The Efficacy of Schemes and Pack Wise

Marginal Contribution Analysis of

Pepsi in Coimbatore
P.Varadharajan* and P.Vikkraman**

The research article ‘To study the efficacy of current scheme and high volume management study, recommend
on ways of improvement and Pack wise marginal contribution analysis of high volume outlets’ is carried out
for Pepsi Co, Coimbatore. The study focuses on the management of HVO and Schemes and marginal
contribution analysis. The study is done in Coimbatore region. Pepsi Co finds it difficult to survive in the
Bottled water Category because of the high discount offered to the Outlets which is a cost to the Company
and the high discount offered to the Outlets by the Competitors. At present the company’s main objective is to
reduce the discount cost so as to enhance the Net Marginal Contribution. Company is also looking forward
to remove the High Volume Outlets from the HVO list whose sales volume is not giving justice to the HVO
status given. Data has been obtained both from the Primary source and Secondary Source for this report.
Primary Data has been obtained from the various officials of Pepsi Co and Secondary Data has been
obtained from various internal documents of Pepsi Co. Limitation of this report is that the findings of the
report is based on the data available from 01/01/2008 that has been projected for the whole year. In the
Coimbatore Territory Aquafina is showing a negative net marginal contribution whereas in contrast CSD
category is showing a positive net marginal contribution in both the territories. The Best solution to remove
the net marginal contribution of Aquafina is either by increasing the price of Aquafina or by reducing the
discount given to this outlets by the cross promotion pack mix.

Need for the Study than approved by studying the Cost per The company faces problems with pending
Case for different pack mix given to the claims as claim processing is consuming

A
t present Pepsi Co is struggling
in their Bottled Water Category
Aquafina and Carbonated Soft
Drinks category in Coimbatore because of
the high discount given to the Outlets. Pepsi
Co’s Carbonated Soft Drinks Category is
doing well in its category compared to
Aquafina. Pepsi Co finds it difficult to
survive in the Bottled water Category
because of the high discount offered to the
Outlets which is a cost to the Company and
high discount offered to the Outlets by the
Competitors. At present the company’s main
objective is to reduce the discount cost so
as to enhance the Net Marginal Contribution.
The project is to study the present discount
strategy of the company and find out those
distributors who are availing more discount
distributors.
Company is also looking forward to remove
the High Volume Outlets from the HVO list
whose sales volume is not giving justice to
the HVO status given. Customer Executives
and Territory Development Managers of the
Coimbatore Territory are suffering a lot
because of the vagueness and the non clarity
of the Claims Top Sheet and insufficiency of
the uniform Supporting documents that is
submitted by the distributors. Customer
Executives and Territory Development
Managers are not able to make any
meaningful decisions or take corrective
actions on the basis of Claims submitted by
the distributors.
more time. Even though the company has
approved new format for claim sheet, many
distributors are not following this. Once this
has been strictly implemented, the claim
processing can be made more easy and less
time consuming.
Objectives of the Study
l To identify the distributors showing a
hike in cost per case (CPC) or crossing
the break even for High Volume Outlets
in Coimbatore. (Separately for Aquafina
and Carbonated Soft Drinks).
l To analyze the discounts being offered
to various High Volume Outlets in
Coimbatore Territory. (Separately for

