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Giant Consumer Products

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Q1: To run or not to run? (45 points)

Do you advise Sanchez to run a national sales promotion? If so, to which product(s) should funds be allocated, i.e. to D32, D16 or Natural Meals - one of them, two of them or all of them? Justify based on the three key metrics given in the case, i.e. top-line revenue, marketing (contribution) margin and ROMI. (15 points for each metric)

A1: After assessing all the data given and taking into account the three key metrics we came to a conclusion that from the entire product lines the best ROMI is for the Natural Meals product line. The Natural Meals are positioned as a premium product and have higher profitability. A Natural Meals promotion would result in increased revenues of $6.7 million and $507k marketing margin, which result of 12% ROMI. ROMI for this product line is high and raises brand awareness for Natural Meals. Monthly promotion of Dinardo's 32 products increase marketing margin to $712k and total effect of Dinardo's 32 promotion on FFD is $1,2 million loss in revenues and $2,43 million increase in marketing margin. A promotion on Dinardo's 16 results in $2,78 million increase in revenues and 881k lower marketing costs. The ROMI-return of marketing investments for a Dinardo's 32 promotion would be 10% and Dinardo's 16 promotion -9%. (See Appendix 1)

If we focus mainly on ROMI then the two best product lines to promote would be The Natural Meals and Dinardo's 32. These two lines also have different target audiences - for Natural Meals it's health-conscious consumers, that take a decent amount of time to look for organic food, with low fat and that doesn't contain unnecessary additives or preservatives. These people are willing to pay a bit more for a fancy, healthy food. But for the Dinardo's 32 the target audience is family's with at least 4 members who are price-conscious and are more used to traditional foods that people know for years, like Spaghetti & Meatballs, Lasagna, etc. It is believed by the company that Dinardo's customer base would not be interested in buying Natural Meals and vice versa, so there is a minimal threat from cross-brand cannibalization.

Unfortunately this cannot be said about Dinardo's product brand alone because at the first look it seems that Dinardo's 32 is profitable to promote but we can see from calculations that promotion for Dinardo's 32 and Dinardo's 16 will not have positive effect of FEF margins because if one of those product lines will be more successful, the second will fall (See Appendix 2). So, after taking this into consideration, it is clear that the impact of a promotional campaign cannot be considered in isolation for these two products.

After taking into consideration all these factors we came to a conclusion that Natural Meals is the best brand to promote for a long term awareness creation, by looking at its financial indicators. However there is a problem with putting it "on sale", as this move could cheapen the brand image that the company wants people to maintain about The Natural meals product line. It is a premium brand. Since it hasn't ever had a promotional campaign, a lower price could also induce the customers to switching from Dinardo's to The Natural Meals products, therefore this campaign still could negatively influence the FFD bottom line. If the company management is concerned about short term sales lift, sales promotion campaign should be initiated for Dinardo's 16 and Dinardo's 32 product lines. Historic data of sales promotion has also shown that there is no cannibalization tendency in respect to the sales of The Natural Meals, which once more confirms that The Natural Meals customer base is not interested in initiatives focusing on Dinardo's 16 and Dinardo's 32 product lines.

Q2: Trade Promotion Issues (30 points)

How serious are Capps' concerns regarding trade promotions, i.e. cannibalization (10 points), brand equity erosion (10 points), forward buying by both retailers and stockpiling by consumers (10 points)? Discuss.

A2: As we know company needs to generate demand in FFD without undermining the long-term



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