Rbs – Case Study Example
Case Study Example Section I: Summary of Background and Facts Reliance Baking Soda was discovered by James Stewart Augusta in 1915. He called it the “miracle compound. ” It was founded to serve as a leavening agent in baked goods to let them rise properly. With the invent of self-rising flour and instant cake mixes, baking soda’s original use importance declined. With this decline, Stewart Corporation started promoting baking soda for a myriad of other uses, which include household cleaner, laundry aid, and deodorizer.
Reliance baking soda holds a 70% market share. They produce three box sizes, 8oz, 1lb, and 5lbs. The 1lb box holds almost 50% of the sales volume. Reliance has excellent brand awareness and customer loyalty. Stewart Corporation is comprised of four divisions. Reliance Baking Soda (RBS) is in the household division. Anna Regnante was promoted Domestic Brand Director for RBS. She was placed in charge of increasing Reliance’s profit by 10% in 2008. The Household Division is planning to introduce two new product launches in 2008.
According to Chris Dale, Managing Director for Stewart’s Household Products Division, they need the incremental profit increase from RBS to “fund the marketing launch expenses for the new products. ” (Quelch & Beckham, 2009, p1) Regnante needs to figure out how she can generate the required profit growth for the old-fashioned, mainstay product of baking soda. Section II: Statement of the core problems Regnante’s core problem is figuring out what marketing mix to use to increase Reliance Baking Soda’s profit by 10% in 2008. One of the main problems with RBS is the current lack of advertising.
Regnante’s predecessor had cut the consumer promotion budget in half. Advertising is a key component in making sure the brand’s product is marketed to its consumers. RBS did not properly advertise the significance for what all baking soda could be used to do, which includes outdoor cleaning, baby care, pet care, and a myriad of other things. RBS had established brand awareness and loyalty with customers; but, they needed to educate the customers and position the brand through advertisements which can give RBS more of a competitive advantage. Decreasing the amount of money allocated owards advertising was not a wise choice, especially, when the company needed to revamp how baking soda was marketed. The trade promotions were effective in moving the product; however, they accounted for around 73% of total sales. This led to the company only selling around 25% of RBS at regular prices, which could be leaving RBS a lot less profitable. The trade was overbuying during the promotional periods, which caused inconsistencies in regular purchasing patterns of the product. Another issue was with the cooperative advertising program.
Regnante was concerned that RBS was not getting sufficient advertising in exchange for the trade promotions. In fact, she found that “Advertising trade support for RBS is much lower than our branded competitors. ”(Quelch & Beckham, 2009, p. 5) RBS also rarely advertised in retail stores, magazines, or television commercials. If RBS was more diverse with advertising, then, they would be able to capture their target audience in other ways. Section III: Secondary Problems Reliance Baking Soda lacked in providing different promotional discounts to grocery stores.
By not providing promotional discounts for grocery stores, the store managers did not have a creative way to attract customers into the store to purchase baking soda. Grocery store chains thought that the Reliance Baking Soda needed to market their products better because baking soda was a boring product. Reliance Baking Soda does not manufacture for private label brands. Therefore, their market share decreased. This lack of going after the private label market has caused the RBS to lose 5% of its market share to private label brands.
Reliance Baking Soda was the market leader, so, if they were able to manufacture private labels brands they would have not loss 5% market share; and its overall market share could have increase. Also, a problem existed with trade promotion events due to the fact that the company did not negotiate or set a price with the trade on what to sale its products for when they were purchased during a trade promotion. By not having set promotional retail prices, the trade was allowed to stock up on inventory at reduced prices. They did not have to extend the savings to the consumer.
This ultimately caused a loss in profit for RBS. To make matters worse, these trade promotions often overlapped with consumer promotions. Therefore, it is hard to tell what the actual real incremental profits for the promotions were. Section IV: Constraints and Limitations Besides the problems listed in the above sections, Reliance Baking Soda is constrained and limited by the fact that baking soda is in the mature part of its life cycle. When a product reaches maturity, there is no room for traditional growth. The product must discover new uses.