*Faculty, PSG Institute of Management, Coimbatore, Tamil Nadu

**Assistant Professor, Anna University, Coimbatore, Tamil Nadu

18 Journal of Marketing & Communication

 Aquafina and Carbonated Soft Drinks).
l To identify the High Volume Outlets
showing a Negative Net Marginal
Contribution in Coimbatore Territory.
(Separately for Aquafina and
Carbonated Soft Drinks).
l To analyze discounts being offered to
various Channels like Convenience,
Leisure, Eatery, Grocery, Wines,
Transport, Modern Trade and
Institution in Coimbatore Territory
(separately for Aquafina and
Carbonated Soft Drinks).
l To find out the Pack wise and Channel
wise Net Discounted CPC for High
Volume Outlets in Coimbatore.
(Separately for Aquafina and
Carbonated Soft Drinks).
l To find out the Net Marginal
Contribution Ratio of Coimbatore
Territory. (Separately for Aquafina and
Carbonated Soft Drinks).
l To find out the percentage of
distributors whereas actually following
the new approved Claims Format.
Conceptual Framework
Cost Per Case (CPC)
Cost per case is the discount pay out (part
of expenditure) divided by number of cases
sold out. Pepsi co has an approved
CPC for every High Volume Outlets and
Schemes.
Given approved CPC the company can find
the outlets showing negative CPC, i.e. Hike
in CPC.
Calculation of Cost Per Case (CSC)
The company calculates CPC for each outlet
based on their past sales to formulate
approval list. Every month end the
distributors will have to prepare a claim report
claiming the discount based on their sales.
The company will grant discount only if the
amount claimed is less than or equal to the
maximum allowed. Also there is a maximum
allowed CPC for each outlet. If any pack
crosses the break even CPC, that particular
outlet has to be tracked.
Formula:
CPC = Sales Amount / Total Quantity
May - August 2010 Vol. 6 Issue 1
Total Quantity = Sales quantity excluding
free +Free quantity
Marginal Contribution:
Marginal Contribution is sales revenue less
variable costs. It is the amount available to
pay for fixed costs and provide any profit
after variable costs have been paid.
A company’s Marginal Contribution can be
expressed as the percentage of each sale that
remains after the variable costs are
subtracted. Given the Marginal Contribution,
a manager can make better decisions about
how to price a product.
Calculation of Marginal Contribution
of all Packs in PepsiCo
Step 1: Bottles/PET/CAN per case is
multiplied with Maximum Retail Price to get
the Consumer price
Step 2: Difference between the Consumer
price and trade margin gives the Gross
Revenue.
Step 3: Sales Tax and Excise Duty is to be
deducted from the Gross Revenue to get Net
Revenue
Step 4: Direct Manufacturing cost, Variable
Manufacturing cost, Variable sales and
Distribution cost is to be deducted from Net
Revenue to get Marginal Contribution of
each pack
Step 5: Marginal Contribution % can be
calculated by dividing the Marginal
Contribution with the Net Revenue and
multiplying it with 1
Net Discounted Cost Per Case
Net Discounted CPC = Total Discount given
in Rs / Sales Volume in cases
Net Discounted Cost per case can be
calculated Outlet wise, Channel wise, Pack
wise, and Territory wise.Net Discounted
Cost per Case refers to the cost incurred by
the company for one case in terms of
discount given.
Research Methodology
Methodology to identify distributors
exceeding Break-even Cost Per Case (CPC):-
Step 1: The total discount amount claimed
by each distributor is found from the physical
Claims sent by them to the company every
month.
Step 2: The discount amount claimed is
found separately for High Volume Outlets
and Schemes (for Aquafina and Carbonated
Soft Drinks)
Step 3: The actual Cost per Case is found for
different pack mix (separately for Carbonated
Soft Drinks and Aquafina) from the HVO
Summary Sheet and Scheme Summary Sheet
Step 4: The actual Cost per Case is compared
with the approved Cost per Case to find the
Distributors exceeding break even CPC.
Methodology for Finding out the Net
Marginal Contribution of High Volume
Outlets:-
Positive or negative marginal contribution
of high volume outlets can be calculated as
follows:-
Step 1: Total sales volume is multiplied with
the Pack mix and Marginal contribution
Excluding discount to get gross marginal
contribution
Step 2: Total sales volume is multiplied with
Pack mix and discount given to the outlets
(Cost per case) to get the discounted CPC
Step 3: Discounted CPC is deducted from
Gross Marginal Contribution to get Net
marginal Contribution
The outlets showing a negative net marginal
contribution is a loss to the company.
(Calculation for CSD and Aquafina are done
separately).
Methodology for Finding out the Net
Discounted Cost per Case of the Out-
lets:-
Step 1: Total sales volume is multiplied with
pack mix of the outlets and discount given
to the outlets (cost per case) to get the Net
discounted CPC
Step 2: Discounted CPC of the Outlets is
divided by the Sales Volume of the Outlet in
cases to get the Net Discounted CPC
Outlets having a High Net Discounted CPC’s
discount should be reviewed. (Calculation
for CSD and Aquafina are done separately)
19
Sources of Data Collections
Primary Source for the CPC Analysis of High
Volume Outlets and Schemes: Interaction
with the employees of Pepsi Co, Market
Auditor, Distributors and Customer
Executives
Primary Source for the Marginal Contribution
Analysis of High Volume Outlets:
Interaction with the employees of Pepsi
Co(Vice President , General Manager –
Finance ,Marketing Development Manager,
Asst. Manager – Finance, Other employees)

