Reynolds Metal Company: Consumer

Products Division

CASE SUBMISSION
GROUP 18
ABHINAV ANAND 13204
SHAIK NISHAD 13233
SUJIT KUMAR BARAL 13550
TUSHAR SHARMA 13255

SLMT-2
Problem statement:
Problem #1: What should be the trade promotion policy of Reynolds in future.
Two options are available:

Business as usual
100% MDF

Problem #2: If Steve Rosser choose to go with 100% MDF, what should be his
method of implementing it.
Analysis
Profit-loss sheet under for Reynolds aluminium foil under different scenarios.
Description

Reynolds wrap

GIVEN
DATA
Gross pounds
list price per lb

269379

Decrease by
9.55%
increase by
5%

689610.24

554920.74

2.163
527022.09
98

Trade
cash allowances
Market development
New distribution

27678
18303
1005

27678
18303
1005

45981
1005

Consumer
Coupons

25662

25662

25662

4596
465

4596
465

4596
465

77709

77709

77709

sales at list

2.06

SITUATION
WITH 5%
PRICE
INCREASE
243653.30
55

SITUATION
WITH 100%
MDF(10%
PRICE CUT
WITH 100%
MERCHAND
ISE
SUPPORT

1.854
1278537.3
85

Promotions

Other
Special promotions
Meals on wheels
Total promotions

Gross sales
Freight
Returns and
allowances

Net sales

COGS

Gross profit
Sales G&A
Advertising
Market research
Coupon fees
Miscellaneous

inventory

Total Sales G&A

477211.74

449313.09
98

1200828.3
85

18972

18972

18972

20339

20339

20339

437900.74

410002.09
98

1161517.3
85
calculated
as( COGS
old/Volume
old)*Volume
new

361776

327226.39
2

76124.74

82775.707
8

235370.82
5

31689
1176
4596
0
We dont
know the
inventory
turnover
for this
situation
so
inventory
savings
cant be
calculated.
Still it can
be
assumed
that
savings in
inventory
wont be
high
enough to
match
gains in
100% MDF
with 10%
price cut.

31689
1176
4596
0

31689
1176
4596
0

already
included
as part of
expenses

37461

37461

It is savings
therefore
negative sign

926146.56

2834.0146
85
34626.985
32

38663.74

45314.707
8

200743.83
96

7.1410099
22

17.202080
8
6.7819956
48

419.20440
09
16.452886
86

Operating profit

Increase in operating
profit
Efficiency of
promotions

It is clear that increase in sales per dollar spent on promotion is nearly double
if 100% MDF is implemented while it has decreased if prices are increased by
only 5%.
Profit and loss sheet of Reyonlds plastic wrap under different scenarios.
Calculations made here are similar to what are mentioned for Reynolds
aluminium foil.
Description

Gross pounds
list price per lb
sales at list

13653
6
81918

Plastic wrap
5%
INCREASE
100% MDF
IN PRICE
IMPLEMENTATION
11646.009
34815.15
6.3
5.67
73369.8567
197401.9005

Promotions
Trade
cash allowances
Market development
New distribution

7317
4644
609

7317
4644
609

11961
609

11541

11541

11541

0
441

0
441

0
441

Total promotions

24552

24552

24552

Gross sales

57366

48817.8567

172849.9005

1281
2802

1281
2802

1281
2802

Consumer
Coupons
Other
Special promotions
Meals on wheels

Freight
Returns and allowances

Net sales
COGS

53283
34475

44734.8567
29407.175

168766.9005
87911.25

Gross profit

18808

15327.6817

80855.6505

Sales G&A
Advertising
Market research
Coupon fees
Miscellaneous
inventory

15312
1857
2712
0

15312
1857
2712
0

15312
1857
2712
0

Total Sales G&A

19881

19881

19881

Operating profit

-1073

-4553.3183

60974.6505

increase in operating
profit
Efficiency of promotion
dollar

Bumper
loss!!
3.336510
264

2.98834541
8

Significant rise in
profit

8.040155609

Here too we arrive at same conclusion what we received in Reynolds

aluminium foil case
Since customer base is loyal we assume that even when retailers increase the
price due to 100% MDF implementation by 5% they will continue to buy the
Reynolds products.
After performing above calculations on data provided, we conclude that going for
100% MDF is certainly a better option for Reynolds.
Consequences of 100% elimination of off-invoice allowances.

Traders will increase price of good for consumers

Since Reynolds is a market leader with strong brand equity it can afford to
offer its products at higher prices.

Competitors may take advantage by aggressively pushing for off-invoice

allowances
They will not do it. Increasing off-invoice allowances may increase the
bottomline but certainly hits the return on investment(ROI). Hence your
profits are effectively diluted by your huge investments which is not
feasible in the long run.

What if they still do it??

Then it will be good for Reynolds because not all competitors will see rise
in sales by adopting aggressive off-invoice allowance because industry is
highly competitive with little differentiation in product. Those who wont
will certainly be wiped out from the market altogether.

What about the conflicts within the company due to transition of

promotion activity from marketing to sales.
i) Rosser may run this policy on pilot basis and convince the employees
by the results obtained.
ii) Rosser can take motivational approach. He may say that price should
not be a factor for our consumers to buy our products. Hence
marketing of products must not be on basis of promotion based
activities.

What about retailers and distributors?

i) Let them increase prices but in phased manner so customers dont see
sudden jump in prices.
ii) Slight change in distribution channel can also be done. Large retail
chains wont mind stocking Reynolds products.