Reliance Baking Soda: Optimizing Promotional Spending (HBR Brief Case)

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RELIANCE BAKING SODA A Case Study | Optimizing Promotional Spending

description

Reliance Baking Soda is Stewart Corporation's oldest and most established product. The new Domestic Brand Director needs to create a 2008 marketing budget that delivers a profit increase of 10% over 2007 levels. She must first evaluate the effectiveness of past consumer and trade promotions and determine if a price increase will have net bottom line benefits. Then she must decide on the optimal allocation of her marketing budget, taking into account the brand's apparent "cash cow" role in the Household Division of Stewart Corporation. Students are expected to complete a quantitative assignment: create and defend a budget.

Transcript of Reliance Baking Soda: Optimizing Promotional Spending (HBR Brief Case)

Page 1: Reliance Baking Soda: Optimizing Promotional Spending (HBR Brief Case)

RELIANCE BAKING SODAA Case Study | Optimizing Promotional Spending

Page 2: Reliance Baking Soda: Optimizing Promotional Spending (HBR Brief Case)

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.

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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.

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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

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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.

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Trade promotion

s

Private label

Low Advertisin

g recall

Boring and low traffic

Market share

reduced

Old fashioned

Overstocked Inventory

ROOT CAUSE DIAGRAM

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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.

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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.

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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

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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

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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)

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THE SUPPLY CHAIN

Manufacturer

Trader / Mass Merchandise /

Workhouse

Consumer

Supplier

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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

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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

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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.

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FINAL BUDGET FORECAST

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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

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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

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20052006

20072008

$0

$5,000

$10,000

$15,000

$20,000

$25,000

Series1

BOTTOM LINE GROWTH

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THANK YOURBS – A Houseful of Uses