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NEW PRODUCT DEVELOPMENT AND

PROMOTION ANALYSIS OF
TRANSCOM FOODS LIMITED

NEW PRODUCT DEVELOPMENT AND


PROMOTION ANALYSIS OF
TRANSCOM FOODS LIMITED

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Acknowledgement

First of all, I would like to express my most deepest and sincere gratitude to my supervisor Mr. Sagar
Sen, Lecturer, Institute of Business Administration, University of Dhaka; for his kind advice,
counseling, direction and help.
I sincerely thank my Managing Director and CEO, Mr. Akku Chowdhury and my organization
supervisor Mrs. Saiqa Sultana Rahim for cooperating me during my internship and preparation of this
report.
I am glad to convey my special thanks to Mr. Amit Dev Thapa, Business Support Manager, Yum
Brands India, for his earnest help and guidance in working with this report.
Last but not least, I would like to convey my gratitude to all my teachers, colleagues in Transcom
Foods limited, friends and my family during the last three months of my Internship Program for their
support and inspiration.

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Table of Contents
EXECUTIVE SUMMARY........................................................................................................... viii
INTRODUCTION......................................................................................................................... 1
OBJECTIVES OF THE REPORT:............................................................................................2
SCOPE OF THE REPORT:......................................................................................................2
LIMITATION:............................................................................................................................ 2
METHODOLOGY:.................................................................................................................... 2
NEW PRODUCT DEVELOPMENT..............................................................................................3
DEDVIM PROCESS................................................................................................................. 4
THE DEDVIM PIPELINE:.....................................................................................................4
DEFINE:............................................................................................................................ 4
EXPLORE:........................................................................................................................ 5
DEVELOP:........................................................................................................................ 5
VALIDATE:........................................................................................................................ 5
IMPLEMENTATION:.......................................................................................................... 6
MEASURE:....................................................................................................................... 7
FUNDAMENTAL PARAMETER OF PROMOTION ANALYSIS.....................................................7
SAME STORE SALES GROWTH (SSSG):..............................................................................8
IMPORTANCE OF SSSG.....................................................................................................9
SSSG CALCULATION:.........................................................................................................9
COMPLICATIONS OF SSSG CALCULATION:...................................................................10
SAME STORE TRANSACTION GROWTH (SSTG):..............................................................11
FLOW THRU:......................................................................................................................... 11
FLOW THRU CALCULATION:............................................................................................11
USES OF FLOW THRU:.....................................................................................................12
PROMOTION DESIGN: HOW IT IS DONE PROFITABLY.........................................................13
PROMOTION TOOLS:........................................................................................................... 14
SALES BOOST DURING PROMOTIONAL CAMPAIGN:.......................................................14
KEY POINTS TO CONSIDER DURING PROMOTION:.........................................................15
INCREMENTALITY:............................................................................................................ 15
CANNIBALIZATION:........................................................................................................... 16
GROSS MARGIN IMPACT:.................................................................................................16
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PROMOTION ANALYSIS AT TRANSCOM FOODS LIMITED....................................................18


PRE-PROMOTION ANALYSIS:..............................................................................................18
FUNDAMENTALS TO PRE-PROMOTION ANALYSIS:.......................................................18
DESEASONALISATION:.................................................................................................19
PRE-PERIOD INDEXES:................................................................................................20
CONTROL GROUP:........................................................................................................21
PRE-POST NET OF CONTROL (PPNOC):.....................................................................21
INCREMENTALITY AND CANNIBALIZATION:...............................................................22
BREAKEVEN:................................................................................................................. 22
PROMOTION FORECAST:....................................................................................................23
MANAGING THE RISK :.....................................................................................................23
PROMOTION TRACKING......................................................................................................24
POST PROMOTION ANALYSIS............................................................................................25
CONCLUSION........................................................................................................................... 27
REFERENCES.......................................................................................................................... 28

List of figures
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Figure 1.
Figure 2.

DEDVIM process..

Stages involved in DEDVIM

Flow thru calculation snapshot

12

Driving SSSG and SSTG.

15

Deseasonalized sales calculation...

19

PPNOC.

21

Promotion forecast flow diagram

23

Promotion tracking and analysis form.

25

Pre and post promotion analysis..

26

Figure 3.
Figure 4.
Figure 5.
Figure 6.
Figure 7.
Figure 8.
Figure 9.

