Reynolds Metal Company: Consumer Products Division

CASE SUBMISSION

GROUP 18

ABHINAV ANAND 13204

SHAIK NISHAD 13233

SUJIT KUMAR BARAL 13550

TUSHAR SHARMA 13255

SLMT-2

Problem statement:

Problem #1: What should be the trade promotion policy of Reynolds in future.

Two options are available:

Business as usual 100% MDF

Problem #2: If Steve Rosser choose to go with 100% MDF, what should be his method of implementing it.

Analysis

Profit-loss sheet under for Reynolds aluminium foil under different scenarios.

Description Reynolds wrap

GIVEN DATA

SITUATION WITH 5% PRICE INCREASE

SITUATION WITH 100% MDF(10% PRICE CUT WITH 100% MERCHANDISE SUPPORT

Gross pounds 269379 243653.3055Decrease by 9.55% 689610.24

list price per lb 2.06 2.163 increase by 5% 1.854sales at list 554920.74 527022.0998 1278537.385

Promotions

Tradecash allowances 27678 27678Market development 18303 18303 45981New distribution 1005 1005 1005

ConsumerCoupons 25662 25662 25662

OtherSpecial promotions 4596 4596 4596Meals on wheels 465 465 465

Total promotions 77709 77709 77709

Gross sales 477211.74 449313.0998 1200828.385

Freight 18972 18972 18972Returns and allowances 20339 20339 20339

Net sales 437900.74 410002.0998 1161517.385

COGS 361776 327226.392

calculated as( COGS old/Volume old)*Volume new 926146.56

Gross profit 76124.74 82775.7078 235370.825

Sales G&AAdvertising 31689 31689 31689Market research 1176 1176 1176Coupon fees 4596 4596 4596Miscellaneous 0 0 0

inventory

already included as part of expenses

We don’t know the inventory turnover for this situation so inventory savings cant be calculated. Still it can be assumed that savings in inventory wont be high enough to match gains in 100% MDF with 10% price cut.

It is savings therefore negative sign -2834.014685

Total Sales G&A 37461 37461 34626.98532

Operating profit 38663.74 45314.7078 200743.8396

Increase in operating profit 17.2020808 419.2044009Efficiency of promotions 7.141009922 6.781995648 16.45288686

It is clear that increase in sales per dollar spent on promotion is nearly double if 100% MDF is implemented while it has decreased if prices are increased by only 5%.

Profit and loss sheet of Reyonlds plastic wrap under different scenarios.

Calculations made here are similar to what are mentioned for Reynolds aluminium foil.

Description Plastic wrap5% INCREASE IN PRICE

100% MDF IMPLEMENTATION

Gross pounds 13653 11646.009 34815.15list price per lb 6 6.3 5.67sales at list 81918 73369.8567 197401.9005

Promotions

Tradecash allowances 7317 7317Market development 4644 4644 11961New distribution 609 609 609

ConsumerCoupons 11541 11541 11541

OtherSpecial promotions 0 0 0Meals on wheels 441 441 441

Total promotions 24552 24552 24552

Gross sales 57366 48817.8567 172849.9005

Freight 1281 1281 1281Returns and allowances 2802 2802 2802

Net sales 53283 44734.8567 168766.9005COGS 34475 29407.175 87911.25

Gross profit 18808 15327.6817 80855.6505

Sales G&AAdvertising 15312 15312 15312Market research 1857 1857 1857Coupon fees 2712 2712 2712Miscellaneous 0 0 0inventory

Total Sales G&A 19881 19881 19881

Operating profit -1073 -4553.3183 60974.6505

increase in operating profit Bumper loss!! Significant rise in profit

Efficiency of promotion dollar 3.336510264 2.988345418 8.040155609

Here too we arrive at same conclusion what we received in Reynolds aluminium foil case

Since customer base is loyal we assume that even when retailers increase the price due to 100% MDF implementation by 5% they will continue to buy the Reynold’s products.

After performing above calculations on data provided, we conclude that going for 100% MDF is certainly a better option for Reynolds.

Consequences of 100% elimination of off-invoice allowances.

Traders will increase price of good for consumersSince Reynolds is a market leader with strong brand equity it can afford to offer its products at higher prices.

Competitors may take advantage by aggressively pushing for off-invoice allowancesThey will not do it. Increasing off-invoice allowances may increase the bottomline but certainly hits the return on investment(ROI). Hence your profits are effectively diluted by your huge investments which is not feasible in the long run.

What if they still do it??Then it will be good for Reynolds because not all competitors will see rise in sales by adopting aggressive off-invoice allowance because industry is highly competitive with little differentiation in product. Those who won’t will certainly be wiped out from the market altogether.

What about the conflicts within the company due to transition of promotion activity from marketing to sales.i) Rosser may run this policy on pilot basis and convince the employees by the results

obtained.ii) Rosser can take motivational approach. He may say that price should not be a factor for

our consumers to buy our products. Hence marketing of products must not be on basis of promotion based activities.

What about retailers and distributors?i) Let them increase prices but in phased manner so customers don’t see sudden jump in

prices.ii) Slight change in distribution channel can also be done. Large retail chains won’t mind

stocking Reynolds products.