Problem:
One of the key issues faced by McGraw is that there is a large gap between his projections for next year, and what the manager’s are promising him . His goal is to obtain a 15% increase in the operating income from his division (OM, LR and NP). The managers are projecting a decrease of 5.2% from the current year. In absolute terms there is a gap of $27 MM in the projected divisions operating income.
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If McGraw were to keep his A&P budget the same as last years, he would save $32MM over the managers’ projections. Therefore, one solution could be to effectively use the strengths of the product lines and the A&P dollars by consolidating his sub-divisions.
Analysis:
Comparing the contributions and costs of the three product lines OM, LR and NP as a percentage of the total division’s numbers for the three years can give a detailed picture on the successes and failures of each sub-division, their strengths and weaknesses.
This exercise lets us determine what percent of the divisions’ A&P budget is dedicated to Oscar Mayer vs. what percent of the divisions operating income comes from OM vs. LR.
Louis Rich Brand
Strengths are growing market segment, “health conscious” segment contributing to the rise in the operating income exponentially. However, a 33% of division’s advertising and promotional budget is being consumed for a 24% of total revenue or 14% of division’s operating income. While contribution to operating income is exponential, it is still less than 1/4th of the total divisions operating income.
Oscar Mayer Brand
Oscar Mayer brand has been developed over 100 years. It has a strong brand name, brand equity associated with it. It has established marketing and distribution channels. The numbers show a decline in the operating income of 18% over 3 years in part this may be due to a decrease in percentage of division’s A&P expenses directed towards OM brand. There is a question as to whether LR brand is cannibalizing OM brand.
New Product
Stuff’ n Burger numbers shows that a proportionately large spending on A&P is still generating no operating income. It is in the red. This points out the difficulty and expense involved in developing new brand or products.
One of the key questions to ask is if the Louis Rich Brand is eating away into the Oscar Mayer’s market share? The two tables below show a decrease in the Oscar …
…eat Oscar Mayer products. The tag line can say Oscar Mayer: offering choice and variety, fun and relaxation.
Extend Product line
This would require the company to reposition Louis Rich brand under Oscar Mayer Brand, without loosing its target audience, the health conscious group. (Both division can leverage off of the well reputed brand name Oscar Mayer.)
Introduce repackaging, ready to eat lunches – including red and white meat variation. The focus here would be convenience for working people and enjoyable for kids.
Pricing Strategy
Running a sales promotion offering two for one package deals. Can sell white meat products via vending machines at health clubs and give free Samples to women.
Cutting price of Oscar Mayer products in order to gain more market share and become more in line with the market competition. Products from Oscar Mayer and Louis Rich under the Oscar Mayer umbrella would need to be priced competitively with products from Smithfield, Ball Park, Hillshire Farms, Butchers, Tyson, Carl Budding and Kellogg’s etc.
Russell Winer. Marketing Management 2nd ed. Prentice Hall, 2004. ISBN 0131405470.
Custom Business Resources. Prentice Hall, 2005. ISBN 0536921288.
