Reliance Baking Soda: Optimizing Promotional Spending (HBR Brief Case)

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.

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 NaHCO 3 (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. Trade promotions Private label Low Advertising recall Boring and low traffic Market share reduced Old fashioned Overstocked Inventory ROOT CAUSE DIAGRAM

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 Manufacturer Trader / Mass Merchandise / Workhouse Consumer Supplier

13. Recommendations- trade 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 Period Promotion days Promotion Activity 8 Oz 1 lbs 5 lbs 2006 January 41 Refund Scheme 11 + 1 Scheme 11 + 1 Scheme 11 + 1 April 21 Cross-ruff Coupon     Scheme 10 + 2 June 38 Twin Pack/Refund   Scheme 10 + 2 & 5% ad   August/ September 43 Sweepstakes and Refund Scheme 11 + 1 & 5% ad Scheme 11 + 1 & 5% ad Scheme 11 + 1 & 5% ad November/December 50   12 % Off Invoice   15 % Off Invoice 2007E January/ February 40 Self liquidating premium   10 % Off Invoice   April 20 Coupon 10 % OI + 5% ad   10 % OI + 5% ad May 21     Scheme 10 +2   June 22   10 % OI + 5% ad     2008E January/ February 41 Refund Scheme 11 + 1 Scheme 11 + 1 Scheme 11 + 1 April 21 Coupon     Scheme 10 + 2 May/ June 38 Twin Pack/Refund   Scheme 10 + 2 & 5% ad   August/ September 50 Target Scheme Target 250 get 50 extra   Target 250 get 50 extra November/December 50 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.

16. Final Budget Forecast

17.   2005 2006 2007E 2008IE 2008E   Manufacturer's price per case             8 oz $6.18 $6.37 7.2 7.92 7.82   1 lb $10.33 $10.64 12.02 13.222 13.02   5 lb $46.63 $48.03 54.28 59.708 58.708   Factory shipments(in 000's of cases)         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         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%   Advertising             Tv $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   Profit before SG&A, Overhead and Taxes $13,662 $15,815 18715 20586.5 20960  

18. Budget Forecast

19. Bottom line growth

20. Thank You RBS – A Houseful of Uses