Reliance Baking Soda: Optimizing Promotional Spending (HBR Brief Case)
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Transcript of Reliance Baking Soda: Optimizing Promotional Spending (HBR Brief Case)
RELIANCE BAKING SODAA Case Study | Optimizing Promotional Spending
CASE INTRODUCTION Stewart Corporation was founded in 1915 by Stewart
Augusta who had discovered what he called the Miracle Compound NaHCO3 (Baking Soda).
Reliance Baking Soda (RBS) a leavening agent has been one of the strongest brands of the Household Division of Stewart Corp.
Apart from being a baking agent RBS can also be used as a substitute for cleaners, air fresheners, laundry detergents etc.
Anna Regnante who has managed one of Steward Household Division’s weaker brands has been recently promoted to the position of Domestic Brand Director (RBS).
She has been assigned with a task to come out with 2008 P&L budget within 3 weeks.
OBJECTIVES
Our primary objective is to develop a budget that will increase RBS profits by 10 percent (before SGA, Overheads and Taxes) over 2007 estimates.
Optimize trade promotion strategy. Reallocate budgets for promotion and
advertisements.
LIMITATIONS
Trade considers it to be boring and low traffic
No direct control over how trade manages inventory
Private Label selling at 30% lower prices
Market Share reduced by 5% in the last decade
Low Advertising Recall
LIMITATIONS (CONTINUED) Specialized products cannibalizing baking soda.
Majority products sold during Trade Promotions.
Consumption patterns remained unchanged for the last 3 years.
Old fashioned mainstay product.
Overstocked Trader Inventory.
After brainstorming and analysis of past year data.
Trade promotion
s
Private label
Low Advertisin
g recall
Boring and low traffic
Market share
reduced
Old fashioned
Overstocked Inventory
ROOT CAUSE DIAGRAM
STRENGTHS
Trusted Brand RBS Clear Market Leader - 70% market share with
85% US household penetration Enjoys high distribution penetration. 80% to 90% RBS promoted for a wide range of uses including
household cleaner, laundry aid and deodorizer. Widely viewed as a substitute for specialized
cleaners, air fresheners, and laundry detergents Excellent Brand Awareness and Loyalty. 95%
mentioned RBS when asked about Baking Soda.
OPPORTUNITIES
Baking Soda considered as inexpensive by 80%
Trade promotion events have produced attractive results in the past.
Baking Soda already promoted by RBS as pet care, pool care, outdoor cleaning, baby care.
Only 50% used it as a multipurpose product.
OPPORTUNITIES
Out-of-the-box uses for the product such as Sport equipment cleaning.
66% males and 48% females use sport equipment
27000 gyms in USA
Suggested Product doesn’t break off from the Brand Lineage of the household division
RECOMMENDATIONS – CONSUMER PROMOTION
10% Price rise across all product ranges.
Promotion through Top 4 Women Magazines
Reintroduction of the highly demanded Twin Packs.
Loyalty Bonus - Redeemable 30¢ Coupons
INNOVATIONS
Website Adds and Online Interactive Promotional Games
Communication through Sport Magazines, Pet Care Magazines etc.
Contribution to World Food Program from respective packs as (10¢/8oz, 20¢/1lb & 1$/5lb)
THE SUPPLY CHAIN
Manufacturer
Trader / Mass Merchandise /
Workhouse
Consumer
Supplier
RECOMMENDATIONS- TRADE PROMOTIONS
Re-emergence of the Buying Allowance.
Free Cases with a Minimum Order.
Performance Discount Incentive (10% OI with evidence of featured Trade Ad)
Twin Packs
Target Schemes
Year Period Promotion days Promotion Activity 8 Oz 1 lbs 5 lbs
2006
January 41 Refund Scheme 11 + 1 Scheme 11 + 1 Scheme 11 + 1April 21 Cross-ruff Coupon Scheme 10 + 2
June 38 Twin Pack/Refund Scheme 10 + 2 & 5% ad
August/ September 43
Sweepstakes and Refund
Scheme 11 + 1 & 5% ad
Scheme 11 + 1 & 5% ad
Scheme 11 + 1 & 5% ad
November/December 50
12 % Off Invoice
15 % Off Invoice
2007E
January/ February 40
Self liquidating premium
10 % Off Invoice
April 20 Coupon10 % OI + 5% ad
10 % OI + 5% ad
May 21 Scheme 10 +2
June 22 10 % OI + 5% ad
2008E
January/ February 41 Refund Scheme 11 + 1 Scheme 11 + 1 Scheme 11 + 1April 21 Coupon Scheme 10 + 2
May/ June 38 Twin Pack/Refund Scheme 10 + 2 & 5% ad
August/ September 50 Target Scheme
Target 250 get 50 extra
Target 250 get 50 extra
November/December 50 Target Scheme
Target 250 get 50 extra
Target 250 get 50 extra
THREATS
Fiddling with an established Brand and Loyal Customers.
Targeting a different consumer segment might not be accepted by customers using established products.
Price rise may move customers towards purchasing Private labels over RBS.
Declining importance of Baking Soda to Bakers because of Self Rising and Instant Cake mixes.
FINAL BUDGET FORECAST
2005 2006 2007E 2008IE 2008E
Manufacturer's price per case
8 oz $6.18 $6.37 7.2 7.92 7.82
1 lb $10.33 $10.64 12.02 13.222 13.02
5 lb $46.63 $48.03 54.28 59.708 58.708
Factory shipments(in 000's of cases) 0 0
8 oz 640 793 714 714 800 27.70%
1 lb 1099 1362 1226 1226 1350 46.50%
5 lb 581 720 648 648 750 25.80%
Variable manufacturing cost per case 0 0
8 oz $3.02 $3.05 3.38 3.718 3.41
1 lb $4.98 $5.03 5.58 6.138 5.63
5 lb $22.12 $22.34 24.8 27.28 26
Gross sales $42,400 $54125 55051 60556.1 67864
Variable manufacturing cost $20,258 $25354 25325 27857.5 29828.5
Gross margin $22,142 $28771 29726 32698.6 38035.5
52% 53% 54% 54.00% 56%
Advertising
Tv $2,862 $4453 3815 4196.5 4000
Print $687 $950 694 763.4 1500
Internet $76 $238 248 272.8 1000
Total Advertising $3625 $5641 4757 5232.7 6500
PR/media production cost $191 $297 198 217.8 198
Consumer promotion $424 $1080 551 606.1 1400
Trade promotion $4240 $5938 5505 6055.5 8977.5
Total marketting expenses $8480 $12956 11011 12112.1 17075.5
Profit before SG&A, Overhead and Taxes $13,662 $15,815 18715 20586.5 20960
Year 2005
Year 2006
Year 2007E
Year 2008E
0
10000
20000
30000
40000
50000
60000
70000
Profit before SG&A, Overhead & taxesPromotion CostsTotal AdvertisingVariable Manufac-turing Costs
BUDGET FORECAST
20052006
20072008
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Series1
BOTTOM LINE GROWTH
THANK YOURBS – A Houseful of Uses