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EXECUTIVE SUMMARY
The success and growth of business of Transcom Foods Limited vastly depends on implementing a
planned marketing calendar. New product development and introduction in the product line plays a very
major and significant role to address the varying needs and tastes of the customers and to attract new
customer groups. Effective promotion planning and execution also takes a major part for the incremental
sales and profit. As a principle KFC and PIZZA HUT try to realize the objective of beating last years
month wise sale for each core stores in the system while planning its marketing calendar.

For introducing new products in the pipeline KFC and PIZZA HUT follows a model called DEDVIM
(Define, Explore, Develop, Validate, Implement and Measure) which consists of six individual steps
and three gates. The possible set of new products are defined first in the idea generation phase to address
the customers need or to address the corporate strategy of the company. Then in the next step of exploring
the possibilities of a individual product out of the possible product sets the market attractiveness and
concept testing is done. Consumer feedback is incorporated in this particular product development
approach and all the possible cost effective ways of developing the product is experimented. Even after
the product is ready to launch then also it is validated by observing the customers buying behavior of that
particular product in some particular test stores for three or four months. If the product passes the
validation step, i.e. positive customer feedback is noticed; then only the company decides to implement
and launch the product in the market. After nationwide launching of the product the actual sales and menu
mix of the product and the incremental sales due to the introduction of the product is matched and
measured with the expected outcome to justify the investment and introduction of the product. This
process helps to ensure profitability and margins for the management, improves chances of success and
reduces chances of miss and also gives the opportunity to the team for constant learning and developing
technical skills. The flip side is the rigidness of the model often stifles creativity and takes longer time
than anticipated to bring a new product in the market.

All the sales promotion activities of Transcom Foods are supposed to achieve some fundamental financial
outcomes. These are achieving high Same Store Sales Growth (SSSG), Same Store Transaction Growth
(SSTG) and incremental profit Flow thru. The whole promotion analysis is done inthree parts. The first
analysis is done before launching the promotion. At this step possible incrementality and cannibalization
of sales is forecasted, breakeven sales calculation is done and the seasonality factor is adjusted to

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calculate an expected profit flow thru. Pre period sales index is also taken into consideration and all the
factors are tested against a control group.
During the promotion the management tracks the outcome of the campaign. This is so that revenue can be
matched to the actual cost of any promotion. There are multiple benefits of tracking during a promotion.
It measure performance against expectations and also tracks consumer behavior (e.g. cannibalization). At
the same time it identifies areas of opportunity & amends strategy where possible. In addition to this
supply chain and operations issues are quickly identified and resolved and thus help to make decisions
whether to extend or exit the promotion.

The post promotion analysis gives a complete picture that reflects the impact of the promotion on stores
profit and loss account. It also holds the team accountable to the pre agreed success criteria.
The three stage promotional analysis (Pre-Promotion Analysis, Promotion Tracking and Post promotion
Analysis) and recommendations helps the management create optimal promotional plans for the future by
providing them with a set of parameters on which to base their promotions in order to achieve superior
results.

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INTRODUCTION
New product development (NPD) is the term used to describe the complete process of bringing a new
product to market. There are two parallel paths involved in the NPD process: one involves the idea
generation, product design and detail engineering; the other involves market research and marketing
analysis. Companies typically see new product development as the first stage in generating and
commercializing new products within the overall strategic process of product life cycle management used
to maintain or grow their market share.

Previously taste, convenience and the price point continue to lead fast food product development
while our country faces a health crisis with rising rates of obesity, diabetes and heart disease.
Instead of launching healthier products with fresher ingredients, the fast food industry used to
create new products that just sound healthier. But the scenario is changing as the consumers are
more health conscious now and there are constant discussions on these in different local and
international media every day. Due to this awareness building the fast food industry is now
forced to consider the health and nutrition factor while developing new product or renovating
existing products.
Many businesses use sales promotions to increase the demand for or visibility of a new product or
existing products. These promotions often require increased expenditures (such as advertising) or loss of
revenue (such as discounts), and/or additional costs (such as increased production). Business leaders need
to determine the value of previous or proposed promotions. One way to evaluate promotions is to analyze
the historical data. Structured analysis of the historical data can aid in determining the value of a past
promotion and provide insight into forecasting the value of future promotions. Though this structured
analysis can have many forms, a particular approach adopted by Transcom Foods Limited is demonstrated
in this report.
Decomposing the historical data is one approach that may prove useful to the practitioner in analyzing
past promotions. Forecasts can be adjusted based on proposed promotions using the analysis of past
similar promotions incorporating insight provided by statistical and judgmental techniques outside the
scope of this report.

