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The new marketing manager was being asked to suggest how the company could react to
the changes that were taking place in the market by proposing a range of sales promotions
and how and when they should be implemented. The company had developed a range of
promotional concepts, provided in Table 4E.
Table 4E. The available sales promotion alternatives, their speed of introduction in
months, cost per litre in £ and likely sales increase in volume.
Type
Time
Cost/litre
Sales increase %
Competition
2
0.10
3
Coupons
1
0.20
7
Extra pack
3
0.10
4
Banded pack
2
0.40
6
Discount
1
0.30
10
Self liquidating offer
3
0.10
3
Sample pack
4
0.60
8
Historically the company had spent around £500,000 per year on adhoc sales promotions
to boost volume. This year senior management had demanded that the marketing team be
more systematic in its approach which should focus on the trade distribution agreements
that the company had with their major distributors. As a result, marketing management had
not spent anything in the early part of the year, and was able to develop sales promotion
campaigns for both the existing products and some of the new developments that were
currently under consideration.
Production and warehousing
The company had invested heavily in modern, flexible manufacturing facilities, about 5
years previously, to meet the forecast steadily increasing demand for paint. The production
plant could switch within 30 minutes from the production of one type or colour of paint to
another, with a set up cost of £550, a figure substantially below the competition. With its
microprocessor control systems the plant was able to operate on a 24 hour day, with low
staffing requirements. In the current year the plant was continuing to operate substantially
under capacity producing only 15 of the possible 28 million litres. This inability to achieve
production targets meant that the company failed to achieve the return on capital that the
senior management had initially expected.
The company had, as part of its expansion programme, a new warehouse alongside the
production facility. The integration of the warehouse with the production facility, and
advanced automation, allowed filled paint to be moved from the manufacturing point to the
warehouse storage point with the minimum of physical involvement by factory or
warehouse staff. The company currently used a range of outside contractors to handle
distribution, though this had substantially raised costs as the number of wholesalers
supplied with branded paints expanded. The average cost of delivery was £350 per round
trip for their fleet of one 40 ton; and £250 for the three 20 ton lorries that could carry
32,000 and 15,000 litres of paint respectively. One of the advantages of the private label
business was that Homecolour could maximize vehicle utilisation into the 55 central depots
of the DIY multiples, whereas deliveries of branded products tended to be only 35 per cent
full. Expansion into other areas, involving smaller volumes to individual customers, would
mean that the average cost of delivery for a litre - currently £0.10 - would rise substantially.
Current salesforce and promotional plan
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