ANALYSIS OF HVO-CARBONATED SOFT DRINKS

TABLE: 1.1
Distributors Showing Negative CPC in Coimbatore -Carbonated Soft Drinks

HVO 200ml 200ml SLICE

COIMBATORE TERRITORY

S.NO DISTRIBUTOR NAME CPC-Actual CPC-Break even CPC Differ CPC-Actual CPC-Break even CPC Differ
1 DANUSH MARKETING 31.17 28 -3.17
2 SRI VIGNESH AGENCY 29.5 27 -2.5
3 CEEDEES ENTERPRISE 29.72 28 -1.72
4 ABISRIYA MARKETING 36.13 28 -8.13
5 JENE AGENCIES 29 28 -1
6 SRI BALAJI AGENCIES 31.55 30 -1.55
7 BALAJI TRADERS 28.33 27 -1.33
8 ANJANEYA AGENCIES 29.86 29 -0.86
9 KRISHANT AGENCIES 29.24 28 -1.24
10 MPR AGENCIES
11 PREETHI AGENCIES
12 RATHINAM AGENCIES
13 JENE AGENCIES
14 SRI PADIYAN AGENCIES
TOTAL 27.66 24 -3.66 29.89 29 -0.89

HVO 300ml HVO 300 ml SODA

COIMBATORE TERRITORY

S.NO DISTRIBUTOR NAME CPC-Actual CPC-Break even CPC Differ CPC-Actual CPC-Break even CPC Differ
1 DANUSH MARKETING
2 SRI VIGNESH AGENCY
3 CEEDEES ENTERPRISE 49.12 46 -3.12 27.12 5 -22.12
4 ABISRIYA MARKETING
5 JENE AGENCIES
6 SRI BALAJI AGENCIES
7 BALAJI TRADERS 32.62 31 -1.62
8 ANJANEYA AGENCIES 48.77 45 -3.77
9 KRISHANT AGENCIES
10 MPR AGENCIES 54.57 50 -4.57
11 PREETHI AGENCIES 50.77 37 -13.77
12 RATHINAM AGENCIES
13 JENE AGENCIES
14 SRI PADIYAN AGENCIES

TOTAL 47.78 37 -10.78 26.59 20 -6.59

20 Journal of Marketing & Communication

 HVO 600 ml HVO TOTAL

COIMBATORE TERRITORY

S.NO DISTRIBUTOR NAME CPC-Actual CPC-Break even CPC Differ CPC-Actual CPC-Break even CPC Differ
1 DANUSH MARKETING
2 SRI VIGNESH AGENCY 43.7 39 -4.7
3 CEEDEES ENTERPRISE 48.66 34 -14.66
4 ABISRIYA MARKETING 46.66 39 -7.66
5 JENE AGENCIES
6 SRI BALAJI AGENCIES
7 BALAJI TRADERS
8 ANJANEYA AGENCIES 71.81 19 -52.81
9 KRISHANT AGENCIES 34.84 18 -16.84 31.09 29 -2.09
10 MPR AGENCIES 41.9 38 -3.9
11 PREETHI AGENCIES 31.02 29 -2.02
12 RATHINAM AGENCIES 51.69 36 -15.69 37.7 32 -5.7
13 JENE AGENCIES 75.73 19 -56.73 49.05 35 -14.05
14 SRI PADIYAN AGENCIES 60.86 60 1 37.75 36 -1.75
TOTAL 49.08 25 -24.08 35.56 29 -6.56

HVO-AQUAFINA
Table: 1.2 Distributors showing negative CPC in Coimbatore

AQUA 1000ML AQUA 2000ML

COIMBATORE TERRITORY
S.NO DISTRIBUTOR NAME CPC-Actual CPC-Break even CPC Differ CPC-Actual CPC-Break even CPC Differ
1 SRI BALAJI AGENCIES 45.2 28.59 -16.61
2 SREE LAKSHMI &CO 138.12 25.06 -113.06
3 EVEREST SOFT DRINKS 37.83 24.76 -13.07
4 SRI VENKATACHALAPATHI
TRADERS 37.34 31.24 -6.1
5 MPR AGENCIES 39.02 34.45 -4.57
6 PREETHI AGENCIES 31.43 22.67 -8.76
7 KRISHANT AGENCY 37.3 34.51 -2.79
8 SRI PADIYAN AGENCIES 38.91 36.44 -2.47 45.58 37.93 -7.65
9 ABISRIYA MARKETING 39 30.42 -8.58
10 JENE AGENCIES 35.16 33.42 -1.74 37.8 36.14 -1.66
11 ALAGUNATCHIAMMAN
AGENCIES 31.15 28.95 -2.2
12 SOLAI AGENCIES 38.91 35.61 -3.3
13 HAJIYAR&CO 49.11 30.88 -18.23
14 J&J ENTERPRISE 60.27 34.37 -25.9
15 BALAJI TRADERS