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OBJECTIVES OF THE REPORT:


Specific objectives of the study include the following:

To analyze the new product development policy of KFC and Pizza Hut.

To find out the standard financial and marketing parameters for approving a promotional
campaign

To analyze the impact of sales promotion activities on revenue and profit generation.

SCOPE OF THE REPORT:


The study will focus only on the new product development policy and stages adopted and followed by the
company. The topic of promotional analysis means different things to different people. This report only
considers product promotions for which sufficient historical data exist. This paper presents a methodology
for analyzing and forecasting promotions impact based on historical data set and consumer profiling
information of the company for a new product or an existing product .

LIMITATION:
The major limitations of this report are as follows

This report will not answer the question of supplier and vendor issues, import policies and
packaging and distribution of the new product.

This report will not answer the questions of who should be targeted for a promotion, where
should a promotion be advertised, nor other such categorical issues outside the scope of the
report.

This report will not address the questions of price and promotional elasticity.

METHODOLOGY:

The report is prepared and the study is done mostly based on the standard practice of Transcom Foods
Limited for new product development and introduction and the companys strategy for promotional
activities. Both qualitative and quantitative analysis has been done for finding out a effective way of
tracking the promotional activities.
Information collected to furnish this report is both from primary and secondary in nature.
The primary sources are:

Practical deskwork.

Customers feedback

Consumer profiling database

Face to face conversation with different officials.

Analyzing various implementations of the company policies.

The secondary sources are:

Different Manuals published by Transcom Foods Limited related to new product development.

Yum Brand Franchisee Guidelines of new product Development

Franchisee Guidelines for Marketing Activities

Publications obtained from internet.

Market research reports of the company

Competitors Review Report of the company


.

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NEW PRODUCT DEVELOPMENT


In business and engineering, new product development (NPD) is the term used to describe the complete
process of bringing a new product to market. There are two parallel paths involved in the NPD process:
one involves the idea generation, product design and detail engineering; the other involves market
research and marketing analysis. Companies typically see new product development as the first stage in
generating and commercializing new products within the overall strategic process of product life cycle
management used to maintain or grow their market share. In many new product development (NPD)
situations, the development process is characterized by uncertainty, and no single development approach
will necessarily lead to a successful product. Still TFL has a standard process called DEDVIM (Define,
Explore, Develop, Validate, Implement, Measure) which is being followed while introducing any new
product in the product pipeline.

DEDVIM PROCESS
As a franchisee of Yum ! India, TFL follows the DEDVIM process while introducing a new product in
their product pipeline. There are dedicated teams who constantly work at the different stage of the
process.
THE DEDVIM PIPELINE:

The DEDVIM pipeline has the following stages:

Define
Explore
Develop
Validate
Implement
Measure

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Fig 1. DEDVIM Process

DEFINE:

This stage is for idea generation and screening based on financial and strategic framework for product
development. Ideas for new products are obtained from basic research using a SWOT analysis (Strengths,
Weaknesses, Opportunities & Threats), market and consumer trends, company's R&D department,
competitors, focus groups, employees, salespeople or Ethnographic discovery methods (searching for user
patterns and habits). Lots of ideas are being generated about the new product. Many reasons are
responsible for generation of an idea.
Idea generation begin with opportunity analysis to support the ideas in the idea screening and exploring
phase. It is in the front end where the organization formulates a concept of the product to be developed
and decides whether or not to invest resources in the further development of an idea. It is the phase
between first consideration of an opportunity and when it is judged ready to enter the structured
development process
EXPLORE:

The objective of this step is to eliminate unsound concepts prior to devoting resources to them. The NPD
team resolves this by collecting data for the questions below:

Will the customer in the target market benefit from the product?
What is the size and growth forecasts of the market segment/target market?
What is the current or expected competitive pressure for the product idea?
What are the industry sales and market trends the product idea is based on?
Is it technically and operationally feasible to manufacture the product?
Will the product be profitable when ready to be launched to the customer at the target price?

DEVELOP:

After exploring the possible product range that could be launched the NPD team chooses to develop the
best product judged by the above mentioned success criteria. In this development phase the team looks for
the following details:
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Develop the marketing details


Investigate intellectual property issues and search patent data bases
Who is the target market and who is the decision maker in the purchasing process?
What product features must the product incorporate?
What benefits will the product provide?
How will consumers react to the product?
How will the product be produced most cost effectively?
What will it cost to produce it?

