We also need to know that during this calculation, we made several assumption which some of them are detective. We also recommend BFD should gather more data for making an informative decision with prudence. Background Frozen Foods Division (BFD) of Giant Consumer Product (ICP) had grown successfully over the past 30 years by anticipated industry trends. Currently, as a market leader in frozen food industry, BFD had a 43% national market share (by revenue) in the “Italian frozen dinners and entree offerings” subcategory-one of the largest categories In rezone food aisle in supermarkets.
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However since 2007 this category growth had been lower and BFD was facing the sale stagnancy within this sector. In 2008, BFD sales volume was 3. 9% behind plan and gross revenue was under plan by 3. 6% (with the equivalence of about $14. Mm) and marketing margin was also under plan by 4. 1% (with the equivalence of about $6. Mm). The Allocation Decision For BFD Implementing the promotion. There are 3 options: 1 . Promote Dinosaur’s 32-ounce packages 2. Promote Dinosaur’s 1 6-ounce packages 3. Promote Natural Meals Framework of analysis
Sanchez, the brand manager at ICP and Davidson the general manager of BFD has principle about the promotion. They were highly motivated to increase the gross revenues and sales volume meanwhile they would Like to use the ROOM to evaluate promotion efforts. To establish the framework of analysis, there are two key analysis results we can utilize to make our decision: Promotion impact on the promotion item This will help us to know how much Incremental volume was associated with the promotion. We also need to convert this to revenue by combining with the volume ND price.
We also need to consider the promotion cost such as promotional toy 2 Change from promotion. The Marketing Margin is critical metrics used to determine which option has better ROOM. We use past sales and expenses data (Exhibit 1&3) to estimate the marketing margin from promotion for DAD, DAD and Natural Meal. Base on the calculation, we found out for Dinosaur’s 16, even the sales volume was increased significant during the promotion, the cost of promotion was also significant even larger than the revenue gained during the promotion. The marketing margin of
Dinosaur’s 16 is negative which means Dinosaur’s 16 is not a good option for promotion. In other hand, the marketing margin of Dinosaur’s 32 and Nature Meal are positive and the sale volume increased also fairly large, we need more data to determine which one is better choice for promotion. The next step, calculate the centralization effect. Within-Brand Centralization effects of promotion When consider running a promotion, the brand centralization is a big concern for markers. The indirect cost of centralization is also a critical metrics used to determine which option will suit the promotion result nicely.
Due to the dominant Centralization Effect to both Dinosaur’s 32 and Dinosaur’s 16, we find out if Dinosaur’s 32 were on promotion, it damage the sale volume of Dinosaur’s 16 severely. Also the marketing margin for other promotion are all negative which both of Dinosaur’s 32 and Dinosaur’s 16 are not good options for promotion. Meantime, base on the calculation, (Exhibit 3) Nature Meals has better performance on Marketing margin and has no centralization effect for Dinosaur’s 32 and Dinosaur’s 16. Conclusion
Frozen Foods Division (FED) of Giant Consumer Product (ICP) should put Nature Meals on promotion because of the positive Marketing Margin and large increased sale volume. However because Nature Meal never run promotion before which means we have no sufficient data to analysis the promotion incremental performance, we use the regular promotion which normally lower than 10% as benchmark. Additionally, we also have no sufficient data to analysis centralization effect to the low end brands Dinosaur’s 32 and Dinosaur’s 16. So this recommendation is not well-rounded.