 30 years. The company has two main ain product lines, Italian froze frozen diner DinardoTM and organic frozen foods Natural mealsTM. But recently FFD is faced with the challenge of shortfall in sales volumes and gross revenues. The CEO at GCP i is not sure about running sales promotions with retailers as a way forwards for short term profit boost boost-ups. If they need to do so, which brand should the marketing funds be allocated to, is the big q question in front of them. Org Structure:
Allan Capps CEO

Byron Flatt VP, Sales

Mary Davidson FFD General Manager

Mike Sanchez FFD Director of Marketing

Key Points: unit In general fairly conservative management practices and approach in every division/business unit. The Good: o Each business unit have defined and measurable goals Promotes Accountability o Standardized practices promote efficiency and result in economies of scale o Careful decision-making process The Bad o Difficult to get quick answers o Structure might be too rigid and not flexible enough o Difficult to work across divisions to achieve organizational goals o Slows down the decision making process if the decisions are to be made quickly o Might be difficult to accept change The Desirable o Need to make sure divisions objectives always align with overall strategic goals of the company

Culture: Pride. The most customer-centric management team in the frozen food industry. o Premium product quality, strong relationship and support from retailers o Helps company stay on top of consumer behavior trends o Promotes long-term thinking Built on brand equity. Company is striving to take into account the preservation of GCPs brand name and image in every decision that it makes

Summary of Strengths and Weaknesses Strengths: Company able to identify trends, e.g. emergence of dual-career families, increase in commute times, less time available for meal preparation Manages each product category as a separate business unit, e.g. frozen meals and entrees Clearly stated objectives Weaknesses Some brands (e.g. Natural Meals) appeal to a niche market. As a consequence they are sub-scale for instore promotions, i. e. they could not amortize display costs across a small volume compared to brands with higher volume. Might lose market share because of attachment to brand name image Management is too cautious to pursue aggressive price promotions that might be needed to stimulate sales Long decision making process that could hinder companys ability to quickly come up with the much needed solution as the year comes to a close While managing each product category as a separate business unit offers great advantages, it can also force organization to operate in silos where the goals of each business unit are not considered in the context of company as a whole A lot of emphasis on hitting Wall Streets expectations. While GCP could offer a promotion and reach the numbers expected on Wall Street thus making shareholders and the company overall equally happy in the short run, in the long run brand image of GCPs premium products could suffer.

Careful decision making process

Strong brand name image, e.g. Natural Meals

Stronger than competition relationships with retailers which allows GCP to offer an extra promotion very late in the year that competition could not

Leader in health food segment Efficiency gains from scale economies Strong position in frozen food category that helps company exert a great deal of influence over retailers (able to dictate which items to promote and when, secure compliance and path-through) Retailers favored promotion of GCP brands as they helped drive store traffic

Issues with respect to the Strategy Development : The following issues could cause complications for strategy development:

The preservation of brand equity could prevent GCP from considering a price promotion at all or for certain products (e.g. Natural Meals) due to concerns that it would tarnish the product's premium image Negative impacts from a price promotion identified as constraints in section I of Part C Organization. GCP should concentrate on minimizing those risks. Some marketing solutions require a great degree of flexibility. GCPs rigid divisional structure could make it difficult to implement solutions that require greater degree of change.

Key Questions and Objectives: Sales Promotion o Can a sales promotion help GCP meet its organizational goals? o Which product should be selected for promotion? o Determine impact on key metrics and long-term health of brands Marketing Strategy o Develop the details of a marketing strategy that results in a win-win for the company, retailers, and ultimately consumers. o The strategy has to be consistent with the overall goals of the company and ensure preservation of brand image

Porters five forces:

Threat of substitute products HIGH

Bargaining power of suppliers HIGH

Rivalry among existing competitors Intense

Bargaining power of buyers MID

Threat of new entrants LOW Factor

Threat of substitute products

Analysis
Consumers have multiple substitute products (Many brands, styles/types of food) Higher quality ingredients lead to high quality product for consumers

Impact
Consumers have a wide Varity of options to choose from

Bargaining power of suppliers

Supplies are able to bargain more , because producers want the best quality

Bargaining power of buyers

Frozen meal purchases are frequent, consumers tend to be loyal to products unless similar products offer price promotion Over 400 domestic manufacturers and increased competition from foreign competition. Also, introduction and competition for similar target market Well established players Downward pressure on prices