VALIDATE:

In this stage the developed product is validated and tested. Testing the product by asking a sample of
prospective customers what they think of the idea and the product usually via choice modeling.In this
phase the followings are done:

Estimate likely selling price based upon competition and customer feedback
Estimate sales volume based upon size of market and such tools as the Fourt-Woodlock equation
Estimate profitability and break-even point
Test the product (and its packaging) in typical usage situations
Conduct focus group customer interviews in the test stores
Make adjustments where necessary
Produce an initial run of the product and sell it in some test stores to determine customer
acceptance of the product as whole.

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Fig 2. Stages involved in DEDVIM

IMPLEMENTATION:

After the product has passed the validation phase then it is ready to be implemented at the batch level
production. The implementation phase consists of the following:

Finalize quality management system


Resource estimation
Requirement publication
Operations planning
Department scheduling
Supplier collaboration
Logistics planning
Contingencies - what-if planning
Commercialization (post-NPD)
Launching of the product
Produce and place advertisements and other promotions

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MEASURE:

The promotion impact of new product on the entire product portfolio is measured effectively to determine
the incremental sales and flow thru. The following things are taken care of:

Business and financial impact


Value Analysis (internal & external)
Competition analysis
Differing value segments (price, value, and need)
Product Costs (fixed & variable)
Forecast of unit volumes, revenue, and profit

Because the NPD process typically requires both production and marketing expertise a cross-functional
team is dedicated for this purpose. The team is responsible for all aspects of the project, from initial idea
generation to final commercialization, and they usually report to senior management. Because
engineering and marketing expertise are usually both critical to the process, choosing an appropriate
blend of the two is important.
People respond to new products in different ways. A new product pricing process is important to reduce
risk and increase confidence in the pricing and marketing decisions to be made.

FUNDAMENTAL PARAMETER OF
PROMOTION ANALYSIS
Many businesses use sales promotions to increase the demand for or visibility of a product or
service.These promotions often require increased expenditures (such as advertising) or loss of revenue
(such as discounts), and/or additional costs (such as increased production). Business leaders need to
determine the value of previous or proposed promotions. One way to evaluate promotions is to analyze
the historical data using time series analysis techniques. In particular, intervention analysis can be used to
model the historical data taking into account a past promotion. This type of promotional analysis may
help determine how past promotions affected the historical sales and can help predict how proposed
promotions may affectthe future based on similar, past promotions.

Transcom Foods Limited (TFL), as a business considers the impact of few fundamental parameters when
it analyses the effect of any new product introduction in the product line or the effect of any marketing
promotion. These parameters are:

Same Store Sales Growth (SSSG)


Same Store transaction Growth (SSTG)
Flow Thru

SAME STORE SALES GROWTH (SSSG):


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The Same Store Sales are Sales made based in the same stores during a previous period (usually the
previous year). And so, these sales ignore the effect of opening and closing stores in the general sales of
the company. Same store sales are sales revenues of stores that have been open for a year or more.

New sales come from two sources:


1. Sales growth
2. Opening new stores
The monthly same store sales number reveals what portion of new sales comes from sales
growth in existing stores and excludes sales from opening new stores.
Analysts and investors prefer rising same store sales each month as this indicates that compared
to the prior month
1. Store traffic is increasing and/or
2. Customers are willing to pay more for products
These two factors increase sales revenues without opening new stores, which is often a more
capital-intensive way of growing. This statistic allows investors to determine what portion of new
sales has come from sales growth and what portion from the opening of new stores. This analysis is
important because, although new stores are good, a saturation point--where future sales growth is
determined by same store sales growth - eventually occurs.
In the restaurant business every store of KFC and Pizza Hut is considered as a separate business identity
which is run by the individual restaurant managers. In order to track the sales growth and profitability of
any individual stores the TFL management considers SSSG as a very important parameter.
IMPORTANCE OF SSSG:
SSSG is considered as a key measure of business performance because it shows strength of the base
business How the core stores are performing which is not distorted by openings and closures of other
stores.
It also reveals a close link between sales growth and profit growth. This is important because the Same
Store Sales have a great impact on the profitability in the restaurant business, since each store has a
relatively high component of fixed costs, and so, any drop in sales in a store quickly brings down its
profitability, while any rise will improve it substantially.
And, on the other hand, in situations of restructuring it is normal to see a general drop in sales due to the
closure of stores with poor profitability, even when the Same Store Sales may be showing the success
of a Turnaround, as they rise.
A possible exception to this logic tends to appear only when there is some sacrifice in sales to gain
margin. This is a rare, but not impossible, strategy, where the Same Store Sales can show drops that are
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not compensated by higher margins (or, on the contrary, the Same Store Sales may show rises when in
reality they represent considerably lower margins).
Thus, this is a key concept when the TFL management analyzes the restaurant business.
SSSG CALCULATION:

Different businesses have different methodologies for calculating SSSG (comp sales, like for like
sales).TFL has a standard methodology across their business units and company to calculate SSSG.

Step 1: Base is core stores i.e. stores that have been open since the start of the last financial year

Core stores in 2011 = all stores opened before 1st December 2009

New last year openings = stores opened between 1st Dec 09 and 30th Nov 10

New current year openings = stores opened between 1 st Dec 10 and 30th Nov 11

Step 2: Calculate total net sales for the core stores for
(day/week/month/quarter/year) and the same period in the prior year

the

current

period

For daily SSSG compare Tuesday in current year to Tuesday in prior year, not 15 th in
current year to 15th in prior year

For weekly SSSG compare Monday to Sunday to same days in prior year

For monthly/quarterly/yearly compare full month/quarter/year sales

Step 3: Derive Core Store Weeks for calculation i.e. total number of weeks that core stores were
open
E.g. if closed for 1 day in current or prior year = 0.86 weeks

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COMPLICATIONS OF SSSG CALCULATION:

What about stores that have permanently closed?

What about stores that have temporarily closed?

Exclude from calculation i.e. exclude sales in prior year

Exclude if no sales in current year or prior year period

What about a store that closed this year for a day?

Exclude for 1 day if closed for a full day

Include if closed for a part day

SAME STORE TRANSACTION GROWTH (SSTG):


SSTG is another very important parameter which plays a very vital part while analyzing the effect of a
new promotion. In the TFL system SSTG means achieving growth in terms of number of transactions per
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day compared to the prior years same day. This has a great significance and impact on the sales volume
and profit margin. In order to have increasing sales every store in the system must focus to bring new
customers to the stores while a promotion is running. If the frequency of customer visit goes up naturally
the sales volume for that particular store will go up.

FLOW THRU:
Flow Thru is another very simple but important parameter for judging the outcome of a promotion. It is
defined as sales less variable costs. To be more precise it is basically incremental sales less incremental
costs associated with the increase in sales.

FLOW THRU CALCULATION:

The flow thru calculation is shown below with the help of an example. In this example, benchmarking the
results from two business periods, we see a Tk.10,000 increase in sales minus Tk.5,100 incremental costs
drives an incremental Tk.4,900 or 49.0% flow-thru in profits.

Fig 3. Flow thru calculation snapshot

USES OF FLOW THRU:


Flow thru is a very effective financial tool which shows the impact of a promotion in the stores profit and
loss statement in a snapshot. Uses of this tool are as follows:
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Tool to help maximize profit delivery on sales upside and minimize losses on sales downturn

Promotion planning

Balanced Scorecard

Estimating Breakeven Sales

Analyzing P&L

Sensitivity analysis which is assessing risk of achieving promotion objectives

Leverage: Degree to which incremental sales reduce the proportion of fixed costs. High fixed
costs can make profit growth look better though leverage

PROMOTION DESIGN: HOW IT IS DONE


PROFITABLY
Promotional campaign at Transcom foods differs from a general marketing campaign since it is
promoting one element within the overall marketing such as a new product, a special deal or an
upcoming event.Typically when organizing a promo, the overall goals include reaching the target
audience and stimulating those to take necessary action. Promotional campaigns can represent a
significant advantage, particularly if delivered at the same time as a corporate branding drive or
identity rebranding initiative. Campaigns to promote the business can often be expensive.
Although there is not always any need to fork out large sums of money on a campaign,
invariably they do necessitate a significant expenditure. This expense must be justified, and this
is where the problems can creep in.Whenever the management sets out on an expensive plan of
action, whether it is through identity branding, updating the corporate image or planning a
campaign to promote the business or a particular product or service, invariably this is
coordinated by a team of people.

