Spar InfoTech, Inc.
Impact from Promoting Other Products of the Same Manufacturer
Background: A Company promoted 3 or 4 different brands at once to jobbers for vending machine sales. The largest brand usually had very successful promotions but on occasion for no apparent reason the promotion was a failure and lost money.
Analysis: It was found that the Promotion lost money when certain other brands were also promoted. Based on discussions with the jobbers it was found that the smaller brands had a higher gross margin when on promotion and since the vending slots were limited the smaller brands were put into the vending machines instead of the major brand.
Recommendation: Promote Brands with various Promotional Discounts so that the jobbers did not have an incentive to put the smaller brands into the vending machine. It should be noted that this policy by the jobbers was self-defeating since the major brand sold far more product from the vending machines than the secondary brand. But since the jobbers operated on gross margin in the vending machines they still stocked the ending machine with the secondary brands. Long term there needed to be a change in the way the promotions were designed and sold to the jobbers since promoting the major brand even at a lower gross margin generated more profit due to higher volume.
Net Results: The major brand was promoted alone or with limited secondary brands and the unsuccessful promotions were eliminated. Long term the education process worked and the jobbers over time came to realize selling more product at lower gross margins increase overall profits.
Learning: To just quantify the impact of Promotions on Profits and Sales is not enough. The incremental sales/profits need to be analyzed against other factors to see what is causing the difference in the incremental sales/profits.