TOTAL 31.5 33 1.5 100.13 31.24 -68.89

May - August 2010 Vol. 6 Issue 1 21

 COIMBATORE TERRITORY

S.NO DISTRIBUTOR NAME 38.91 29.96 -8.95

1 SRI BALAJI AGENCIES 35.42 33.75 -1.67
2 SREE LAKSHMI &CO 31.15 29.09 -2.06
3 EVEREST SOFT DRINKS 38.91 35.18 -3.73
4 SRI VENKATACHALAPATHI TRADERS 44.84 34.14 -10.7
5 MPR AGENCIES 42.82 34.11 -8.71
6 PREETHI AGENCIES 31.38 23.52 -7.86
7 KRISHANT AGENCY 40.97 27 -13.97
8 SRI PADIYAN AGENCIES 39.41 36.72 -2.69
9 ABISRIYA MARKETING 32.8 31.52 -1.28
10 JENE AGENCIES 27.88 24.8 -3.08
11 ALAGUNATCHIAMMAN AGENCIES 19.43 19.43
12 SOLAI AGENCIES 27.24 24.81 -2.43
13 HAJIYAR&CO 28.05 22.67 -5.38
14 J&J ENTERPRISE 27.24 24.8 -2.44
15 BALAJI TRADERS 26.14 24.53 -1.61
TOTAL

Table: 1.3
Chart showing Percentage wise Break up of Discount being Offered to Various Outlets
(Aquafina)

Type of Discount Offered to Outlets No of Outlets offered discount Percentage of Outlets offered discount

10+4 cases(for every 10 cases, 4 cases free) 257 58

10+3 cases(for every 10 cases free) 106 24
10+2.5 cases(for every 20 cases 2.5 cases free) 18 4
10+2 cases(for every 10 cases 2 cases free) 58 13
0thers(cash discount of Rs ,Rs43,Rs 48 for every case 4 1

Table: 1.5
Channel wise Sales Break Up Of Coimbatore Territory (Aquafina)

Channel Percentage of Total Outlets Percentage of 2007 Sales Volume

Convenience 39 40
Eatery 35 40
Grocery 13 9
Leisure 1 1
Modern Trade 2 1
Transport 1 2
Institution 2 1
Wines 5 5

Table:1.6
Aquafina outlets in Convenience Channel and Eatery Channel given discount over and above the Break Even CPC

No of Aquafina Outlets discounted in the Convenience and Eatery Channel 331

No of Aquafina Outlets Offered discount more than the Break Even CPC in the Convenience and Eatery Channel 278

22 Journal of Marketing & Communication

 Table: 1.7
Outlets showing a high Net Discounted CPC of Above Rs 45

Sl No Outlet Name Channel 2007 Sales GROSS DISCOUNTED NET MC Net

Volume MC CPC Discounted CPC

1 Subhiksha super market modern trade 51 5271.25 2637.95 2633.30 51.72

2 Subiksha modern trade 54 5602.00 2803.47 2798.53 51.72
3 GRG Stores(Group) modern trade 339 35038.33 24871.07 10167.25 73.37
4 GRD Stores(Group) modern trade 10 1033.58 738.30 295.28 73.83
5 Nilgiri Diary Farm Convenience 2518 156693.48 130815.59 25877.89 51.96
6 Marginfree modern trade 173 17863.69 8999.86 8863.83 52.07
7 Subiksha modern trade 330 34142.56 17201.28 16941.28 52.07
8 Subiksha Corner modern trade 19 1963.80 989.38 974.42 52.07
9 K G Palamuthir Nilayam modern trade 655 67699.42 32776.53 34922.90 50.04
10 Pizza Hut Eatery 301 37538.61 24561.60 12977.01 81.60
11 Residency Eatery 5076 308544.70 244469.49 64075.22 48.17

