Giant Consumer Products: The Sales Promotion Resource Allocation Decision Case Solution
Question no 1: To what extent should the concerns that Capps has raised regarding trade promotions (cannibalization, brand equity erosion, forward buying, pass through and consumer stockpiling) affect the “go” or “no go” decision to field a national sales promotion.
According to the article read by Bryon Flat, the vice president of sales at GCP, trade promotions are the most expensive, most controversial and least understood marketing tool deployed by the manufacturers. In that context, the concerns raised by the CEO of GCP, Allan Capps, seem to cast a significant effect on the decision of fielding a national sales promotion. However, a profound look into the conditions would present a better view of the effects of those concerns.
Cannibalization is one of the issues raised by Bryon for deciding to go for trade promotions or not. Cannibalization is regarded as promotion of one item at the expense of others. In other words sales promotion on one product would entice consumers to purchase that product, while on the other hand it would diminish the sales of other products by the same brand. Referring to GCP’s case, cannibalization would not affect the decision to go for trade promotions much. This is because the frozen food segment of GCP, the FFD, offers two major categories of products. Dinardo’s and Natural Meals are among them. Both of these products target different consumer range, so the effect of cannibalization would be minute.
Brand equity erosion would be an issue to ponder upon as it deals with the promotion of products without tarnishing its premium image. Natural Meals of FFD are categorized as premium products. It would be critical if the category of Natural Meals is selected for sales promotion to hit the number of profit.
The possibility of forward-buying in case of sales promotion would also be problematic. This is because the retailer might purchase a large quantity of the products when it is available for them at lower price-to-retailer (PTR). They might raise the price-to-consumers (PTC) after the promotion period and pocket the difference, or they could persist selling the product at lower PTC even after the promotion period is over. This could cast an image in consumers’ mind that the company is “on deal”. Therefore, this issue would persuade the “no go” decision for sale promotions.
Another risk which requires consideration is non-conformity with pass-through. The retailer possibly could not transfer the product at discounted PTC to consumers, which was received at discounted PTR. It is another issue tempting the management not to go for the sales promotion.
The last warning given to Capps by Bryon was the threat of stockpiling by customers. Many customers would belong to a class who waits for such promotions on premium products and then hoard them for future use. Similarly to the cannibalization, stockpiling is not much of threat to go for trade promotions. FFD only deals in frozen foods, and according to research people do not have refrigerators that are large enough to be used for stockpiling frozen products……………………..
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