EPGPX02.

GROUP 9
GIANT CONSUMER Ashish Kumar Saini - epgpx02.014
Arshiya Ghazanfar - epgpx02.022
Abhishek Shukla - epgpx02.027
Vaibhav Ahuja - epgpx02.039

PRODUCTS Namrta Narula - epgpx02.046

Vibhor Goyal - epgpx02.047
Burhanuddin Husain - epgpx02.049
Siddhi Kochar - epgpx02.081
Group 9 Assignment
To what extent should the concerns that Capps has raised regarding trade
promotions (cannibalization, brand equity erosion, forward buying, pass-
through and stockpiling) affect the “go” or “no-go” decision to field a
national sales promotion?
Answer: FFD recently had a shortfall on their sales volumes as well as revenues
for their growth. Mr. Capps was doubtful about whether to run the trade sales
promotion with retails. He believed this approach might devalue the current
brand. He believed several things should be mitigated before moving forward:
cannibalization, brand equity erosion, forward-buying, pass-through, and
consumer stockpiling.
Cannibalization
Cannibalization occurs when the incremental sales from the promotion of one
product come at the expense of another product of the same company. One
product is taking sales away from another product that is not a competitor. With
cannibalization, there is a reduction in the sales volume or market share of one
product due to the promoting of a similar product by the same company. It is
important to measure the effect to of cannibalization when determining the
ultimate return on investment of a promotion. In GCP’s case, there is very little
concern over cannibalization across the two brands, Dinardo’s and Natural
Meals, because the brands target different consumer segments and appear to be
purchased by different consumer groups. Natural Meal’s target’s the most
health conscious of consumers, those who are willing to pay a premium price
for a product with organic and all natural ingredients, while Dinardo’s targets
more price conscious consumers who still want quality ingredients and good
taste. Cannibalization is not a large factor in determining which brand to run a
promotion on. However, if Dinardo’s is the chosen brand, cannibalization will
be a factor in determining which product size will be promoted. When
evaluating the sales promotion performance on Dinardo’s, the cannibalization
rate between D16 and D32 should be taken into consideration.

Brand Equity Erosion

Brand Equity Erosion is implementing a “price–off” deal on a super–premium
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 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 GCP’s product quality. They may purchase the product at low price,
but they do not suspect its brand credibility. Another good thing for GCP is,
Dinardo’s and Natural Meals are under different brand names, so promoting
them separately will be hurt each others’ 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
Forward buying is a retailer related factor that occurs when 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 then sell the remaining
inventory to consumers at regular prices, earning a bigger profit margin. It is
also possible for retailers to continue to sell the product at a lower price to
consumer (PTC) beyond the intended period and thereby condition customers to
expect the product on-deal.
Knowing this, in order to maintain brand image, it is important to ensure that
retailers are following promotional guidelines. This threat can be reduced
through signing a contract with retailers in order to insure the promotion price
range, and to set up starting and ending time of promotion period. Non-
compliance with pass-through is another retailer related threat that occurs when
savings are not passed on from retailer to consumer. Retailers purchase product
at a reduced PTR but do not reduce the PTC to match. This can also be avoided
through including certain conditions that specify the obligation of the retailers
to reduce prices for the consumers. Retailer-related threats can hurt GCP’s
overall brand credibility. Therefore, GCP and its division FFD should build
strong and reliable relationships with retailers.

Consumer Stockpiling
Stockpiling can pose several threats to retailers. Stockpiling is when consumers
purchase a large amount of the same brand products ahead of their needs. When
a retailer promotes a brand regularly offered at higher price and is promoted at a
lower price, consumers will buy more than needed, to ensure they get the
product at the low price. The purpose of having promotions is for the retailer to
get the consumer to exposed to product or even give the consumer to try a
product, in hopes that when the price is back normal, the consumer would still
buy. In most cases, the consumers that are stockpiling products are well familiar
with brand item, therefore taking away from the person that was hoping to try
the product at the lower price, thus almost defeating the purpose of promotion.
When promotion items are stockpiled, it leaves shelves empty for consumers
who want to simply purchase that particular item. For example, a consumer sees
an ad for a sale promotion, when they go to their local store to purchase the
item, they notice there are not more left. The consumer is forced to leave to
another store or just buy another brand. 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

Pass-through
Another threat to retailers is Pass through. According to the text, pass through is
having retailers receive products at a discounted PTR and then not passing
along the savings to consumers via a discounted PTC. The consumer benefits
from having products discounted, however when retailers offer price at
discounted PTR, it negatively affects the reliability of the GCP. The reason for
the GCP reduce the PTR is to give retailers the opportunity to promote products
at lower prices in order to gain consumer patronization. To reduce the threat of
pass through, retailers should maintain a trusting relationship with the FFD.
Keeping a good, business relationship will contribute to the overall brand of the
GCPs.

Do you advise Sanchez to run a national sales promotion? If so, to which

one of the items should the funds be allocated: (a) Dinardo32, (b)
Dinardo16, or (c) Natural Meals?

