Daft is the closest competing firm in ‘Italian frozen dinners’ segment that has been stable with 25% market share and is preparing to launch Healthy food options. Apart from the above, Natural food retailers and restaurants also pose a threat to GCP (FFD) revenues. CONTEXT GCP needs to have an above industry average growth to meet the expectations of financial markets (“Wall Street”). The gross revenue and marketing margin have been less than expected so far (till August 2008).
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Compound Annual Growth Rate (CAGR) for frozen food industry has been reducing since 2007. Super markets’ and retailers’ influence is increasing in promoting any product in frozen food industry. GCP needs to re-strategize its promotion plan to meet the planned financial figures. On the technical frontier there is a lack of measurable metric to gauge the success of promotions. Question 2: What is your advice to Sanchez regarding the national sales promotion? Shcould the funds be allocated to: (a) Dinardo’s 32-ounce package, (b) Dinardo’s 16-ounce package, or (c) Natural Meals?
Justify your decision by developing ppropriate criteria and conducting an analysis based on those criteria. Situational Analysis Impact of promotions of individual brands: Dinardo’s32: GCP has done national level promotion for Dinardo’s32 four times in last 2 years. Key highlights of the promotion are: Average % Retailer participating in national promotion : 27. 07% Iincrease in sales volume of Dinardo’s32 : 45% Cannibalization of Dinardo’s16 : 88% decline in sales volume of Dinardo’16 Net impact on Top-line revenue: Decrease by $1. 2 million dollars.
Net impact on Marketing Margin of FFD : Decrease by $4. 5 million ROMI : -1. 2 Dinardds16: GCP has done national level promotion for Dinardo’s16 five times in last national promotion : 30. 8% Iincrease in sales volume of Dinardo’s16 : 63% Cannibalization of Dinardo’s32 : 20% decline in sales volume of Dinardo’16 Net impact on Top-line revenue: Iincrease by $2. 8 million dollars. Net impact on Marketing Margin of FFD : Decrease by $2. 5 million ROMI : -0. 57 Natural Meals: This brand has never been premoted at national level by GCP because of fear of tarnishing the premium brand image.
However, the projections of national promotion (if carried out) seem positive economically positive. There has been very little or no correlation between the promotion of D32 or D16 and sales of Naturals ea s Ine data Inalcates tnat tnere nas Deen no cannlDallzatlon on sales 0T Natural Meals because of promotion of D32 or Dl exhibit 3). Also, this is the brand which has shown the y-o-y growth of 15% which is a potential oopportunity in the food industry. To forecast the national promotion impact of Natural meals on the financials of FFD, we assumed that 25% of the retailers will agree to premote the brand.
Key highlights of the analysis: Average % Retailer participating in national romotion : 25% Iincrease in sales volume of Natural Meals : 50% No significant cannibalization of other brands Net impact on Top-line revenue: Iincrease by $6. 7 million dollars. Net impact on Marketing Margin of FFD : Iincrease by $0. 5 million ROMI : 0. 12 Seasonal sales analysis and impact of promotion on Forward-buying: Refer Exhibit 2. There is no consistent seasonal impact of months on the total sales of each brand in last two years. The maxima in the graphs are due to promotion of the brand and minima are due to the promotion of other brand (Cannibalization).
The subsequent onths do not show any drop in the sales which confirms that there is no significant Forward-buying concern. Strategic Options GCP has an option of promoting Dinardo’s32, Dinardo’s16 and/or Natural Meals in the last four months of the year to boost its marketing margins to meet the annual target. Below are the Pros and Cons of promoting each brand. Dinardo’s32 Dinardo’s16 Natural Meals pros Cons Iincrease in sales revenue of D32 Huge Cannibalization of D16. Negative sales revenue for FFD. (Exhibit 4) Iincrease in sales revenue of D16 Significant Cannibalization of D32. (Refer Exhibit 4)
Iincrease in sales revenue Premium product image tarnishing. Negligible stock piling Negative ROMI (-1. 2). (including the effect of cannibalization) Negligible stock piling Negative ROMI(-O. 57). (including the effect of cannibalization) Ppositive ROMI (0. 12) Aggressive promotion response from Daft. Iincrease in marketing margin of D32 High promotion cost Decrease in Marketing margin of D16. No significant cannibalization (Reter ExnlDlt 1 Tor more aetalls) Comparison of Promotion Strategies: GCP has three options to engage in promotional activities with the retailers and super markets i. , Off Invoice, Pay for Performance and Target Based. GCP has been traditionally going for pay-for-performance strategy in promotion of D32 and D16. Off Invoice Pay-for performance Target-based Iincrease in sales because of forward buying. Retailers may not pass cost benefit to end customers. Iincrease in sales. Retailer’s apprehension. No forward buying Retailers’ apprehension Benefit and incentives for Retailers. No tracking of actual sales. Measurable outcome. Only 25-30% retailer’s participation. Measurable outcome Retailers participation may go down below 25% Key Analysis:
GCP has been traditionally going for pay-for-performance strategy in promotion of D32 and D16. However, we would recommend GCP to go for a mix of off invoice and pay for performance strategies for promotion of Natural Meals brand. Under this scheme, the retailers would receive 50% of promotion incentive when they first place an order with GCP (Off invoice promotion). The remaining 50% of promotion incentive will be paid to them when these items are sold to the end customer at promotional prices (pay-for-performance). This would reduce the retailer’s apprehension as they will be getting an advance amount for promotion.
