Giant Consumer Products: The sales promotion allocation resource decision

8/9/2013 Great Lakes Institute of Management

Submitted By: Anosh Doodhmal -DM14109 Mridula D. Mallya -DM14126 Rachna Menon -DM14160

Shiven Saluja -DM14248 Shouvik Bhattacharjee -DM14249 1. Using the data available in Exhibit 1 & 4 (available in excel spreadsheet in case supplementary material folder) develop solution templates in the case exhibits 3 for sanchez. How would this help in solving his problem? By developing the solutions for the templates in exhibit 3, Sanchez would be able to make an informed decision about which product(s) need(s) to be promoted. By filling the template Sanchez would be able to understand: The impact of promotions on its premium brand, Natural Meals. He would be able to tell the effect on the brand image of the product, the impact on the marketing margin and in turn its effect on the entire FFDs marketing margin. He would also be able to analyze the impact of the cannibalization effect on Dinardo 16 and Dinardo 32 when either is being promoted. Within these two products, he would also be able to analyze which has a higher marketing margin and which contributes more to the top line. Thus, this information is of great importance to Sanchez and will ultimately help him decide if a national sales needs to be run and if yes, then on which product the sales promotion needs to be run.
Decision about Natural Meals Considering promotion impact of natural meals Average monthly incremental volume for NATURAL Average % store promoting Average Monthly Incremental volume/Promo print 705251.95 7.6125 92643.9

Incremental Volume from 25% promo print Revenue change from promotion Variable cost change from promotion Promotion cost change from promotion Marketing margin change from promotion

2316098.35 2645230.65 634726.755 4125425 -211491.1

Promotion of Dinardo 16 and Dinardo 32 considering cannibalization effect 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 10460942.5 6816235 7542113.8 2918828.27 6129540.27 2159933.23 550722.24 3,418,884.8 Dinardo 16 6210220.4 2900022.89 3857002.6 2353217.8 5647722.72 1953170.774 600865.24 1,741,381.172

Considering within brand-cannibalization effects of promotion Average monthly volume for: When the other Dinardo's items is on promotion When nothing is on promotion Volume change from promotion of other item Revenue change from promotion of other time 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 Dinardo 32 5740724.2 7542113.8 1801389.6 3782918.16 1333028.3 550722.24 1899167.62 Dinardo 16 424773 3857002.6 3432229.6 8237351.04 2848750.5 600865.24 4787735.3

-2107810.77 1864804.56

Total brand impact from promotion on marketing margin Total effect of D32 promotion Total effect of D16 promotion

-1368850.5 -157786.448

2. Do you advise Sanchez to run a national sales promotion? if so, Which one of the items should the funds be allocated to: Dinardo 32, Dinardo 16 or Natural Meals?

From the above graph, it is evident that Natural Meal s and Dinardos other (that is the smaller packs for individuals) has had steady sales. However, this is not the case for Dinardo 16 and 32. Both products have witnessed fluctuations in sales. Promoting either one of the products has cannibalized the sales of the other product, except for Natural Meals. I. Natural Meals: it does not seem feasible nor sensible to promote Natural Meals for the following reasons: Due to its premium image and the fact that it caters to a niche market in which it has a strong presence, there is no need for promotional activities. In fact it might backfire against the company as customers

might start doubting the brand or question its quality and thereby switch to another brand. Also, the marketing margin appears to be moving downward with promotions which in turn would affect the entire FFDs marketing margin. Also, the promotions would not make a significant contribution to the revenues. Thus, Natural Meals should not be subject to any promotional tactics. II. Dinardo 32 & 16: The major problem in promoting either of these products is the threat of cannibalizing other products, affecting the image of the brands and lowering demand for other products.

From the data in question1, it can be seen that: Through promotions, the marketing margin for Dinardo 32 increases by almost 3 million where as Dinardo 16s marketing margin increases only by 1 million. The brand impact on marketing margin through promotion of Dinardo 32 (-1368850.5) has more negative effects than through promoting Dinardo 16 (-157786.448) Dinardo 32 has a negative impact on revenue (-2107810.77) where as Dinardo 16 has a positive one (1864804.56) It shows in the graphs below, that in the months where Dinardo 32 is promoted, the sales of Dinardo 16 are affected but not vice versa.

Thus the choice has to be made between Dinardo 32 and Dinardo 16. Therefore, Sanchez should suggest that Dinardo 16 should be promoted rather than Dinardo 32, Dinardo 8 and Natural Meals. Natural Meals has a steady market which has remained unaffected by sales promotions of other brands. This product caters to a niche market and this target market seems loyal to this brand irrespective of price changes. Dinardo 8 has also witnessed more or less steady sales, also since the company thinks that the market for this product is relatively smaller in size, it does not make sense to promote it.

Between Dinardo 16 and 32, promoting Dinardo 32 will cannibalize the sales of Dinardo 16 at a much higher rate than the cannibalization effect on Dinardo 32 if Dinardo 16 is promoted. Therefore promoting Dinardo 16 is the optimal decision as it will boost sales and attain targeted sales.

3. Prepare Sanchez for additional strategic/ tactical questions that he anticipates from Flatt given at the end of the case. a) Would the promotion end up being a win for not only FFD but also for retailers and consumers? The promotional campaign would definitely be a benefit FFD, retailers and consumers because : FFD Increase in market growth Purchase time acceleration Increase reach of Natural meals offering Retailers Wider variety on the shelf Increased margins (Natural meals is a premier offering Consumers Healthy alternatives Premier product made affordable

The points in themselves explains the interest of three parties i.e. firm, retailers and customers. FFD

 Promotions will improve the possibility of brand switching: It implies that there is a long term incentive for the firm to shift the consumer base in its favour. Stockpiling at lower cost than regular days: It means an increased chance of saving money on favourite products and will leave customer better off at the end of a shopping day. As the market will grow the retailers will have an increased traffic for FFDs product line and increased traffic : Increase in retailers own revenue. They can attract more traffic on promotion and FFD can earn a marketing margin on promotion . FFD s popularity makes it in a strong position to influence : Retailers to promote their desired brand, retailers on the other hand have sensed a upward trend in the sails of GCPs products. Promoting these products will increase traffic in their areas and will increase their sales. And as for customers, they can stockpile things at lower rates then regular days and save valuable dollars. This might cannibalize sales of FFDs 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 companys product. 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, packaging enhancements and new product introduction. b) How should FFD structure the promotion? Off pricing could result in retailers indulging in practices like forward buying where in retailers buy in bulk at the beginning. The problem with this is that retailers might raise the price to the normal level after the promotion period and pocket the difference or they could continue

to sell it at the discounted price there by conditioning consumers to the price. In either case, GCP stands to lose and it is not a good strategy.

Compensating the retailer based on a pre established target might not be appropriate as competitors might offer better incentives like incentives based on actual sales. Thus, the pay for performance seems to be the best option as it compensates retailers for the units sold during the promotion period. This acts as an incentive for the retailer who will automatically push the product to gain his incentives. This also takes care of the problem of over stocking as he will stock the right amount as he is directly responsible for its sale.