Loyalty in target market will be easy to build

Competitive rivalry

Downward pressure on prices

Threat of new entrants

Brand value will be key

Table 1: Exhibit 1

Chart 1: Sales Promotions and Volumes Sept 2006 - Aug 2007

Sales Promotions and Volumes Sept 2006 - Aug 2007

1,20,00,000 1,00,00,000 Promo 80,00,000 60,00,000 40,00,000 20,00,000 0 Sep Oct Nov Dec Jan Feb Mar Apr May Jun '06 '06 '06 '06 '07 '07 '07 '07 '07 '07 Jul Aug '07 '07 Promo Promo Promo Dinardo's 32 Dinardo's 16 Dinardo's Other Natural Meals Promo

Chart 2: Sales Promotions and Volumes Aug 2007 - Aug 2008

Sales Promotions and Volumes Aug 2007 - Aug 2008

1,20,00,000 1,00,00,000 80,00,000 60,00,000 40,00,000 20,00,000 0 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug '07 '07 '07 '07 '07 '08 '08 '08 '08 '08 '08 '08 '08 Promo Promo Promo

Promo

Dinardo's 32 Dinardo's 16 Dinardo's Other Natural Meals

Question 1. Using the data in exhibits 1 & 4 (may use spreadsheet), develop solution templates in case exhibit 3 for Sanchez. How would this help in solving his problem? Table 2 Exhibit 3 Average Monthly Volume for: When that item is ON Promotion When that 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 10,460,943 6,816,235 7,174,739 3,286,204 6,901,028.19 2,431,790.89 3,614,114.70 855,122.60 $ $ $ $ Dinardo 16 6,210,220 3,088,565 3,798,942 2,411,278 5,787,067.20 2,001,360.74 4,306,646.00 (520,939.54)

Table 3 illustrates the total impact on from a promotion on both products and their associated ROMI. The ROMI for a Dinardo 32 and Dinardo 16 promotion would be -33% and 64%, respectively. This falls short of the 100% threshold set by FFD management. Table 3 Average Monthly Volume for: 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 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 ROMI -33% $ 2,576,012.75 $ (879,443.14) 64% $ (1,197,278.37) $ 2,775,636.96 Dinardo 32 5,740,724 7,174,739 -1,434,014 $ (3,011,430.24) $ (1,061,170.66) $ (1,591,755.98) $ (358,503.60) Dinardo 16 424,648 3,798,942 -3,374,294 $ (8,098,306.56) $ (2,800,664.35) $ (7,018,532.35) $ 1,720,890.14

FFDs Natural Foods product line is enjoying larger margins than the Dinardos lines because of its status as a premium product. It is estimated that 25% of the retail stores would participate in a promotion involving Natural Foods. Table 3 outlines the financial impact of a promotion and the associate ROMI. A Natural Foods promotion would result in increased revenues of $6.7 million and a 165% ROMI. This exceeds the 100% ROMI goal for FFD and raises brand awareness for Natural Foods. The risk of eroding Natural Foods brand value exists with a typical price promotion. A coupon only promotion would keep Natural Foods items the same price on the shelf but would present opportunity for consumers to get a discount at checkout, protecting the brand value. This would also attract new and existing customers to try more/all of Natural Foods selection. Overall, this option increases volumes of FFDs most profitable products and builds on the trends of the future of healthier eating.

Question 2. Do you advise Sanchez to run a national sales promotion?If so, which one of the items the funds be allocated: Dinardo 32, dinardo 16 or natural meals? Sanchez has an opportunity to make a sizeable impact to GCPs performance and secure marketing funding for the future. To do so he must carefully consider the following options. Traditional Marketing of Dinardo 16 or 32oz FFD has run price promotions on Dinardo product lines in the past as shown on Figures 1 and 2. Ultimately we must determine if cannibalization of other products is eroding the incremental revenues gained by the price promotion item. Graphically, we can see definitive cannibalization with the Dinardo 32 and 16 product lines. Each product line experiences a spike in sales volume when a promotion is run. However, the other Dinardo line experiences a tremendous decrease in revenues the same month. The following analysis shows the impact to total revenues and marketing margin. We can see that a monthly promotion for Dinardo 32oz products results in an average increase in marketing margin of over $855,000. When we look closer at the impact of a Dinardo 32 promotion on both Dinardo products (Table 2), the total effect to FFD is a $1.1 million loss in revenues and a $2.5 million increase in marketing margin. A pricing promotion on Dinardo 16 products results in a $2.7 million increase in revenues and an $800 million decrease in marketing margin. Strategic Alternatives: Traditional sales promotion for Dinardo Brands (based on math) Drop Dinardos single servings and offer a 6 & 8oz portion of Natural Meals brands National sales promotion for Natural Foods

