Reliance Baking Soda

Background

This Reliance Baking Soda case is a discussion of how Anna Regnante becomes the
Domestic Brand Director for Reliance Baking Soda and in turn is faced with a challenge
of putting together a 2008 budget P&L that would result in a 10% increase in profit
(before SGA, overhead and taxes) over the 2007 estimates. The challenge to this task
is that although RBG was doing well with over 85% of US families with an income of
$25000 plus using the product in 2006, their product was being threatened by
similar private label products and specialty cleaning products. Consumers were turning
to new products because baking soda is not a natural traffic builder and the product
hasn’t changed in almost 100 years. This along with a 11% increase in raw materials
costs make for a very daunting challenge for Anna.

Strengths
- Market leader-70% market share
- Cash cow within Stewart’s household division
- High distribution penetration
- High brand recall in product category-95% brand awareness
- Substitute for higher priced household cleaning products

Weaknesses
- Threat of private label brands growing, lost 5% of market share in the last decade
- Low advertising recall of the brand
- 73% of factory sales happen during trade promotions

Opportunities
- New uses of baking soda can be investigated
- Minimum advertising expenditure required

Threats
- Price increase of 13%
- Private label eating into market share
- Cannibalization of baking soda by other household products
- High inventory in stores from 2006 promotions

Effectiveness of Consumer Promotion

Month Budgeted Net Incremental Return on

Allocated to RBS Contribution Investment in
Consumer
Promotion
Activities
January 398,580 63,852 16.02%

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 April 174,643 22,785 13.05%
June 253,390 50,615 19.98%
September 253,390 60,820 24.00%
Total 1,080,003 198,072 18.34%

Consumer promotion in September showed to be more effective than any other

consumer promotion done by RBS as ROI is 25% which is highest. June and
September had the same budget for promotion, but September consumer promotion
provided better net incremental contribution for RBS. September consumer promotion:
$1.5 refund offer for a proof of purchase for advertisement featuring RBS into other
household division brands. Thus, refunds may be a factor for RBS as compared to twin
pack refund offer in June. So, the proportions can be adjusted accordingly.

Effectiveness of Trade Promotion

Case 2007 2007 2007 2007 2007 2007 2007

Size Manufacture Suggested Actual Retailer Retailer Sales (in Retailer
selling price retail price retail revenue profit ($ cases) Overall
($ per case) ($ per box) price ($ per per profit ($)
($per case) case)
box)
8 oz. 7.2 1 0.9 10.8 3.6 714,000 2,963,100
1 lb. 12.02 1.67 1.503 18.036 6.016 1,226,000 8,569,740

5 lb. 54.28 7.54 6.786 81.432 27.152 648,000 20,697,120

From May through June trade promotion led to $215,729 steady contributions. During
that same time, consumer promotion had an incremental contribution of only $50,615.

RBS offered several trade promotions including discounts off invoice prices for cases or
during the promotional period. RBS hoped that free cases and discounted incentives
would help grow sales but ended up having no direct control over the managed
inventory or how it priced its product.

Push v Pull

Push
Helps in generating sales and increasing the top line of the company. Stimulates dealer
and channel involved. Main objective is to create an immediate sale and not to create
product involvement. Optimal for product categories with no brain body and low
differentiation like baking soda.

Pull

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 Pulls customers from competitor’s products by differentiated positioning and consumer
promotions and allows involvement product category. It helps to attract a price sensitive
consumer. Builds up consumer demand even though it is a no involvement product.

The best strategy in a low involvement category would be to combine push and pull
advertising, which ensures that the retailers push their products over their competitor’s
products while at the same time having the customers desire their product over their
competitors.

Increasing effectiveness of promotions

- Trade and consumer promotions should not go together because of the following
reasons:
o Retailer may get a chance to increase their profits by increasing the price
when both consumer and trade promotions are in place. This will have the
following repercussions: Possibility of losing any pricing to the customers
which will impact value, promotes the retailer to enjoy double benefits
which I need to pass on to RBS nor to the consumers, contributes to too
much variation in the price of the products which doesn’t allow reference
prices to be formed a consumers mind
o During the month of January 2006, both consumer and trade promotions
happened simultaneously, retailers took advantage of this opportunity and
raised the prices of the products
- Gap between trade promotion should be higher. During the trade promotion on
the 8 ounce box in October 2006, after 15 days from the previous promotion,
even after offering a better trade discount from the previous offer the incremental
contribution declined, which is negative.
- Continuous trade promotions for the same size as the product should not be
carried out. During the trade promotion on the 5 pound box in April 2006, after
trade promotions offered on all back sizes previously, even after offering a better
trade discount from the previous offer the incremental contribution declined to be
less than half.

Recommendation

2005 2006
Manufacturing price per
case ($)
8oz 6.18 6.37
1lb 10.33 10.64
5lb 46.63 48.03

Factory Shipments (in

000s of cases)
8oz 640 793
1lb 1099 1362
5lb 581 720

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 Variable manufacturing
cost per case
8oz 3.02 3.05
1lb 22.12 22.34
Gross Sales ($) 42,000 54,125
Gross Margin 52% 53%

Advertising
TV 2862 4453
Print 687 950
Internet 76 238
Total Advertisement 3625 5641
($)
PR 191 297
Consumer 424 1080
promotion
Trade promotion 4240 5938
Total marketing 8480 12956
expenses ($)
Profit before 13662 15815
overhead and taxes
32% 29%

Income statement
2007E 2008E 2008IE
7.2 7.92 7.82
12.02 13.222 13.02
54.28 59.708 58.702

714 714 800

1226 1226 1350
648 648 750

3.38 3.718 3.14

5.58 6.138 5.63
24.8 27.28 26
55,051 60556.1 67864
29726 32698.6 38035.5
54% 54% 56%

3815 4196.5 4000

694 763.8 1500
248 272.8 1000

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 4757 5232.7 6500
198 217.8 198
551 606.1 1400
5505 6055.5 8977.5
11011 12112.1 170750
18715 20586.5 20960
34%

1. Increase trade promotions by 10%(adds more value)

2. Decrease consumer promotions by 25% (adds less value)
3. Reduce the cost of TV advertising by 35%
4. Increase the cost of printing advertising by 10%. Why? Because RBS is not
getting a valuable return on advertising and merchandising support in exchange
for trade promotions.
5. Effective consumer promotions regarding use of coupons can be cut off from the
magazines. In the long run, RBS may increase the TV ad spending when they
sort out the uncertain creative issues with the ad agency. This will increase their
already low advertising retraction.

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