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Here at TFL, a successful promotional campaign must have a tight focus. It will be important to know
precisely which product or service will be promoted. Any successful campaign will need to have a
number of tight objectives. Moreover, these objectives will have tight performance criteria like achieving
high SSSG or SSTG. If the management is looking to promote a particular product of the business, there
are several questions which it will be important to ask, and to which definite answers will need to be
agreed by the team working on the promotion design.For each of the promotional campaigns, exactly
which product is being planned to promote? Assuming that the general aim is to sell more of the products,
exactly what is the realistic objective which will be used as the performance criteria? Having performance
criteria clearly laid out before the campaign is launched is a must.

A promotional campaign to increase the business sales can easily end up as a drain on the resources, and
being unable to accurately assess the effectiveness of a previous campaign tactic is liable to result in
repeating the same mistakes over and over again, wasting more money and losing out on real potential
gains.

PROMOTION TOOLS:
Generally KFC and Pizza Hut use both the Above The Line (ATL) and Below The Line (BTL) tools
for running the promotion. The ATL tools commonly used are:

Newspaper Advertisement
Billboards

Outdoor Activation Program

Public Relation and

Consumer Engagement Program

The BTL tools comprises of the followings:

Local Store Marketing


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Cash Counter Menus

Menu Boards

Table Talkers

Flyer/leaflet

Festoon

Till Card

Danglers

Cut outs

SALES BOOST DURING PROMOTIONAL CAMPAIGN:


While a promotion is running the objective is to increase same store sales growth (SSSG) and profit
flowthru. It is done by increasing the number of ticket sales or transactions in the stores. Incremental
sales can be achieved if the new customers step into the stores or frequency of customer visit goes up.
Sales can also be increased if the price is increased but that will not be the effect of the promotion.

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Fig 4. Driving SSSG and SSTG

KEY POINTS TO CONSIDER DURING PROMOTION:


The TFL management considers few key points while planning a promotion. This helps to achieve the
targeted objective of the campaign and gives a quantitative measure of the impact of the promotion.
INCREMENTALITY:

In literature incremental sales is defined as number of units sold through a sales promotion offer in excess
of the estimated number that would have been sold without it.
Different individuals naturally react differently to any given marketing campaign. In general, there will be
some people for whom the campaign will be effective, meaning that their probability of purchasing the
product will increase if they are included in the campaign; such people are called Persuadables. There
will others for whom the campaign has little or no impact; they are called Immovables. Finally, it is
accepted that at least the logical possibility that there will some people for whom the campaign will have
a negative effect, i.e. they will be less likely to purchase the product in question as a result of the
intervention; are called Sleeping Dogs.

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If our goal is to maximize incremental sales at minimum cost, it is clear that ideal target would be only
the Persuadables segment, as money spent on the Immovables has no meaningful impact on sales and
money spent on Sleeping Dogs, when they exist, is counterproductive.
CANNIBALIZATION:

In the literature of marketing, cannibalization refers to a reduction in sales volume, sales revenue, or
market share of one product as a result of the introduction of a new product by the same producer.
Cannibalisation is most commonly a concern where a company is selling the same products though
different channels or in different locations. Cannibalisation reduces sales growth (as the benefits of
growth in one place will be offset by a reduction elsewhere). It may also reduce margins if customers
switch to a lower cost (for them) and lower margin (for TFL) sales channel. To the TFL management
cannibalization means how do people trade across from what they normally buy as the effect of a
promotion?

While this may seem inherently negative, in the context of a carefully planned strategy, it can be effective,
by ultimately growing the market, or better meeting consumer demands. Cannibalization is a key
consideration in product portfolio and promotion analysis. Getting the balance right between promoting
growth and minimising the impact of cannibalization is a bit like walking a tight rope. A little bit of
research and planning can eliminate all manner offuture pain however. It is not unreasonable to expect
franchisees to be extremely concerned, and vocal, about the possible impact upon sales resulting from the
introduction of a new outlet or operator nearby.

GROSS MARGIN IMPACT:


The difference between a companys net sales and the related cost of goods sold is gross margin. Gross
margin is represented as both a number and a percent. Understanding the differences and relationships
between the gross margin as a number and a percent is paramount to understanding the business. Gross
margin is both a variable number and percent that changes with the product mix sold. A change in the
sales product mix could cause both revenues and gross margin to increase and yet have gross margin
decline as a percent. This type of change in gross margin could be the result of the company selling
product at a reduced unit price causing overall sales to increase, while the cost of the product in inventory
is still valued at the original cost of goods. So, if the company sells more product at the lower unit price,
the gross margin number would increase, but the cost of goods percent increases on each item sold, which
causes gross margin percent to decline. Businesss management needs to understand this cause and effect
relationship between sales price and cost for products.