We expect this strategy would result into increase in the % of store participation to minimum 40% from current estimated 25%. We have noticed that promotions of D32 and D16 have a negative impact on sales of the other due to cannibalization. As the end effect, the marketing margin gets affected if we premote any of the two. Data shows that, there is a negative impact of every promotion (regional or national) of D32 or D16. *(Refer exhibit 1- Part I and Part II and Exhibit 4). For every promotion ppercentage of D32, average sales of D16 are reduced by 171 ,752. This shows that even during the verage regional promotion of D32 at 7. 3%, sales of D16 are getting affected by 1,275,903. i. e. if we stop the regional promotion of D32, there will be rise in monthly sales of D16 by 1,275,903. In this case, the sales of D32 will be equal to baseline sales ana promotlon expenalture will De u Ssimilarly, tnere wlll De rise In montnly Iincrease in sales of D32 by 437,428 by reducing the promotion of D16 to O. Also, the average sales of D16 without promotion will be equal to baseline sales. It has also been noted that, even for Dinardo’s other, considering only the baseline volume and bringing the egional promotion down to O helps in improving the bottom-line.
GCP is losing money by doing regional promotions on Dinardo’s other as promotion costs are higher than marketing margin gained by the promotions. As ROMI on Natural Meals is positive, we would recommend 40% national promotion of the same for two months out of four months remaining. This will be possible because of new promotion strategy of mix of off invoice and pay-for -performance strategies. Advice: As a conclusion, our advice to Mr. Sanchez will be stop promotion of Dinardo’s brands (both regional and national) for next four months and run a national promotion for Natural Meals in 40% of the stores in two of the next four months.
This would help FFD to meet their annual target (Marketing Margin/Profit will be approximately equal to the planned profit for 2008). Refer exhibit 5. (Table for last four months projected volume). Positioning Statement Keeping in mind the positive ROMI and ppercentage increase in per year sales (15% increase) of Natural Meals, we plan to achieve our targeted revenue for 2008 by exploiting its popularity among health-conscious customers and launching its promotion campaign at National Level in two of the next four months. We will also top promotion of all the Dinardo’s products both at regional and national level.
Implementation Strategy 1 . Product: Banking on the success in regional promotion of Natural Meals, Ppositive Return on Marketing Investment (ROMI) and expected increase in participation from retailers (owing to mix of off-invoice promotion strategy and pay-per-performance strategy), we will premote Natural Meals for 2 months at National Level. 2. Promotion: 50% for pay-per-performance strategy and 50% for off-invoice strategy We expect the participation of retailers would increase from anticipated 25% currently using pay-per-performance approach) to 40% (using combination of off-invoice and pay-per-performance approaches).
This would help us reduce significantly the impact of competitor’s product launch as we will have sthronger ties with retailers and we will leverage the “deal-conscious” nature of consumers. 3. Price: By promoting Natural Meals, we will give the consumers attractive discount keeping the marked price same. 4. Place: Leveraging the good relations with super markets and retailers, we will strive to secure front-end displays for Natural Meals, highlighting its key features and attractive discounts. M Model of marketing communications is used to increase Natural Meals brand-awareness.
Market Encourage existing customers to buy more at discounted prices. Attract new customers by highlighting health-benefits and discounted prices. Mission To meet the annual plan for FFD to improve the bottom-line. Message Consume low fat foods free of any added preservatives at reasonable costs. Media Advertise in print-media to raise awareness about the promotion campaign Money Encouraging customers to buy in volumes by offering discounts in sales period. Measurement ROMI ana nlgner MarKetlng-Marglns to meet annual target. Question 3: Shcould the FFD division be running promotions at all?