Reliance Baking Soda: Optimizing Promotional Spending (HBR Brief Case)
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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.
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Reliance Baking Soda: Optimizing Promotional Spending (HBR Brief Case)
- 1. RELIANCE BAKING SODA A Case Study | Optimizing Promotional Spending
- 2. 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.
- 3. 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.
- 4. 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
- 5. 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.
- 6. ROOT CAUSE DIAGRAM Overstocked Inventory Low Advertising recall Boring and low traffic Trade promotions Market share reduced Old fashioned Private label
- 7. 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.
- 8. 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.
- 9. 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
- 10. 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
- 11. 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)
- 12. THE SUPPLY CHAIN Supplier Manufacturer Trader / Mass Merchandise / Workhouse Consumer
- 13. RECOMMENDATIONSTRADE 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
- 14. Year 2006 Period January April June August/ September November/ December January/ February 2007E April May Promotion days 41 21 Twin Pack/Refund 43 Sweepstakes and Scheme 11 + 1 Scheme 11 + 1 Scheme 11 + 1 Refund & 5% ad & 5% ad & 5% ad 12 % Off Invoice 50 40 20 21 January/ February April 41 21 Self liquidating premium Coupon August/ September November/ December 38 50 50 15 % Off Invoice 10 % Off Invoice 10 % OI + 5% ad 10 % OI + 5% ad Scheme 10 +2 10 % OI + 5% ad 22 May/ June Scheme 10 + 2 & 5% ad 38 June 2008E Promotion Activity 8 Oz 1 lbs 5 lbs Refund Scheme 11 + 1 Scheme 11 + 1 Scheme 11 + 1 Cross-ruff Coupon Scheme 10 + 2 Refund Coupon Scheme 11 + 1 Scheme 11 + 1 Scheme 11 + 1 Scheme 10 + 2 Twin Pack/Refund Scheme 10 + 2 & 5% ad Target Scheme Target 250 get 50 extra Target 250 get 50 extra Target Scheme Target 250 get 50 extra Target 250 get 50 extra
- 15. 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.
- 19. 2005 2006 2007E 8 oz $6.18 $6.37 7.2 1 lb $10.33 $10.64 5 lb $46.63 $48.03 2008IE 2008E Manufacturer's price per case 7.92 7.82 12.02 13.222 13.02 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% $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 $13,662 $15,815 18715 20586.5 20960 Advertising Tv Profit before SG&A, Overhead and Taxes
- 20. BUDGET FORECAST 70000 Profit before SG&A, Overhead & taxes Promotion Costs 60000 50000 40000 30000 Total Advertising 20000 Variable Manufacturing Costs 10000 0 Year 2005 Year 2006 Year Year 2007E 2008E
- 22. THANK YOU RBS – A Houseful of Uses