Giant Consumer Products:

The sales promotion resource allocation decision

8/9/2013Great 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 FFD’s 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 705251.95

Average % store promoting 7.6125

Average Monthly Incremental volume/Promo print 92643.9

Incremental Volume from 25% promo print 2316098.35

Revenue change from promotion 2645230.65

Variable cost change from promotion 634726.755

Promotion cost change from promotion 4125425

Marketing margin change from promotion -211491.1

Promotion of Dinardo 16 and Dinardo 32 considering cannibalization effect

Average monthly volume for: Dinardo 32 Dinardo 16

When the item is ON promotion 10460942.5 6210220.4

When the item is not ON promotion 6816235 2900022.89

When Nothing is ON promotion 7542113.8 3857002.6

Incremental volume from promotion 2918828.27 2353217.8

Revenue change from promotion 6129540.27 5647722.72

Variable cost Change from promotion 2159933.23 1953170.774

Promotion cost change from promotion 550722.24 600865.24

Marketing margin change from promotion 3,418,884.8 1,741,381.172

Considering within brand-cannibalization effects of promotion

Average monthly volume for: Dinardo 32 Dinardo 16

When the other Dinardo's items is on promotion 5740724.2 424773

When nothing is on promotion 7542113.8 3857002.6

Volume change from promotion of other item 1801389.6 3432229.6

Revenue change from promotion of other time 3782918.16 8237351.04

Variable cost Change from promotion of other item 1333028.3 2848750.5

Promotion cost change from promotion of other product

550722.24 600865.24

Marketing margin change from promotion of other product

1899167.62 4787735.3

Total brand impact from promotion on top line revenue Total effect of D32 Promotion -2107810.77

Total effect of D16 promotion 1864804.56

Total brand impact from promotion on marketing marginTotal effect of D32 promotion -1368850.5

Total effect of D16 promotion -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 Meals and Dinardo’s 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 FFD’s 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 16’s 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 Retailers ConsumersIncrease in market growth

Wider variety on the shelf

Healthy alternatives

Purchase time acceleration

Increased margins (Natural meals is a premier offering

Premier product made affordable

Increase reach of Natural meals offering

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 FFD’s 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 GCP’s 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 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. 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.