Case Game: The Case Of Co-Promotion

CASE GAME
The Case Of Co-Promotion

How will a joint campaign with a popular cookware brand impact the refrigerator brand of Total Industries-BT's fictional firm? Marketing Advisory Services' W. Vieira, IIM-C's A. Mukherjee & VIP's A.G. Warey look into the future.

By R. Chandrasekhar

I've got to go now, honey. Talk to you later,'' said Abhinav Kumar, hanging up on his wife of three years. The clock on his big mahogany table said it was half past two in the afternoon. Any minute now, the 35-year-old CEO of the family-managed Total Industries would be playing host to his senior executives.

The issue was pressing. Total-a diversified conglomerate with interests in consumer durables, soaps and oils, switchgears, and batteries-had just finished a six-month co-promotion campaign for its frost-free refrigerators. Kumar was eager to know whether, despite the payoffs in terms of volume, the strategy was helping the brand.

Srikant Suresh-the avuncular-looking president of the durables division-was the first to burst into his room. Following him was Manoj Kohli: the forty-something, but suave, head of switchgears. The officious-looking man on the heels of Kohli was Srinivas Mirdha, CEO of AdPeople, the agency that handled the co-promotion for Total. The last to enter was Guneen Roy, president of the soaps division.

''Good afternoon, gentlemen. So, how have we done, Suresh?'' Kumar got straight to the point, as soon as the group was seated.

''The final figures are in, and out of a total of 10.2 lakh refrigerators sold in the last 12 months, 7.4 lakh were during the six months of promotion,'' gushed Suresh. ''In terms of value, the scheme has fetched Rs 1,110 crore of the division's total sales of Rs 1,632 crore.''

Suresh had every reason to be happy. It was his idea to co-market Total refrigerators with Kitchenaid, a well-known brand of non-stick cookware. With any of the six Total refrigerator models, a four-piece set of Kitchenaid cookware (worth Rs 2,400) was given free. Given that the median price range of refrigerators was between Rs 12,500 and Rs 20,000, the notional value of the Kitchenaid set appealed to consumers.

Other executives, especially Kohli, voted in favour of Suresh's idea. Refrigerators were Total's flagship business, contributing more than a quarter to the overall sales of Rs 6,100 crore. And although Total refrigerators led the market with a 20 per cent share, there was pressure building up because of a slump in the market. During the last two years, the annual growth rate in the industry had slumped to around 5 per cent; the prices had stagnated, although those of raw materials like sheet metal, plastics, and copper had sharply risen.

Still, if Total's division had done well it was because of its predominance in the frost-free segment, which was growing at 10 per cent annually. But despite the dire need to stimulate sales, Kumar was not comfortable with the idea of co-marketing. As he saw it, promotional inputs like this one were a steroid that pepped up the structure all right, but weakened the system in the long run. ''Advertise, don't co-promote,'' he had urged.

But Suresh and the others managed to overrule his apprehensions. Now they had figures to showcase in support of their decision. But Kumar wasn't fully convinced.

''Well done, Suresh. I don't mean to complain but I still don't have any clear answers to the two questions I have been asking: Is there a long-term perspective in what we did? And how has it impacted on our brand?''

Suresh let Mirdha answer. ''Globally,'' noted the adman, ''there is a shift taking place in the advertising-to-promos ratio in the fast moving consumer goods market. For decades, the ratio used to be 70:30. Now, it is 40:60. We understand that this a sign of market maturity."

''You know what? I am a little wary of this term market maturity,'' bristled Kumar. ''Where is the evidence that the Indian refrigerators market has matured? I agree that competition has replaced monopoly. When we started in 1984, we had the field all to ourselves. Today, there are 8 leading players, of whom three are transnationals, offering a total of 55 models and price points. But how about the penetration level, which really is the final indicator of market maturity?

"At 8 per cent, it is far lower than the developed market's average of 85 per cent. If anything, there is a paradox that grips the refrigerators market. At one level, consumer expectations are rising and, at another, the offtake continues to be sluggish.''