RBS is not a “wow” product that can be categorized as a necessity; therefore, it must be aggressive in its advertising in order to stimulate further purchase. The product was old-fashioned and needed some ‘refurbishment’ to make it attractive to the target market. The need for RBS nose-dived, following the introduction of self-rising flour and instant cake mixes. Naturally, it would be cheaper for bakeries to move to baking soda and reduce costs. This was a very big setback for RBS, as the market leader and the largest provider of the “miracle compound. Randall Todd, an Account Manager, for several of the major grocery chains, stated that even though the product was physically placed on the store shelves, it was not “visible” to the consumer. It was a very slow moving product, which needed “a lot of push marketing to stimulate trade interest. ” (Quelch & Beckham, 2009, p. 2). Randall further observed that it was “not a natural traffic builder, it does not have high turnover, and it is boring. ”(Quelch & Beckham, 2009, p. 2). RBS needed promotional methods which would turn the tide in their favor. According to Exhibit 3, RBS had “low advertising recall. There was greater need to refocus marketing communication efforts. Another limitation was the continual price increase for baking soda over the last 5 years. The price changes were not good because it had a negative impact on the numbers of cases that were shipped to the stores. This could lead to stores choosing a competitor’s brand or selling more of its private label brand. The final limitation is that RBS being a mature product is sold on the push system. The household sales force is paid based on quarterly sales quotas. This allows the sales staff to wait on trade promotions to sell the product.
Therefore, they are not concerned with the day to day sales of RBS. Section V: Alternative Solutions Reliance Baking Soda must increase profit in its household division by 10% in 2008. In deciding how to do this, Regnante must decide what to do about the trade promotions, consumer promotions and advertising. Since baking soda is a mature product, a push system has been implemented at RBS using a quarterly quota system. In order to deal with the problem of 73% of factory shipments being sold using trade promotions, a new monthly quota system could be placed in service.
This would make the sales force focus on selling baking soda all throughout the year, not just when promotions are in place. Another option is to totally revamp the co-op advertising reimbursement system. At this time retailers are not promoting the product with the same size ads of RBS’s competitors. RBS offers a 5% of invoice incentive for any ad. RBS should offer 50% of the ad cost up to a certain percentage of the invoice for a purchase made within 45 days of the ad. The ad also needs to be submitted for approval prior to the ad being placed.
RBS needs to make sure that their co-op advertising plan states what an acceptable ad size is. This will encourage the retailers to do local advertising for RBS. The third option would be to increase the advertising and consumer promotions through event advertising. With this option, RBS could focus on important events like Earth Day. They could create a whole marketing campaign around this event and others like it. Another option would be to mount an internet campaign on the alternative uses of baking soda. This alternative would not involve huge cash outlays.
RBS could create blogs on websites as well as have a complete interactive website devoted to helping the consumer understand the myriad of uses for baking soda. The final option is to focus on pushing the product through trade promotions. RBS could offer 10-15% off total invoice price several times during the year to make sure that our product is being shipped. With this increased trade promotion, RBS could list a lower suggested retail price on the promotional packages, so that stores will have to pass the savings along to their customers. This would alleviate the problem of purchasing simply to increase revenue.
Section V: Implementation of Best Alternative The best solution is to take a holistic marketing approach and incorporate a marketing plan that uses trade promotions, consumer promotions and advertising in conjunction with one another. This approach should focus on event marketing for its major advertising expenditures. One such event that lends itself to the promotion of the different uses for baking soda is Earth Day. With more and more of the American population focusing on Eco-friendly products, RBS can showcase baking soda as being a one stop wonder.
RBS should partner with Earth Day events and hand out 2oz samples with pamphlets on how baking soda is an environmentally safe cleaning agent. It should list all of the possible uses of the eco-friendly baking soda. The pamphlet could, also, reference RBS’s Eco-pack, which will include a $1. 00 off rebate. RBS can package 1 lb boxes of baking soda in twin packs called Eco-packs. The packaging should have new ideas of how to use baking soda in environmental friendly ways. Since this is a special packaging product, RBS should offer a trade promotion on the twin pack only for the six weeks starting the first of March.
This promotion should consist of buy eleven cases, get one free. During this time RBS should also beef up television, print and internet advertising, which all should include the environmental aspect of the product. To coincide with the company’s marketing efforts, RBS should offer an incentive for the trade to promote RBS through advertising. RBS could pay for 50% of the advertisement cost attributable the RBS product, up to 5% of a total invoice purchase within 45 days of the advertisement this promotion would run through the entire month of April.