Out of the 11 Outlets having a high Net Table: 1.8

discounted CPC of above Rs 45, 8 Outlets
are from the Modern Trade Channel. This is
due to the high discount given on the Pet
Bottles in the Modern Channel. But high
discounted CPC of the Nilgiri Diary Farm is
not acceptable as it belongs to the
Convenience Channel where 200ml is the
main component of the pack mix. The
discounted CPC for 200ml and 300ml is 28.5
and 50.76 respectively. High discounted
CPC for 300ml is due to 10+3 cases discount
given compared to 10+2 cases for 200ml.
Net Marginal Contribution Ratio of
(Aquafina and CSD) in Coimbatore
Territory
Pack Net Marginal Contribution %
Aquafina -4.99%
CSD 23.92%
Net Marginal Contribution Ratio is obtained
by dividing the Net Marginal Contribution
of the Territory in Rs by the Total Sales of
the Territory in Rs. Aquafina is showing a
Negative Net Marginal Contribution Ratio
of -4.99% and CSD’s Net Marginal
Contribution Ratio is 23.92%.Aquafina is not
even providing enough to cover for the fixed
cost that has been incurred.CSD category is
doing fairly well as almost 24% of the sales
are providing to cover for the fixed costs
and profit. But still it can be improved if the
discount given to outlets with low sales
volume is reduced. Aquafina’s Negative net
contribution ratio is to be looked upon with
as it is not providing anything to cover even
the fixed costs.

Table: 1.9
Outlets showing high discounted CPC of above Rs 45.