Answer: Based on previous company performance, consumer behavior, context

of the market, and consideration of Cap’s concerns, we would advise Sanchez to
run a national sales promotion with its Natural Meals brand. We think that due
to the fact that FFD holds a major portion of market share of the “Italian Frozen
Dinners” subcategory (43%) and is already trusted by its consumers, it is less
likely that they will attribute a sales promotion to a reduction in quality. In
addition, it is possible to structure promotions in a way that minimizes brand
equity erosion. In regard to market competition the case study stated that GCP’s
main competitor, Draft, is in the process of launching its own “Healthy
Options” brand. One of the inferred effects of a national sales promotion stated
in the case study is that there will be market growth, an overall increase in
consumption of this category. In a competitive context, driving new consumers
into the market, especially by getting them to try GCP’s brand, could be helpful
in reducing the market share lost by the addition of a new competitor.

Despite the concern of brand image deterioration, or the fact that the Natural
Meals brand has never implemented a national sales promotion, based on my
analysis, it is the better option of the two brands. Looking at Exhibit 3, the
previous national sales promotion on Dionard’s did not perform very well, with
negative ROMIs, due to 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%. It is stated in
the case study that GCP considers this the most important metric. Natural
Meal’s cost of promotion is also not high enough to exclude it, when compared
to the cost of D16 and D32. Compared to Dionard’s, Natural Meals will
generate larger marketing margin. It should also be considered that only Natural
Meals has completed the annual plan for almost all key metrics. All this comes
with the assumption that 25% of the retailers would participate in the sales
promotion.

There are other intangible factors to consider. Even though Natural Meals has
historically been considered a niche brand appealing to only a small segment of
the market, it has been experiencing growth of 15% per year. This may be
because Natural Meals appeals to the trend of increasing health-consciousness
among consumers. Thus, in focusing on promoting Natural Meals, the company
may be able to ride this trend to boost sales even further.

Two options are provided for FFD to structure their promotions, each with its
benefits and drawbacks. With “off-invoice pricing”, retailers are given free
reign on how to manage the sales of the products on promotion. In addition, it
translates to secured revenue for GCP, what they receive from retailers is what
they keep, without the need for further compensation. However, this structure
will increase possibility of forward-buying and non-compliance with pass-
through.

“Pay-for-performance” still provides flexibility for retailers in amount orders. In

addition, sales made during the promotion period will see the retailers being
compensated. This structure also greatly reduces occurrences of forward-buying
and non-compliance with pass-through amongst retailers since the benefits of
the promotion will not be passed to them without the sales being made. From a
GCP’s perspective this may be the best option.
In conclusion, from our analysis, it is evident that its Natural Meals has shown
to yield the higher ROMI without compromising the department’s marketing
margin and top-line revenue. In addition, compared to Dinardo’s product line, a
promotion on Natural Meals is unlikely to result in cannibalization of GCP’s
other brands. I advise that if a trade promotion is to be conducted, GCP’s FFD
should do so through Natural Meals, instead of Dinardo’s.

Exhibit 3 (part 1) Dinardo 32 Dinardo 16

Average Monthly Volumes    
When The Item is on Promotion 10460942.67 6210220.364
When The Item Is Not on Promotion 6816234.948 3088564.553
When Nothing Is on Promotion 7174738.579 3798942.322
Incremental Volume From Promotion 3286204.09 2411278.042
Revenue Change From Promotion 6901028.588 5787067.302
Variable Cost Change From Promotion 2425218.618 2006690.969
Promotion Cost Change From Promotion 3756823.685 4307322.799
Marketing Margin Change From Promotion 718986.2852 -526946.4655
ROMI 19.1381429 -12.2337352

Exhibit 3 (part 2)    
Average Monthly Volume    
Other Dinardo's is on Promotion 5740724.056 424647.9214
Nothing is on Promotion 7174738.579 3798942.322
Volume Change From Promotion of Other Item -1434014.523 -3374294.4
     
Revenue Change From Promotion of Other -3011430.498 -8098306.561
Variable Cost Change From Promotion of Other -1058302.718 -2808123.319
Promotion Cost Change From Promotion of Other 16150.13281 75555.94782
Marketing Margin Change From Promotion of Other -1969277.913 -5365739.19
     
Total Brand Impact from Promotion on Top Line    
Total Effect of D32 Promotion -1197277.972
Total Effect of D16 Promotion   2775636.804
     
Total Brand Impact from Promotion on Marketing
Margin    
Total Effect of D32 Promotion -4646752.904  
Total Effect of D16 Promotion   -2496224.379

Exhibit 3 (part 2)
Impact of Natural Foods Promotion
Average Monthly Incremental Volume 7,05,251.95
Average % Store Promoting For Natural 7.626205481
Average Monthly Incremental Volume/ Promo Point 92,477.44
Incremental Volume from 25% Promo Points 23,11,935.97
   
Revenue Change From Promotion 67,04,614.32
Variable Cost Change From Promotion 20,80,742.38
Promotion Cost Change From Promotion 41,25,417.11
Marketing Margin Change From Promotion 4,98,454.84
ROMI 12.08253182