Impact of marketing promotions and introduction of new product lines should have a positive
result on the businesss top and bottom line. The key is understanding the new products life
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cycle and the related impact on gross margin. All products have a sales life cycle in the
marketplace and as they mature there will be pricing pressures and the related gross margin
pressures. Price reductions on a product line offered by the company should also coincide with
reductions in cost of goods sold in an effort to keep the gross margin percent stable. When the sales price
and cost of goods prices both decline then the gross margin percent should stay the same, but there will be
a reduction in the actual gross margin dollars unless the unit sales price reduction causes an increase in
overall gross sales of the product. Selling slow moving, old, or obsolete inventory at a reduced price

is a good business strategy, but businesses also need to understand and be able to identify the
short-term impact these types of inventory reduction sales will have on gross marginespecially
when it relates to gross margin percent.

PROMOTION ANALYSIS AT TRANSCOM


FOODS LIMITED
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At Transcom Foods there is a dedicated marketing team who does the whole promotion analysis in three
steps. The steps are:

Pre- Promotion Analysis


Ongoing Promotion Tracking
Post Promotion Analysis

PRE-PROMOTION ANALYSIS:
Before launching a new promotion some pre-promotion analysis is done in order to judge the real time
viability of the campaign.
FUNDAMENTALS TO PRE-PROMOTION ANALYSIS:

While doing the pre analysis the assigned team calculates and analyzes the following things:

Deseasonalisation
Pre-Period/Indexes
Control Group
Pre/Post Net Of Control
Incrementality
Cannibalisation
Breakeven

Deseasonalisation

Remove seasonal sales shifts

Pre-Period/Indexes

Benchmarks to measure results

Control Group

Results are measured versus control

Pre/Post Net Of Control


(PPNOC)
Incrementality

Process for summarizing results

Cannibalisation

Do people trade across from what they normally


buy?
The point at which a promotion is profit neutral

Breakeven

Is it additive?

Table 1. Fundamentals of pre-promotion analysis

DESEASONALISATION:

Deseasonalisation removes seasonal sales shifts throughout the year and thus enables comparison of
apples to apples
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Formula: Per Store Average Sales/ Deseasonalisation Factor = Deseasonalised Sales

Fig 5. Deseasonalised Sales calculation


How do TFL team calculate seasonality factors?
The following steps are performed to calculate the seasonality factor:
1. Collect weekly Per Store Average (PSA) sales for last 3 years
2. Adjust weekly Per Store Average sales (WPSA) sales for different timings of holidays and
festivals
3. Adjust WPSA sales for significant promotions that distort seasonality
4. Divide each weeks PSA sales by annual WPSA sales to get % seasonality factor
5. Average each of the 3 years results to obtain weekly/period average seasonality factors

When do TFL team use deseasonalised sales?


1. At a total sales level to show trends in the business

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2. During testing to understand how test results might vary with a national launch at a different time
of year
3. During promotion analysis to understand true effect of a promotion

PRE-PERIOD INDEXES:

In sales promotion analysis the pre period sales index often gives a true indication of the incremental flow
thru impact of the promotion in the business.

Provides a measure to benchmark current performance against historical results

Current Period Sales

= $22,000 = 102.3 Sales Index

Pre-Period Sales

= $21,500

Different pre-periods are used to provide appropriate perspectives

Pre-Period
Prior Year
SSSG

Definition/Use

Strengths

or Measure of year on yearEasy measure


growth in core stores
Requires
deseasonalisation

Weaknesses
Can be misleading
no

Prior 13 periods

Promotion or test periodGives a good indicationNot good at


indexed against the averageof
long-termidentification of
for the last 13 periods
improvements
changes

Prior 3 periods*

Promotion or test indexedAllows for nearly 2 fullShorter pre-period does


against the average sales foraverage purchase cycles not reflect long-term
the last 3 periods
business trends

Table 2. Pre period indexes

CONTROL GROUP:

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early
trend

Control groups are now widely recognized as being crucial for measuring the true impact of targeted
marketing and form a standard part of best practice. Establishing a Clean control group is critical to test
market reads.
A good control group will:

Have no noise

Use core stores only

Contain no other tests

Be significant in size

Be similar to test profile

Asset types

Demographic profile

Key point is that only difference between test and control stores should be the impact of the item being
tested.