SL No. Account Name Channel Sales Gross Discounted Net Net

Volume MC CPC MC Discounted
CPC in Rs

1 Cini Raj Theatre Leisure 2000 143910.8 92400 51510.8 46.2

2 Raj Theatre Leisure 720 51807.89 33264 18543.89 46.2

3 K.s.p.s. Theatre Leisure 720 51807.89 33264 18543.89 46.2

4 Miller Supermarket. Modern Trade 750 77633.03 36908.75 40724.28 49.21167

5 Medlies Super Market Modern Trade 750 77633.03 38204.25 39428.78 50.939

6 Subiksha Super Market Modern Trade 200 20702.14 10256.4 10445.74 51.282

7 Subiksha Super Market Modern Trade 400 41404.28 20512.8 20891.48 51.282

May - August 2010 Vol. 6 Issue 1 23

Findings:
Marginal Contribution Analysis
1. Out of the 443 Outlets discounted on
Aquafina in Coimbatore Territory, 367
Outlets are showing a Negative Net
Marginal Contribution. It is mainly
because of the discount given to the
Outlets above and over the break even
CPC.
2. All the Outlets in the Coimbatore
Territory in CSD category are showing
a Positive Net Marginal Contribution.
Pepsi Co’s CSD category is not facing
extreme competition like it is facing in
the Bottled water Category.
3. 8 Outlets in the Coimbatore Territory in
CSD category is having a high Net CPC
of above 50. Majority of the Outlets
showing high discounted CPC is from
Modern Trade Channel where PET
bottles are discounted.
4. Net Contribution Ratio of Aquafina is -
4.99% and CSD is 23.25%. Aquafina is
not even providing anything to cover
for the fixed cost and Profit whereas
CSD category is providing 23.35% of
itssales to cover for the fixed cost and
Profit.
5. The Break Even CPC of the Aquafina 1
Litre is 10+2.8 case (For every 10 cases
2.8 cases free). Therefore any discount
given Over and above the break even
CPC will end up in Negative Net MC.
But out of the 443 Outlets discounted
on Aquafina, 367 Outlets are given a
discount of over and above 10+2.8 case
(For every 10 cases, 2.8 cases free). 80%
of the Sales Volume of Aquafina in
Coimbatore Territory is from the
Convenience and Eatery Channel.
Convenience and Eatery Channel is
where the Pepsi Co benefits a lot. Out
of the 331 Aquafina Outlets discounted
on the convenience and Eatery Channel,
278 Outlets are given a discount over
Strengths
l Company’s Incremental Net Marginal Contribution Perspective.
l Increase in Aquafina Sales Volume
l No Drop in distributor Margin.
l No loss to the Retailer as they are not forgoing any discount.
Opportunities
l Chance to penetrate into Outlets where Peps Co CSD
products are available but Aquafina is not available.
l A good chance to penetrate into the Wine shop Channel as
300ml is most sold in these Channel
24
and above the Break Even CPC.
6. Net Discounted CPC of Wine shop
Channel and Modern Trade Channel is
the highest in the Coimbatore Territory
(CSD). High net discounted CPC of
wine shop channel is due to the 10+3
case discount on 300 ml given to a large
number of outlets in this channel. High
net discounted CPC of Modern Channel
is due to the high discount on PET given
to majority of the outlets in this channel.
The only way to reduce the high
discounted Net CPC of Wine shop
Channel is to reduce the 10+3 discount
offered to outlets in the wine shop
channel with low sales volume.
7. High Net discounted CPC of 300ml pack
is because of the 10+3 cases (For every
10 cases 3 cases free) and 10+2case
(For every 10 cases 2 cases free)
discount given to a high number of
Outlets in the Wine Shop Channel.
8. Discounts have been given to many of
the Outlets in Coimbatore Territory
whose sales Volume is even lower than
an Ordinary Outlet which have
increased the Net discounted CPC of
the Territory.
9. 35% of the Sales Volume of the CSD
Category in the Coimbatore Territory is
from Convenience Channel. It is from
the Convenience Channel Pepsi Co
benefits a lot. This is mainly due to the
high sales of 200 ml pack in the
Convenience Channel. Eatery Channel’s
Contribution to the Sales volume is low.
Eatery Channel is where Company can
focus as there is a high scope for CSD
products in eatery channel.
10. The Most discounted pack in the
Coimbatore Territory is the 300 ml pack
and the channel in which 300ml
discounted more is the Wine shop
Channel.
11. Company gave the HVO status to a large
number of Outlets without even looking
Weakness
l Resistance to change by the Retailers
l Agreement by the retailers with the competitors not to sell Aquafina
Products.
l Low feasibility in Aquafina Outlets
Threats
l Chances that competitors COKE will come up
with the same strategy and enter the Aquafina Outlets.
at the concept that an HVO should have
at least double the sales when compared
to an ordinary Outlet.
12. 7 Outlets are given 10+3 discount in
300ml CSD category whose sales are less
than 30 cases per year. These Outlets
are having a Sales Volume less than that
of an ordinary Outlet.
13. 8 Outlets with single digit sales in a year
is given discount. This is a worst
situation where Outlets
14. With just single digit sales is given
discount. Company is not even
considering the concept of HVO
15. When granting HVO status to these
Outlets.
16. Outlet ‘Raja Stores’ with Sales Volume
of just 3 Cases per Year is given discount
in 200ml and Category.
17. Outlets ‘Blue Bell’ is given 10+5
discount on Aquafina. This Outlet is
given 10+5 discount in a scenario where
10+2.8 cases is the break even CPC.
Recommendations
In some of the distributors show negative
CPC. This is because they exceed the
approved CPC. The outlets of these
distributors have to be studied to find those
outlets availing more discounts.
The extra discount has to be cut down to
match with the approved CPC for each outlet.
By doing this the company can reduce its
expense in terms of discount.
Cross Pack Promotional Mix
Cross pack promotional Mix refers to giving
Aquafina as discount instead of CSD as trade
price of Aquafina (Rs 136) is less compared
to 200ml (Rs 171) or 300ml (Rs 220)
SWOT Analysis of the Cross Pack
promotional Mix:-
