project

1. (Lay Khim Ong )
USC
(University of
southern
California)

3. • In January 1999, managers at ConAgra Grocery Products Company (CAGP) improved their system of
allocating and controlling trade-marketing spending.
• Among the major changes in the new system were the giving of increased responsibility for allocating
trade spending dollars to the sales organization, the assignment of volume-variable budgets called
“case rates” .
• The creation of a new customer marketing manager role to improve communications between the
marketing and sales organizations, and modifications to the incentive systems that were designed to
induce sales personnel to pay more attention to cost control.
• Since April 1999, when a major reorganization was made and a new management team took over,
responsibility for the U.S. grocery business was divided between Ken Sobaski, who was responsible
for marketing, and Doug Knudsen, who was responsible for sales.
Conagra grocery products company

4. • CAGP was a subsidiary of ConAgra Inc.
• 1989 ConAgra, headquartered in Omaha, Nebraska
• 2005 Gary Rodkin becomes CEO
• 2014 Chinese Potato's
• Changes by Top-level Management
• In fiscal year 1999 sales of almost $25 billion; 85,000 employees.
• CAGP’s mission was to provide “the finest-quality and best-tasting products to consumers.”
• Ken Sobaski, president of the Grocery Brands Company, was head of the marketing function for
products sold in the United States through grocery store outlets. Ken’s organization encompassed
brand marketing, trade marketing, and customer marketing.
• Each of the five sales vice presidents was responsible for Corporate, Major, or Regional accounts.

5. • They established volume objectives and lump
sum trade spending budgets by quarter for each of
the over 300 grocery buying points.
• The quarterly spending budgets and parameters
usually did not change during the year.
• The incentive compensation systems for trade
marketing and sales personnel were quite
different.
• Incentives for trade marketing personnel were
based on CAGP profit before tax (PBT) (40%
weighting)
• In contrast, incentives for field sales personnel
were based on sales volume (75%) and CAGP
PBT (25%).
The new system involved five main changes.
1. First, the old lump-sum trade spending allocation system
was replaced by a new variable allocation system called
a case rate system.
2. The second major change encompassed in the move to
the new system was to allow the 25 sales teams, rather
than trade marketing managers, to set volume and
spending objectives for each of the 300+ buying points.
3. The third change was to plan the volume targets and
trade spending allocations on a semi-annual, rather than
a quarterly, basis.
4. The fourth change was the creation of a new role:
customer marketing manager.
5. The fifth change involved several modifications to the
monetary incentives for sales personnel.

7. Business Strategy
• In the old marketing approach, the
focus was on growth. CAGP
marketing and sales personnel
sought to fill customers’
warehouses with CAGP products.
• The new marketing approach
involved more of a focus on the
building of brand equity, which
meant getting consumers to prefer
CAGP products even, potentially,
at a higher price.
• CAGP managers did not believe that the old
system of allocating and controlling trade-
spending dollars was effective.
• The overspending problem was perceived to
have two basic causes.
• First, because sales incentives were based
solely on sales volumes, sales personnel were
not greatly concerned with staying within the
budgeted spending limits.
• Second, while sales personnel had to secure
approval from trade marketing to exceed
budget, some of them had learned how to
evade the control by biasing their volume
estimates in a downward direction. Then,
when actual volume was higher than was
forecast, overspends were inevitable.

8. Remaining Problems and Issues On-going Review Processes
• The sales organization faced the
greatest challenges in adapting to the
new case rate system.
• Many CAGP sales personnel and
customer account personnel hoped that
CAGP could move to an annual, rather
than a semi-annual, planning process.
• The new system did not provide a
complete solution to the problems of
forward buying, diverting, and lack of
customer compliance.
• Ken Sobaski thought that the new system
was a positive step but that considerable
work remained to be done.
• The new case rate system was leading to
more effective use of the trade funds and
the building of brand equity.
• Ken also knew that the company had to
build its capability to better measure
product and customer profitability.