Case Analysis MCM Giant Consumer Products IIMZ

Case Analysis Giant consumer Products The Sales Promotional Resource Allocation Decision

Assignment Submitted to
, IIMZ

Prepared by:
Name we

August 2012

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Case Analysis MCM Giant Consumer Products IIMZ

Table of Contents
Table of Contents........................................................................................................ 2 Introduction ................................................................................................................ 3 Company & Industry background................................................................................4 Consumer buying pattern.........................................................................................4 Frozen food division ................................................................................................5 Promotional Planning & Execution............................................................................6 Questions ................................................................................................................... 7 Would the promotion end up being a win for not only FFD, but also for retailers and consumer?............................................................................................................... 7 How should FFD structure the promotion?................................................................7 Should FFD go with the off invoice pricing that retailers preferred having the manufacturer temporarily reduce the price to retailer of a given item for a specified time so that the retailer could purchase it in the desired quantity or should FFD stick with the pay for performance approach? Or alternatively, should FFD compensate retailers only if they hit some established target?................................9

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Case Analysis MCM Giant Consumer Products IIMZ

Introduction
This case is about Giant Consumer Products, Inc. in the year 2008. The result for the month of July 2008 was bad for Frozen Food Division. The sales volume was down by 3.9% gross revenue was down by 3.6% & marketing margin was down by 4.6% as compared to the plan. This poor performance will adversely affect the financial status in the market also. Now to act on these negative results and turn this into positive the CEO Mr. Allan Chapps met with Mr. Byron Flatt. Vice-President Sales. They are contemplating on the sales promotional activity to improve on the sales. The agenda for the discussion among the top management and even in the next level of management is to do an analysis of this respective activity and conclude whether GCP should go ahead for it or not for their frozen food department.

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Case Analysis MCM Giant Consumer Products IIMZ

Company & Industry background

The supermarket, which was offering almost everything to the customer, was constantly working on the means and ways to add to the number of items a customer puts in the market basket during every visit. This means and ways start from identifying the appropriate assortment of product, appropriate place for them and suitable promotional activities to influence the customer decision. Among these entire assortments frozen food category represented one of the largest categories in the frozen food aisle. This category has seen a moderate growth from 2003 to 2007 with CAGR of 2.8%. In 2007 the growth was declined as compared to past five years. The only competitor to frozen food products were the services offered by restaurants. To compete with them the frozen food had propagated following prepositions like convenient, high quality, fresh, good taste and above all it was twice less expensive. With these USP the company successfully had registered growth by anticipating the consumer behavior in advance like, emergence of dual carrier family, increase in commute time and less time available for meal preparation. One of the most important reason for finding a decent space in the supermarket was, <1> Excellent margin offered to retailer by charging premium on the quality product, <2.> Health conscious alternative also attracted the customer a lot.

Consumer buying pattern

As understood by the company, the consumer buying pattern may be represented in the following steps. And in the course of following the respective steps a consumer selects the product. It was also observed that a consumer has become more of deal conscious which means the consumer will only purchase item if there is some discount on it. And there is another set of consumer which may be influenced by the promotional activity, known as promotion centric customer. But in any case for FFD the phenomenon of stockpiling will not happen.

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Case Analysis MCM Giant Consumer Products IIMZ

Frozen food division
Frozen food is broadly divided in two brands and their sub groups may be explained in the table below. One of key contributor to the bottom line was The DinardosTM Brand (almost 75% of revenue 425 million per year). It was introduced in 1970 and features mostly traditional items Spaghetti & meat balls, Lasagna and Chicken Cacciatore etc. although the meals were simple but had very high level of quality standards of ingredient as well as seasoning. 32 Ounce package. (D32) Inexpensive way to feed family of four This was a solution for two. Young couples without children or old couple whose children are not with them. Developed for single person. Was overnigh t successf ul Price conscious customer High product quality

The DinardosTM Brand

16 Ounce package. (D16)

Was successf ul

Not so price conscious.

Simple, easy to prepare, good taste.

6 to 8 Ounce package.

Was not so successf ul

The Natural MealTM, a highly successful regional brand was acquired by GCP and it accounted for 25% of FFD revenue (almost 150 million per year). It was understood that among these two brands cross brand cannibalization will not happen. This company predicted that after acquiring it would be possible for the business to grow by 5 to 10 time as a result from synergy through existing similar business and due to efficiency gains resulting from scale economies. The Natural MealTM brand Simple color palette and imagery. For health conscious customer. Was successf ul in healthy Low in fat, organic frozen food, no Page 5

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Case Analysis MCM Giant Consumer Products IIMZ

but eatable segment unnecess ary preservati ve or additive.

Promotional Planning & Execution

The annual plan was set in the following way. 1. To achieve the desired stock price over all top line and profitability goals were set. 2. Then for each division specified annual targets were set. 3. Then for all product marketing division. Next for FFD annual target for the same key metrics were set after proper deliberations. Now in structuring the promotional an annual promotional plan was developed. Duration of one week. The timing was set based on number of factors which would affect actual sales. Retailers were informed well in advance and according timely preparations were done. The standard was to provide a distinct aisle & offering price reduction to customer.

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Case Analysis MCM Giant Consumer Products IIMZ

Questions Would the promotion end up being a win for not only FFD, but also for retailers and consumer?
Yes the promotion would bring a win win for all the three pillars of business i.e. to FFD, to Retailers and to consumer. From the exhibit 4 it is very clear that whenever there had been promotional activity, the respective product has received a remarkable incremental growth. For example D32 in Nov 2008, Sep 2007 and Feb 2008. And similarly for D 16. During these activities the consumer gets a deal for price saving along with the known quality for which the company is famous for. Retailers enjoy additional sales and hence additional revenue just by preparing themselves in right way and at right time.

How should FFD structure the promotion?

The FFD structure for the promotion should be based on the marketing margin. By following this process we have a clear idea of what has happened in the past and to what extent the promotional activity has affected the revenue growth. Again by following the same steps FFD should plan the promotional activity. The calculation for marketing margin is done as per the chart explained bellow. Now from exhibit 3, if we do the calculations we will find that on month on month basis what has been the impact of promotional activity. The incremental gain achieved during that particular period due to promotional activity. Also we have to calculate the impact of cannibalization and then look at the actual scenario of benefit of the promotional activity.

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Case Analysis MCM Giant Consumer Products IIMZ

Marketing margin = Revenue Cost

Revenue -> (Incremental volume generated by sales promotion) * (Price to retailer)

Total cost associated with undertaking sales promotion Direct expense Promotional allowance COGS Distribution Indirect expense Cannibalization

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Should FFD go with the off invoice pricing that retailers preferred having the manufacturer temporarily reduce the price to retailer of a given item for a specified time so that the retailer could purchase it in the desired quantity or should FFD stick with the pay for performance approach? Or alternatively, should FFD compensate retailers only if they hit some established target?
FFD should stick to the pay for performance. As this will ensure the probability of achieving the top line is very high.

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