Journal of Marketing & Communication
l Cross Pack Promotion Mix will be a
helping hand to the Aquafina which is
suffering in the water category. These
calculations are based on the
assumption that CSD products will not
have any dip in its sales and Aquafina
given as discount will be an incremental
profit to the company.
l Increase the price of Aquafina 1 L from
Rs 13 to Rs 14. At present Break Even
CPC is 10+2.8 for Aquafina 1L. If the
Price of Aquafina is raised from Rs 13 to
Rs 14,this offers the company an added
advantage of giving discount to the
retailers.
l A benchmark should be introduced for
different discount slabs. The average
of ten best performing outlets (in terms
of sales volume) for a particular slab/
rate of discount should be taken as the
benchmark for all the outlets getting a
higher slab/rate of discount. For eg. An
outlet receiving 10+2 discount should
have more sales than the average of 10
best performance outlets that gets 10+1
discount .Channels like wine shops ,
leisure and transport need not be
considered as they are closed counters
where customer has to buy what
retailers offers.
l The main reason for the high Percentage
of Outlets showing a Negative Marginal
Contribution is the High discount
Offered to these Outlets. The Negative
Net Marginal Contribution can be
avoided by reducing or waiving the
discount given to those outlets. Other
option is to convert the High Volume
Outlets into Scheme Outlets so that
there will not be any commitment on the
part of the company to give the same
discount for the entire year and the
discount can be given to the outlets
according to the market situations.
l Discount of new Aquafina HVO’s should
start from 10+1 even though their sales
justify a higher discount. Discounts
given to present HVO’s with Negative
Net Marginal Contribution should be
reviewed. Discount given to present
HVO’s should be kept constant and
should not be increased.
l The Contribution of 1000ml Aquafina
and 2000ml Aquafina is less compared
to 500ml Aquafina. By increasing the
proportion of Aquafina 500ml in the
Aquafina Pack mix the Net Marginal
Contribution can be improved. In
Coimbatore and Tirunelveli Territories
500ml Aquafina sales comes to just 1%
of the total sales.
l Adequate measures should be taken to
make sure that distributor’s HVO sales
are greater than the distributor’s non
HVO sales.
l Following the Claims format designed
by the Company should be made
mandaratory to the distributors and
corrective measures like not passing the
Claims or holding the Claims is to be
taken against those distributors who are
not following the claims formats.
l Strictly implement the use of new Claims
Format by all the distributors. This will
reduce the claim processing time which
will further reduce the problem of
pending of Claim approval.
Conclusion
The HVO concept is that a HVO should have
at least double the sales when compared to
an ordinary Outlet. But many High Volume
Outlets are not even having the sales of an
average Ordinary Outlet. Discount has been
misused in a large scale by giving discount
to these outlets with low sales volume mainly
in the Coimbatore Territory. The main reason
for the Negative Net Marginal Contribution
showedby the majority of the Outlets in the
Aquafina Category in the Coimbatore
Territory is because of the high discount
given to these Outlets. The Company can
convert those HVO outlets which are
showing a Negative Net MC into Scheme
Outlets so that there will not be any
commitment to give the discount for the
entire year. The Negative Marginal
Contribution showed by the Aquafina
Outlets is the main problem Pepsi Co is facing
in the Coimbatore Territories. Company can
come out of this problem by reducing the
discount given to the Outlets or by
increasing the Price of Aquafina 1 Litre. But
in the CSD category Pepsi Co is continuing
its domination with its wide range of brands
and packs. 300 ml soda hasn’t made any high
impact in the Wine shop channel like it has
made in Other Territories.
High Volume Outlets should have business
throughout the year. That is why Company
has been entered into a 1 year agreement
with the HVO’s. The present scenario is that
HVO outlets are not removed from the HVO
list in the succeeding year even if they are
showing a low sales volume in the preceding
year. Certain high volume outlets are not
giving justification to this High Volume
Outlet status in terms of their sales volume.
Thus it is necessary to continuously monitor
HVO’s and review discount of Outlets
whose sales volume does not justify the
discount they receive. Benchmark for
different discount slabs can be used to set
limits in terms for HVO’s. This can result in
significant savings in terms of discount cost
as well as to rationalize the process of
assigning different discount slabs to outlets.

References

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Emergency Response (Boston, Mass., Tellus Institute, January).

Arora.M.N, Cost and Management Accounting, Vikas Publishing House Pvt, Ltd. Baumol, William (1996), “Predation and the Logic of the Average Variable Cost Test” Journal of Law and
Economics, Pp. 39, 49-72.

Billeria, L. J., AND D. C. HEATH: “Allocation of Shared Costs: A Set of Axioms Yielding a Unique Procedure,” to appear in Mathematics of Operations Research.

Cowling, Keith and Michael Waterson (1976), “Price-Cost Margins and Market Structure”, Economica, Pp.43, 267-274.

Haskel, Jonathan, Christopher Martin and Ian Small (1995), “Price, Marginal Cost and the Business Cycle”, Oxford Bulletin of Economics and Statistics, Pp. 57, 25-41.

Khan YM., Jain P K “ Management Accounting” (2007)The McGraw-Hill Companies., Pp.16.3 -16.56

ROY, RANA,(2002) The fiscal impact of marginal cost pricing, The spectre of deficits or an embarrassment of riches? Abstract for a paper presented at the Imprint seminar in Brussels, May 14-15.

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