At around September 2008, Giant Consumer Products, Inc. (GCP) was experiencing decline in sales from the Foods Frozen Division (FFD). GCP had been doing well in the sale of their food products in the earlier quarters before September 2008. However, considering the last couple of quarters, sales volume was 3.9 percent below plan. Gross revenue was 3.6 percent below schedule while the market margin was 4.1 percent under plan. This raised an alarm regarding the policy of GCP especially on sales promotion. This decline would greatly impact the financial stature of GCP.
The Chief Executive Officer (CEO) Allan Capps therefore held a meeting with GCP’s vice president of sales, Byron Flatt to discuss the underperformance revealed in the FFD’s outcome statistics. During the meeting Byron Flatt came up with the idea of undertaking a sales promotion to contain the situation. The idea of sales promotion was a good idea but Allan was worried about the shortcomings of a sales promotion. Because of the probable shortcomings, Capps involved Mary Davidson, the general manager of FFD to look into the viability of the promotion. FFD produced two brands of frozen food; Dinardo’sTM and Natural MealsTM.
After the meeting with Mary Davidson, Sanchez, the brand manager was pulled into the situation to help determine which items should be selected for the national sales promotion. GCP produced two brands; Dinardo’s™ and Natural Meals™. Dinardo’s™ was sold in three sizes; D32, D16, D08 and D06. However D32 and D16 were the most popular of the Dinardo’s™ brand. He was required to compute the return on marketing investment (ROMI) which was coined to mean the market margin. This would help determine of the three items; Dinardo’s™ 32-ounce packages, Dinardo’s™ 16-ounce packages and Natural Meals™, which one should be selected for the promotion. Therefore, Sanchez had to estimate previous national promotions’ ROMI so as to help in making the sales promotion decision.
GCP’s Dinardo’sTM brand was made out of quality ingredients and seasonings, enabling it taste better than their Daft and other producers’ products. This increased the competition advantage for GCP over the rest of the producers.
Retailers learnt that majority of the customers loved products from the GCP.
Natural Meals was only available in 16 ounce sizes which were not much preferred by most consumers. The natural meals also did not get much of extensive promotion from GCP because the firm feared tarnishing of the premium image.
With manufacturing and distribution synergies coming from similar foods businesses, GCP would be able to raise the business from 5 to 10 times the present growth rate. GCP also enjoyed materially lower delivered cost (cost of goods sold, distribution and sales expense) than the original company, because of efficiency benefits resulting from economies of scale. This was an opportunity for increase in growth rate.
Most consumers of frozen food had no time for preparing food in the house because they spent most of their time in their careers. This would be an opportunity for GCP if they ensured the consumers with a regular supply of frozen food with the much desired ingredients. This was the case for careers families where both the spouses worked in full time jobs.
Frozen meals category in supermarkets represented one of the greatest frozen foods aisles in super markets between 2003 and 2007. After 2007, restaurants captured almost a half of all consumer consumption. This posed a threat to GCP’s products from the FFD division creating competition which would lower sales.
Identification of Problems/Issues
Both Sanchez and Davidson believed that that ROMI trumped evaluation of the gross revenue growth. Manifestation of improved ROMI implied good funding than the previous years for brand enhancing activities such as promotion. However the allocation of the national promotion on a particular brand was a problem. Sanchez had to work out which brand would fare well and improve sales.
The Natural Meals brand was only packed in 16 ounce sizes and this offered limited choices for customers who would prefer bigger sizes. All the varieties of this size also sold at the same prices.
GCP feared tarnishing of the premium image of natural meals and hence did not conduct extensive national promotion on the brand. Sanchez had to analyze if carrying out a national promotion for the brand would increase the sales.
Evaluation of Alternatives
With the situation at FFD, to determine the effectiveness of a national promotion, Sanchez had to begin from the evaluation of the performance of previous FFD promotions. He would then determine the ROMI for promotion allocations to D32, D16 and Natural Meals.
Sanchez’s first step involved evaluating the amount of incremental volume attained from undertaking a promotion. He would then convert it to revenue and reduce direct expenses; promotional expenses, cost of goods sold and shipping costs. The result would be the promotion benefits.
Natural meals should be made available in larger sizes of 32 ounce for consumption by larger families. This will increase the demand for more Natural Meals and combined with the impact of national promotion. D32 and D16 brands depicted a greater increment during promotions as compared to when there was no any promotion undertaken. They were highly demanded basing the little time available for preparations of meals. Given consideration for national promotion they would greatly increase the sales volume and hence increment in the revenue.