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Giant Consumer Products Han Zhao MBA 671 1. Complete Exhibit 3.

Provide the answers in a table format.

Exhibit 3 part-1 Average Monthly Volume for: When that item is ON Promotion

D32

D16

10,460,943

6,210,221

When that item is NOT ON Promotion

6,816,235

3,088,565

When NOTHING is ON Promotion

7,174,739

3,798,942

Incremental Volume from promotion

3,286,204

2,411,279

Revenue change from promotion

$6,901,028.19

$5,787,068.64

Variable Cost change from promotion

$2,431,790.89

$2,001,361.24

Promotion Cost change from promotion

$3,761,117.38 $708,119.92

$4,305,342.54 ($519,635.13)

19%

-12%

Marketing Margin Change from promotion ROMI Part-2 Average Monthly Volume for:

D32

D16

When the other Dinardo's item is ON Promotion

5,740,724

424,648

When NOTHING is ON Promotion

7,174,738

3,798,942

-1,434,014

-3,374,294

Revenue change from promotion of other item

($3,011,428.98)

($8,098,305.60)

Variable Cost change from promotion of other item

($1,061,170.21)

($2,800,664.02)

$19,122.30

$72,994.00

($1,969,381.07)

($5,370,635.58)

Volume 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

($1,197,277.41)

Total Effect of D16 Promotion

$2,775,639.66

Total Brand Impact from Promotion on Marketing Margin Total Effect of D32 Promotion

($4,662,515.66)

Total Effect of D16 Promotion ROMI

-124%

($2,489,016.20) -58%

Part-3 Average Monthly Incremental Volume for Natural Average % Store Promoting for Natural Average Monthly Incremental Volume /Promo Point Incremental Volume from 25% Promo Points

705,252 7.63 92,431 2,310,786

Revenue change from promotion

$6,701,280.08

Variable Cost change from promotion

$2,079,707.61

Promotion Cost change from promotion

$4,125,425.00

Marketing Margin Change from promotion ROMI

$496,147.47 12%

2. Describe the concerns Capps raised regarding the use of trade promotions? To what extent should those concerns affect the “go” or “no-go” decisions to field a national sales promotion? Recently, FFD has encountered a shortfall in sales volume and gross revenues. Allan Capps the CEO of G is hesitant about running a trade sales promotion with retailers or not. Believing that this approach might cheapen the brand, he has outlined several concerns: cannibalization, brand equity erosion, forward-buying, -through, and consumer stockpiling. Cannibalization: is promoting one item and having any incremental volume come at the expense of another item. Thus one product may take sales from another product. With cannibalization, there is a reduction in the sales volume or market share of one product in of promoting a similar product by the same company. Thus, it is important to measure the ultimate return on a product with effect by cannibalization. For example, if McDonalds wants to open a new franchise in Muncie, the new franchise must take some of the market share or sales from the old franchise. In the case of G, Dinardo’s and Natural Meals should not have a serious threat of cross-brand cannibalization because they do not have large amount of cross-customers, and they have very distinctive product characteristics. Dinardo’s is used of high quality ingredients and seasonings that targets at customers who seek conventional palate; while Natural Meal targets more at health-conscious consumers. It has a good reputation in the field of producing natural, organic and low-fat frozen food. Thus, cannibalization in this case is minimal if go a sales promotion. Within the brand of Dinardo’s, there may be some degrees of cannibalization between D16 and D32, since they are same product just with different sizes. When evaluating the sales promotion performance on Dinardo’s, the cannibalization between D16 and D32 should be taken into consideration. Brand Equity Erosion: is implementing a ―price –off‖ deal on a super– brand without tarnishing its image. G had pulled back on the level on the level of promotion recently, since it worried about hurting the brand image. However, the most usual way to stimulate consumption is to cut price. G wants stay a strong

