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

Exhibit 3 part-1 Average Monthly Volume for: When that item is ON Promotion When that item is NOT ON Promotion When NOTHING is ON Promotion Incremental Volume from promotion Revenue change from promotion Variable Cost change from promotion Promotion Cost change from promotion Marketing Margin Change from promotion ROMI Part-2 Average Monthly Volume for: When the other Dinardo's item is ON Promotion When NOTHING is ON Promotion Volume change from promotion of other item -1,434,014 Revenue change from promotion of other item Variable Cost 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 Total Effect of D16 Promotion Total Brand Impact from Promotion on Marketing Margin Total Effect of D32 Promotion Total Effect of D16 Promotion ROMI -124% ($4,662,515.66) ($2,489,016.20) -58% ($1,197,277.41) $2,775,639.66 ($3,011,428.98) ($1,061,170.21) $19,122.30 ($1,969,381.07) -3,374,294 ($8,098,305.60) ($2,800,664.02) $72,994.00 ($5,370,635.58) D32 10,460,943 6,816,235 7,174,739 3,286,204 $6,901,028.19 $2,431,790.89 $3,761,117.38 $708,119.92 19% D16 6,210,221 3,088,565 3,798,942 2,411,279 $5,787,068.64 $2,001,361.24 $4,305,342.54 ($519,635.13) -12%

Provide the answers in a table format.

D32 5,740,724 7,174,738

D16 424,648 3,798,942

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 Revenue change from promotion Variable Cost change from promotion Promotion Cost change from promotion Marketing Margin Change from promotion ROMI

705,252 7.63 92,431 2,310,786 $6,701,280.08 $2,079,707.61 $4,125,425.00 $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 GCP 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, pass-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 terms 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 GCP, Dinardos 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. Dinardos 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 Dinardos, 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 Dinardos, the cannibalization between D16 and D32 should be taken into consideration. Brand Equity Erosion: is implementing a price off deal on a superpremium brand without tarnishing its premium image. GCP 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. GCP wants stay a strong

brand and customer loyalty when run a sales promotion. It is said, although FFDs customers are price-conscious, they do not accept sub-par quality. This is to say, FFDs consumers somehow do not link the price to GCPs product quality. They may purchase the product at low price, but they do not suspect its brand credibility. Another good thing for GCP is, Dinardos 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 its available at a lower priceto-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 signing 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 Pass-Through. It is having retailers receive products at a discounted PTR and then not passing along the savings to consumers through a discounted PTC. Retailers who use aggressive Pass-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 GCPs overall brand credibility. Therefore, GCP 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 didnt 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. FFDs 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. GCP has it strength in food quality compare to competitors, so consumers should be loyal with GCP. In a word, sales Capps 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 GCPs 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 (GCP) 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 retailers 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 positiveanything less than 0 should not be deemed profitable. Sanchez needs to evaluate the past national promotion performance for the two brands Dinardos and Natural Meals. Thus, according to General Manager of FFD Mary Davidsons suggestion, it is initially important to find out why national sales promotion should be launched. The rationales can be explained in three aspects: companys performance, customer behavior and outsider threats. For companys performance, FFDs financial performance is significant to GCP. However, poor results of FFD would certainly influence GCPs financial stature and make GCP at the low end of Wall Streets 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 GCP 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 GCPs 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 FFDs brands. With national sales promotion, which brand or item of FFD should be funded? The company has two main products lines, frozen dinner Dinardos and Natural Meals. Dinardos 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 Dionards 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 Dionards, 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 Dinardos. However, under a national sales promotion by typically cutting the price, the risk of eroding Natural Mealss premium 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 GCPs current marketing strategy, the company should put more efforts to advertise the Natural Meals, which is the most profitable product of FFD. To enhance brand awareness of Natural Meals, GCP has the opportunity to create a culture of healthy eating and achieve its financial goals.