Marketing Strategy

I. Objectives and Constraints

ObjectivesThe Frozen Food Division (FFD) of Giant Consumer Products (GCP) has three marketing objectives which have derived from the company objectives. First, GCP and FFD must decide whether or not a sales promotion could help them meet their organizational goals. Secondly, if a promotion is found to be needed, FFD will need to implement a sales promotion that is not only beneficial for themselves, but also for retailers and consumers. It will be imperative that the promotion be in line with the long-term health of the brands. Thirdly, FFD will need to decide how a promotion should be structured. Decisions as to what item to promote, the trade-offs and the financial implication will need to be taken into great consideration.

ConstraintsFFDs current marketing strategy is constrained by consumer buying habits, pressure by GCP (its parent company), as well as the negative aspects of implementing a price promotion. Consumers are buying less and they are buying in a different product mix than expected. This change has caused FFD to analyze its key metrics and reevaluate its current pricing and promotion strategy.

Even while FFD is strained with the analysis of determining if a promotion is necessary, FFD is also being heavily pressured from GCP (and ultimately Wall Street analysts) to meet planned annual revenue goals. FFD was expected to drive approximately a third of GCPs overall business volume. Poor results would certainly impact GCPs financial stature and opinions with financial analysts. This pressure could cause decisions to be made hastily and without thorough analysis.

Should FFD decide a sales promotion is necessary; more constraints could arise from the decision. A sales promotion could cause cannibalization and brand equity erosion, forward buying, non-compliance with pass-through from retailers, stock piling, and brand switching from customers. A sales promotion cannot be taken lightly and cannot undermine the long-term health of FFD brands.

II. Analysis of FFD Key Metrics

When discussing the key financials for FFD it is important to understand the approach GCP takes in establishing each divisions benchmarks, also known as the key metrics in the Annual Plan. First, senior management sets overall top-line and profitability goals that GCP needs to meet in order to achieve its desired stock price. Then for each division, specified annual targets for key metrics (such as sales volume, gross revenue, marketing margin, ect.) are set by the senior team and all the product marketing divisions. Next, annual targets are set for each brand using the same key metrics. These annual targets are negotiated and agreed upon by the division head and the brand teams.

Unfortunately for FFD, almost every key metric, including sales volume and gross revenue, were under plan in early September 2008. Please see exhibit 1 below.

Exhibit 1 Key Metrics for Frozen Food DivisionPlan(2008)Actual (through July)% Difference

Sales Volume (lbs)251,800,000160,098,328-3.9%

Gross Revenue603,280,000385,249,923-3.6%

Promotion Spending 80,000,00051,333,944-3.7%

Net Revenue523,280,000333,915,979-3.6%

COGS198,543,500126,329,376-4.1%

Gross Margin324,736,500207,586,603-3.3%

Selling/Distribution18,098,40011,557,498-3.6%

Advertising Expense65,000,00043,233,500-0.2%

Marketing Margin241,638,100152,795,605-4.1%

FFDs financial performance is significant to GCP; as this single division was expected to drive approximately one third of GCP overall business volume. The fact that all division key metrics were under plan, caused much concern among division, GCP executives and Wall Street analyst alike.

On the positive side, while the division as whole was seeing negative statistics, one product (of the divisions four) was seeing positive percentages when compared to the annual plan. The product, Natural Meals, (brand and product details can be found in IV. Marketing Mix Variables) actually saw sales volume and net revenue above plan for the first half of 2008. Sales volume was 4.3% above plan and net revenue was up by 5%. Even more impressive is that this brand received no national advertising during this period of time.

The metric considered most critical by GCP is marketing margin. Marketing margin reflects the amount that the product contributes to corporate costs and overhead charges after all marketing expenses have incurred. The division was 4.1% under plan. Each individual item was under plan by an average of 8%, with the exception of Natural Meals, who was the only item to come in above plan at 6.5%.

FFD currently holds 43% of the national market share (by revenues) in the Italian frozen dinners and entre subcategory.

III. Analysis of Target Market

When discussing the target markets for FFD several things must be taken into consideration, such as the brand and the size of the product. These variables together indentify with a specific psychographic segment of consumers.

The Dinardos BrandThe Dinardos brand features traditional favorites that appeals to families and those with a more conventional palate. Customers attracted to Dinardos are price conscious but not to the point they will accept sub-par quality. The three sizes offered: a 32-ounce, a 16-ounce, and a single serving size (between 6-8 ounces) also appeal to different sub-markets within the psychographic group. The 32-ounce is positioned to feed a family of four. The 16-ounce was created to meet the needs of two people, specifically empty nesters and those busy professional couples without children. The single servings were designed for the single person and for eat-alone occasions.

The Natural Meals BrandThe Natural Meals brand appeals to health-conscious consumers who have a more sophisticated palate. Customers attracted to Natural Meals are likely to pay premium pricing for great-tasting organic foods.

