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Reynolds Metals Company's Transition to Category Management
- 1. REYNOLDS METAL COMPANY Group 8 NIKITA SOOD RESHU AGARWAL DISHA AHIR AVNI GHODASARA ROHAN MANTRI SWATI SHAH SIDRAJ AUSEKAR POOJA JETHMALANI
- 2. REYNOLDS METALS COMPANY 1919-United States Foil Company 1929-Officially Reynolds Metals Company 1947-Household aluminum foil introduced • Entry into consumer products industry Other consumer products include plastic wrap, freezer bags, wax paper Market leader in food bags & wraps industry
- 3. CATEGORY MANAGEMENT Industry wide strategic initiative • Improve effectiveness of marketing-mix • Stresses cooperation and coordination • Channel members (manufacturers & retailers) • Managerial Divisions (marketing & sales) Efficient promotion Efficient distribution & shelf replenishment Efficient product assortment Efficient new-product introduction
- 4. Marketing Department Temporary per case discounts to retailers & distributors Objective: higher purchase orders Benefits retailers & distributors OFF-INVOICE VS. MDF Sales Department Case allowance tied to retail merchandising support Objective: category management Benefits all parties Off-Invoice MDF
- 5. OFF-INVOICE VS. MDF Major issues for transition • Competition still use off-invoice • Elimination of off-invoice may result in 5% higher prices to consumers Benefits of transition • Average daily inventory would be reduced • Five additional weeks of retail price cuts • Total of 8 weeks of price cuts
- 6. High brand loyalty Would not substitute High market share • aluminum foil - 41% • plastic wrap - 24% • wax paper - 60% High quality perception • aluminum foil ranked #7 of 200 Used day-to-day PULL STRATEGY IS MORE FITTING Push Strategy (off-inv) • low brand loyalty • brand choice made in store • impulse item Pull Strategy (MDF) • high brand loyalty • brand choice made before going to store • perceived brand differences
- 7. MDF PROMOTIONS Stimulating trial by non-users Introducing new usage ideas to the current users
- 8. OBTAINING RETAILER SUPPORT Retailer support needed: • To secure shelf-space for Reynolds’ product line • To discourage negative reactions (increasing shelf-price by 5%)
- 9. HOW? Build on Reynolds’ “preferred supplier” status • Emphasis trust and good intention Cooperation needed for a win-win situation • Greater profit and margin • Lower inventory cost • More store traffic
- 10. GREATER PROFIT AND MARGIN Reynolds’ Sales - Trade Case Allowances - Coupon Fees = Retailer Cost of Goods Retailer Operating Margin: 2% (Retail Sales - Retail Cost - Retail Expense) / Retail Sales = 2% Assume retailer expenses as $0 for ease of calculation
- 11. GREATER PROFIT AND MARGIN No Promotion • Gross Profit: $18.1K & Gross Margin: 2.0% Current Promo. (60% Off-Invoice & 40% MDF) • Gross Profit: $99.5K & Gross Margin: 10.8% 100% MDF (with 5% shelf-price increase) • Gross Profit: $63.6K & Gross Margin: 6.7% 100% MDF (without 5% shelf-price increase) • Gross Profit: $149.7K & Gross Margin: 14.9%
- 12. LOWER INVENTORY COST Inventory Cost: • Cost of losing the use of funds tied up in inventory • Rent (extra warehouse / storage space) • Record keeping • Theft • Interest of loans used to purchase inventory • Breakage • Obsolescence (holiday products)
- 13. LOWER INVENTORY COST Retailers were stocking up • Forward-buying and Diverting practices • Inefficient (can they compete with Wal-Mart?) MDF could reduce the average days worth of inventory: 30 days to 15 days Borrowing rate: 10% Inventory cost savings: $3.2 millions
- 14. MORE STORE TRAFFIC MDF promotion Coordinated marketing More overall sales for retailers
- 15. TRANSITION OF RESPONSIBILITY Shift is benefit to entire organization Gradual change • Smooth transition to get all parties comfortable with the change