brand and customer loyalty when run a sales promotion. It is said, although FFD’s customers are price-conscious, they do not accept sub-par quality. This is to say, FFD’s consumers somehow do not link the price to G’s product quality. They may purchase the product at low price, but they do not suspect its brand credibility. Another good thing for G is, Dinardo’s and Natural Meals are under different brand names, so promoting them separately will be hurt each other’s brand image. Moreover, reducing price is not the only way of sales promotion. The company can offer coupons, which does not lower price of products, and retain the brand. Forward Buying: is retailers purchase a large quantity of the product while it’s available at a lower price–to-retailer (PTR). When the promotion period expires, the retailers can then sell the remaining inventory to consumers at regular prices, earning a bigger margin of profit, or they could continue to sell the product at a lower PTC beyond the intended period and thereby condition customers to expect product on-deal. Thus, it is important to make sure the retailers acutely promote during the periods. This retailer-related threat can also be prevented through the company g contract with retailers in order to insure the promotion price range, and to set up starting and ending time of promotion period, so that the company can better control the sales promotion. Another retailer-related threat is -Through. It is having retailers receive products at a discounted PTR and then not ing along the savings to consumers through a discounted PTC. Retailers who use aggressive -Through and diverting practices may make as much profit through the buying PTR as they make through sales to consumers without PTC. This also can be avoided through including certain conditions that specify the obligation of the retailers to reduce prices for the consumers. Retailer-related threats can hurt G’s overall brand credibility. Therefore, G and its division FFD should build strong and reliable relation with retailers. There are also some consumer-related threats. One is Stockpiling, consumer buy large quantities at low prices and store for future use. They save money by purchasing products during sales promotion. It causes problems that people are not willing to buy with regular prices any more. However, Sanchez didn’t view stock-pilling to be a pressing concern because stockpiling is not prevalent in frozen foods--the freezers in most homes are simply not large enough. FFD’s consumers are considered not behave with overbuying during sales promotion. The other is Switching Brand. In food product category, there is a portion of consumers seek discounted price when purchasing products. For those who are willing to switch brand, being a ―promotion-centric‖ consumer has become a viable option. This is to say, sales promotions are desired from consumers. G has it strength in food quality compare to competitors, so consumers should be loyal with G. In a word, sales Capp’s concerns regarding use of trade promotions are not very big deals. The most critical concerns are threats from retailers and retaining brand credibility.

3. Based on your analysis of Exhibit 3, do you advise Sanchez to run a national sales promotion (provide rationale)? If so, to which one of the items should the funds be allocated? I believe G’s FFD division should run a national sales promotion to achieve its profitability goals. FFD (Frozen Food Division) is the key contributor to Giant Consumer Product's (G) profits which have successfully grown over the past 30 years. The vice president of sales Bryon Flatt suggests undertaking a sales promotion that features FFD brands on special retailer’s in-store weekly circular and on end-aisle display is a tried-and-true mechanism for generating short-term sales lifts. According to the CFO, the return on marketing investment (ROMI) should be positive—anything less than 0 should not be deemed profitable. Sanchez needs to evaluate the past national promotion performance for the two brands Dinardo’s and Natural Meals. Thus, according to General Manager of FFD Mary Davidson’s suggestion, it is initially important to find out why national sales promotion should be launched. The rationales can be explained in three aspects: company’s performance, customer behavior and outsider threats. For company’s performance, FFD’s financial performance is significant to G. However, poor results of FFD would certainly influence G’s financial stature and make G at the low end of Wall Street’s expectation. The fact is almost all division key metrics are behind plan in by analysis in 2008, expect brand Natural Meals. Senior management sets overall top-line and profitability goals that G needs to meet in order to achieve its desired stock price. Therefore, a sales promotion on FFD division can boost sales fast and shortly to maintain G’s growth. For customer behaviour, research shows that consumers become more ―promotion-centric‖. They do not consider purchasing any item unless it has been discounted. There are many substitutes in the market for consumers to switch to. Sales promotion must be seen as relevant to customers. It is also essential to build customer loyalty and widen brand awareness. For outsider threats, FFD must carry out promotions in order to compete with other brands to gain market share. Meanwhile, restaurants have become a formidable rival to supermarkets as they capture almost 50% of all consumer dollars spent on food. It is quite competitive if a sales promotion is put into practise for FFD’s brands. With national sales promotion, which brand or item of FFD should be funded? The company has two main products lines, frozen dinner Dinardo’s and Natural Meals. Dinardo’s current pricing strategy is low/high pricing, while Natural Meals is line-priced that never had a national sales promotion previously. Looking at Exhibit 3, it is obvious that the previous national sales promotion on Dionard’s did not perform very well (with negative ROMIs) by the effect of cannibalization between D32 and D16. However, the prediction of running a national sales promotion on Natural Meals shows a positive financial impact associated with ROMI of 12%. This is with assumption that 25% of the retailers would participate in the sales promotion. Comparing to Dionard’s, Natural Meals will generate larger marketing margin. It also reflects Natural Meals performance shown in Exhibit 1, which only Natural Meals have completed the annual plan for almost all key metrics.

My suggestion is to run a national sales promotion on Natural Meals instead of Dinardo’s. However, under a national sales promotion by typically cutting the price, the risk of eroding Natural Meals’s brand exists. Offering coupons is more fit to Natural Meals, which discount the products without pricing low. It not only protects the brand, but also gives out chances for increasing brand awareness. Unlike G’s current marketing strategy, the company should put more efforts to the Natural Meals, which is the most profitable product of FFD. To enhance brand awareness of Natural Meals, G has the opportunity to create a culture of healthy eating and achieve its financial goals.