The Natural Meals brand is only offered in one size, 16-ounces, which will meet the needs of two people.

IV. Analysis of Marketing Mix Variables

ProductsFFD has two brands, Dinardos and Natural Meals. Both brands are in the Italian frozen dinners and entres subcategory and are part of the frozen food aisles of grocery stores.

The Dinardos BrandDinardos offers traditional Italian dinners, such as Spaghetti & Meatballs, Lasagna, and Chicken Cacciatore, which are made of quality ingredients and seasonings. Dinardos products are typically packaged in a thin cardboard box with a picture of the particular entre on the box cover. An inner pack consisting of a foam tray with a removable plastic cover slides out of the box so the meal can be heated in either a microwave or conventional oven.

Dinardos products come in three sizes: 32, 16, and 6-8 ounces. The 32-ounce package is positioned as an inexpensive way to feed a family of four. A 16-pounce package was developed as an answer to empty nesters and busy professional couples without children, and single servings (6-8 ounces) were created to serve single consumers and for eat-alone occasions.

The Dinardos brand was introduced in the early 1970s and is known as a key contributor to FFDs bottom line. Currently, Dinardos is in the maturity/decline stage of the product life cycle.

The Natural Meals BrandNatural Meals has earned a reputation for producing great-tasting, organic frozen foods that are low in fat and do not contain unnecessary additives or preservatives. Health-conscious individuals with a sophisticated palate enjoy the brands flavors, including such varities as: Penne alArrabiata, Eggplant Ravioli, and Garden Pesto Tagiliattelle. While Natural Meal products are packaged similar to Dinardos, (but only available in a 16-ounce size) they use very different imagery on the front of the box. It was specifically designed not to look like the big company frozen food products. Instead, they use a simple color palette and imagery.

GCP acquired Natural Meals (a regional brand) in 2006. It was believed that the health-conscious consumer would not be interested in the Dinardos product line and that the Dinardos customer base would not be enticed to buy Natural Meals; for that reason there would be minimal threat from cross-brand cannibalization. In 2008 the Natural Meals brand was introduced to the national market.

PromotionGCP takes a fairly standard approach when structuring promotions with retailers. Promotions usually run one week and the month is determined by several factors such as seasonality, purchase frequency, and production capacity. FFDs key account management teams inform retailers about the yearly promotion schedule well in advance, and then offer them the opportunity to participate during the week of their choice during the chosen month to undertake a promotion. It is standard to fund retailers for providing an end-aisle display, offer a temporary price reduction to consumers, and feature the lower price to the consumer in the retailers weekly insert/circular.

Distribution and PlacementFFD relies upon direct store delivery of it products in refrigerated trucks. Retailers take title of FFD goods as soon as those items are physically on premises and therefore bear any loss for any products unsold. The sales force is responsible for building displays and removing any product in retailers shelves that are near expiration. Products are stored in large vertical freezers with glass doors and are sold alongside a large array of frozen entres, snacks, and desserts.

PricePricing strategies vary among the two FFD brands.

The Dinardos BrandThe Dinardos brand has a High/Low pricing strategy. Retailers charge prices that are sometimes higher than competitors but promote sales that lower the price on them. FFD understands that these consumers are price-conscious but not in exchange for quality. Having a high/low strategy, the Dinardos band can increase profits through price discrimination, create excitement through sales and sell slow-selling merchandise.

The Natural Meals BrandNatural Meals products are line priced, meaning that the suggested retail price is the same for all varieties, and the whole sale price for these items is the same per unit across the entire line. In fear of damaging the brands premier image, price has not been lowered for a national promotion.

ResearchDaft, GCPs closest competing firm, is rumored to have organically developed its own Health Options Italian frozen meals. Daft was test marketing in the fourth quarter of 2008 and would introducing the super-premium line nationwide in early 2009 if the test results proved favorable. Evaluating this promotion in the context of competitive strategy would be important.

V. Summary of Marketing Strategys Strengths and Weaknesses

Potential Resource Strengths and Competitive Capabilities Short-term marketing strategy objectives are well defined. Strong brand image for the Dinardos brand. Better quality product than competitors. Efficiency gains for Natural Meals brand due to scale economies. Natural brands has untapped growth potential in a developing market. 43% of national market share (by revenues) for sub-category.

Potential Resource Weaknesses and Competitive Deficiencies No clear long-term strategic direction for marketing. Weak brand image and reputation for the Natural Meals brand. Overall weak advertising and promotion. Threat of cross-brand cannibalization Shifting consumer habits.

VI. Implications for Strategy Development

The following issues could cause complications for strategy development: New entrants into the market. Consumer habits could shift yet again. Negative effects such as: cannibalization, brand equity erosion, forward buying, non-compliance with pass-through from retailers, stock piling and brand switching from customers, could occur from increased sales promotions.