Other events that could be marketed include the Start of Summer, Fire Prevention Month and the Holiday Season. For the start of summer, RBS should focus its advertising efforts on its uses for outdoor cleaning, pool, camping and weed removal. This is not a traditional high volume time; therefore, they should also use their trade partners by offering the same advertising incentives that were offered during the Earth Day promotion during the months of May and June. Since RBS can be used to put out certain fires. The company should focus on fire safety and prevention during the month of October.
RBS could put a pamphlet and a $. 25 coupon in the bags that children traditionally bring home from school during this month. The pamphlet should focus on key fire safety initiatives and highlight RBS commitment to fire prevention and uses of RBS in fire situations. During the first three weeks in October, RBS should offer a trade promotion of 10% off invoice prices on all sizes. This will help the trade partners get ready for the upcoming holiday season. The final event marketing campaign of the year should focus on the holiday season and getting your home in tip-top shape for the holiday’s in a health conscious manner.
RBS should again partner with other Household Division products to advertise nationally how to get your home ready for the holidays. This ad should run in the October/November editions of top Women’s magazines. It should also offer a contest for a $10,000 kitchen makeover. This contest will be open to the purchasers of the products advertised in the magazines. This will also be advertised on the internet and through POP displays in the stores. During the months of October and November, RBS should offer its co-op advertising promotion as defined in the Earth Day section.
Section VI: Justification Since Reliance is in the maturity stage of its life cycle, it is important for them to focus on extending the usage rate and repositioning itself in the market. According to Shaeffer (2009), “As a market matures, the customer buys solutions and not products. ” Therefore, it becomes more vital to focus advertising efforts on new ways of using baking soda. By focusing on event marketing, Reliance can help the consumers understand all the possible uses of traditional baking soda.
This increased knowledge will drive the sale of baking soda to the levels needed to meet the 10% profit increase of the household division. To increase the profit by 10% the Profit before SG&A, Overhead and Taxes needs to be $20,587,000. The event marketing campaign proposed will increase the profit to $20,974,000, which well exceeds the 10% increase. The 2008 Profit and Loss Budget is listed as Exhibit 1. This budget was prepared based upon historical cost and sales data to gauge the response level of both the trade and consumer promotions. Exhibit 1 Reliance Baking Soda
Profit and Loss Budget For the Year Ended December 31, 2008 | | | | | |2007E |2008 | |Manufacturer’s Price Per Case | | | | | |8oz | | | |7. 2 |7. 2 | | |1lb. | | | |12. 02 |12. 02 | | |5lb. | | | |54. 28 |54. 8 | | | | | | | | | |Factory Shipments (in 000’s of cases) | | | | |8oz | | | |714 |883 | | |1lb | | | |1226 |1531 | | |5lb | | | |648 |660 | | | | | | | | | |Variable Manufacturing Cost Per Case | | | | |8oz. | | | |3. 38 |3. 38 | | |1 lb. | | | |5. 58 |5. 58 | | |5 lbs. | | | |24. 8 |24. | | | | | | | | | |Gross Sales | | | | 55,051 | 60,585 | |Variable Manufacturing Cost | | 25,325 | 27,896 | |Gross Margin | | | | 29,726 | 32,690 | | | | | | | | | |Advertising | | | | | | | |TV | | | 3,815 | 4,300 | | |Print | | | | 694 | 1,000 | | |Internet | | | | 248 | 300 | |Total Advertising | | | 4,757 | 5,600 | |PR/Media Production Cost | | 198 | 297 | |Consumer Promotion | | | 551 | 839 | |Trade Promotion | | | 5,505 | 4,980 | | | | | | | | | |Total Marketing Expense | | | 11,011 | 11,716 | | | | | | | | | |Profit before SG&A, Overhead and taxes | $ 18,715 | $ 20,974 | Works Cited Shaeffer, Lee. (2009, October 14). Maximize Product Profitability as the Market Matures. Product Management Library of Knowledge. Retrieved October 1, 2010, from http://www. aipmm. com/html/newsletter/archives/000359. php