Discontinue Dinardos Other Category Items Dinardo Other Category Severely underperforming o o o o Sales Volume down 8.6% Gross Revenues down 8.6% Gross Margin down down 9.6% Marketing Margin down 11.9%

Marketing Allocation down 15.2%

Dinardos Other category items are severely underperforming in several key metrics, including; overall volume, gross revenue, and gross margin. Consumers trends are moving towards eating together as a group at the dinner table instead of a quick personal meal you eat alone in front of the TV. Dinardos 6 and 8oz portions are not being demanded by consumers as a dinner-time meal as reflected in current sales performance. Natural Foods products can meet a consumer preference for personal lunch meals in the 6 and 8oz portion sizes by re-calibrating the 6 and 8oz packaging operations. These operations would be better utilized packaging the same size personal meals for Natural Foods instead of Dinardos. This makes sense for the consumer looking to eat healthy at the workplace to help maintain a healthy lifestyle. This option sheds FFD of an underperforming product line and uses current operating capacity to produce a new line of personal sized products. Recommendations: Brand Awareness campaign Natural Meals Average Monthly Incremental Volume for Natural Meals Average % Store Promoting for Natural Average Monthly Incremental Volume /Promo Point Incremental Volume from 25% Promo Points Revenue change from promotion Variable Cost change from promotion Promotion Cost change from promotion Marketing Margin Change from promotion ROMI 705,252 7.61 92,674 2,316,859 $ 6,718,892 $ 2,085,173 $ 4,125,425 $ 508,294 165%

Recommendations: Brand Awareness: Coupon Offering Pay for Performance In-store Product Placement Repackaging for Natural Meals 32 oz portions Brand Recognition/Brand Loyalty

Question 3. Prepare Sanchez for additional strategic/ tactical questions that he anticipates from Flatt given at the end of case. The three main problems that FFDs director of marketing, Mike Sanchez, is faced with: (1) the Dinardos and Natural Meals brands have been underperforming against sales estimates, (2) the risk to key metrics if Sanchez recommended a price promotion for one of the three major product lines, and (3) the risk of losing retailer support and consumer loyalty. We can see from current sales performance that Dinardos Other products, 6 and 8 ounce portions, are the weakest product line in FFDs product mix. Its important at this point for FFD to determine if their product lines are meeting consumer demand and expectations. The environmental analysis leads us to conclude that consumers are not looking for those perfectly portioned meals out of the box while eating alone. The impact of the recession and other market forces have led individuals and families to eat more at home as well as saving what they do not eat for leftovers. Also, Natural Meals currently only had one portion size, 16 ounces. This may be a potential option to expand healthy options to families who demand portions larger than 16 ounces. The second issue in the situational analysis deals with Sanchezs decision to recommend a price promotion for one or more of FFDs product lines. There are several potential impacts Sanchez must consider. First, retailers may use a promotion as a means to stockpile inventories of cheaper products, only to resell them later at normal pricing with increased margins. This would ultimately hurt revenues as retailers would be buying increased volumes of product at discounted vs. normal pricing. Second, a price promotion of the Natural Meals line risks decreasing brand value. This brand is distinctly different from Dinardos from a healthy-living perspective and Sanchezs decision must protect this image. Third, Sanchez must demonstrate positive impacts to ROMI and incremental volumes while considering the impacts of cannibalization of non-promoted items. The third issue facing Sanchez is the risk of brand switching by consumers and alienating retailers with perceived unfair pricing structures. FFD has a strong relationship with retailers and must ensure the pricing structure adds value. Sanchez has several options for promotional pricing; off invoice pricing, pay-for-performance pricing, and a coupon approach where retailers would receive a small discount off invoice pricing and consumers would be able to redeem coupons to reduce their final cost. The alternatives proposed must directly address these issues while building value for FFD, consumers, and retailers. One option that we can dismiss is a price promotion for the Natural Meals line. We feel that the brand value would be damaged and would not be a win for FFD or retailers.

Works Cited http://en.wikipedia.org/wiki/Organizational_structure#Functional_structure