Total isn't the only one to take the promo route,'' noted Suresh. ''Four of our competitors have done likewise. Two of them offered a straight price-off of between 15 and 20 per cent for the peak season. The other two ran a raffle for the period with the bait of an all-expenses paid trip to London for the winner drawn from lots.''

''Their schemes have bombed,'' pointed out Mirdha. ''Sales went up by a percentage point or two, but the overall growth was stuck in single digit. I guess, the consumer saw them for what they were: a gimmick. Everyone thought the companies were clearing up stocks.''

''How was our promo different?'' asked Kumar.

In two ways,'' replied Suresh. ''One, there was a synergy between Kitchenaid cookware and Total's refrigerators in terms of product attributes. Refrigerators and cookware offer several common consumer benefits: safety in operation, ease of usage and maintenance, and functional utility. Two, Kitchenaid and Total shared similar consumer perceptions about product performance, design and style, reliability and value for money.''

''Also the arrangement with Kitchenaid worked wonderfully for us,'' said Mirdha. ''Kitchenaid billed the dealer only Rs 1,440-which is 60 per cent of the price of the cookware-while underwriting the remaining Rs 960. The dealer recovered 80 per cent of the bill-Rs 1,152-from Total, while the balance was adjusted through reducing his commission from Total to the extent of Rs 288.''

''Kitchenaid made up the unit loss by volume sales,'' said Suresh by way of explanation. ''And the dealer made up for the cut in margins through higher turnover. We spent only Rs 50 crore on direct reimbursement to the dealers on account of Kitchenaid, and another Rs 5 crore on promotions. So, at a cost of Rs 55 crore, we grossed Rs 1,100 crore from sales.''

''Sure, but don't forget that of the Rs 65 crore earmarked for ads, you blew Rs 55 crore on a quick-fix promo. I wonder if people will remember our brand name next year,'' Kumar said with mock concern.

Guneen Roy, who had been quiet all this while, spoke up. ''We have to evaluate the results in terms of what we set out to achieve in the first place.''

Kumar made a slight nod to indicate that he agreed with Roy. The soaps president continued: ''Our main objective was to prop up sales in an inert market. That, as Suresh's figures reveal, has been achieved. But there were other objectives as well: for instance, induce the first-time customer to buy; get retailers on our side; accelerate stock movement from dealerships; break out of the clutter through a value-added product offering; and hold on to our 20 per cent marketshare. We have achieved all of these.

"I, thus, suggest that we extend promos for all our other product lines: batteries, switchgears, and soaps. Each of these businesses is becoming increasingly competitive and prone to demand stagnation. Besides, we have set a turnover target of Rs 7,500 crore for 2000-01.''

Kumar was totally unprepared for Roy's dramatic suggestion. But before he could speak, Kohli piped up. ''Is it not better to offer a discount of 5-10 per cent than incur a monthly 3 per cent inventory carrying cost, which over the six-month period works out to 18 per cent? Besides, a cookbook along with the cooking ware makes better sense.''

''Not quite,'' said Mirdha. ''A cookbook enhances the brand image of Kitchenaid, not Total.''

That's precisely what my point has been from the beginning,'' cried Kumar. ''My fear is that the freebie will eventually destroy the core equity of the Total brand. In fact, we might already be facing that risk.''

''No, I don't think so,'' said Mirdha. ''Our promo is tuned to the bigger picture. For instance, our product offers measurable value at the dealer level, so that customer loyalty is enduring. It also maximises display space, so that competing products have so much less space. It creates excitement, even if short term, which is crucial to brand recall."

Added Suresh: "More importantly, for a product that has a long life cycle-a typical consumer buys a refrigerator just thrice in his life-such a promo provides a real incentive to the buyer.''

''However, the results of the customer perception survey we commissioned early this year, came in today morning,'' said Kumar. ''It points out that a well-informed salesman is the single-largest influential factor in purchase decision. A freebie is actually way down a customer's list of priorities. Therefore, the best way to attract customers is by strengthening the hands of our dealers and enhancing brand equity.

''My question is simple,'' continued Kumar. ''Is there a conflict of objectives between advertising and sales promotion? Should we extend co-marketing to other products? What are the pitfalls we should guard against?''