PRE-POST NET OF CONTROL (PPNOC):

Primarily for test market promotion reads, Net of Control indices are critical to interpreting results.As all
other factors e.g. other promotions, weather, asset types are the same in test and control stores, the
difference in the results is due to the item tested.

Fig 6. PPNOC
The difference in the results is due to the item tested i.e. 105 103 = 2% impact.

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INCREMENTALITY AND CANNIBALIZATION:


Incrementality and cannibalisation help measure the success or failure of a promotion to drive new
business

Incrementality

Measures whether or not promotional business is new to us

Incrementality is a result of a gain in total sales i.e. increased frequency or higher ticket
average from existing customers or sales to new customers

Defined as a % (incremental units of menu item/total units of menu item)

Cannibalisation

The flip side of incrementality

The sales lost when a new or different item is promoted

Cannibalisation is a result of customers leaving the brand or switching their purchases to


one item or another

Defined as a percentage (units of menu item cannibalised/total units of menu item)

BREAKEVEN:

There are 3 key potential outcomes to understand in any financial analysis of a potential promotion:
1. What is the maximum upside?

Impact on Operations

Ensure sufficient supply of product

2. What is the breakeven?

The point at which a promotion starts to be incremental

3. What is the maximum downside risk?

Understand profit risk

Helps SCM to manage supply

PROMOTION FORECAST:
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Forecasting sales and then ordering and procuring materials are done prior to any promotion. In this
process some basic financial data is considered. Menu mix percentage (percentage sale of a specific
product out of the total system sale), average daily transactions, average amount spent by the customers
on each transaction, gross margin etc are calculated and analysed. Then a forecasting is done to project
the incremental sales due to the promotion.

Fig 7. Promotion Forecast Flow Diagram


MANAGING THE RISK:

In order to mitigate the downside risk of a particular promotion, specially in the case of a new product
launching TFL management follows the principle Test what you launch and launch what you test.
Other methodologies are followed as mentioned below:

Risk/return should guide scale of validation, but as a principle no product is launched that have
never been first tasted and evaluated by consumers

Interpret test results honestly and act on the leanings. If it fails in test it will most likely fail in
market

If changes are made based on test learning, test the changes. If the test was successful, launch
what was tested

Run a dedicated test calendar to drive the future national calendar risk controlled lifeblood of
future sales growth

As a minimum consider an Operations Shakedown test


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PROMOTION TRACKING
Promotion is an important part of TFLs business activity. However, every business wants to know the
success of a marketing and advertising campaign. This is so that revenue can be matched to the actual
cost of any promotion. Following are the benefits of tracking during a promotion:

Measure performance against expectations

Track consumer behavior e.g. cannibalization

Identify areas of opportunity & amend strategy where possible

Supply Chain and Operations issues quickly identified and resolved

Decision making : Enhance, Extend or Exit

Fig 8. Promotion Analysis and Tracking Form

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POST PROMOTION ANALYSIS


Sound post promotional analysis is vital to ongoing optimal decision making. The ability to reliably
evaluate past promotion events and to incorporate that information into the planning of future events is
critical to every companys success. With accurate, detailed historical data combined with powerful
analysis and reporting, delivers a powerful analytical tool for facilitating the process. In a nut shell the
importance are as follows:

Measure hold the team accountable to pre-agreed success criteria

Define reality

Obtain Operations, Marketing & SCM feedback

Learning for future promotions

Fig 9. Snapshot of Pre and Post promo Analysis

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CONCLUSION
The DEDVIM process has been proved very successful over the past years for Transcom Foods Limited
in case of introducing new products in the pipeline. Since idea generation , idea screening by market
attractiveness, concept testing and consumer feedback is incorporated in this particular product
development approach it has given birth to many successful products in the fast food market. But it is
very important to be aware of and manage the pros as well as the cons of DEDVIM processes:

Pros

Cons

Management of profitability and margins


Improves chances of success, reduces chances of misses
Constant learning
Stifle creativity
Risk of incremental thinking and missing breakthrough ideas
Slow to market

The three stage promotional analysis (Pre-Promotion Analysis, Promotion Tracking and Post promotion
Analysis) and recommendations helps the management create optimal promotional plans for the future by
providing them with a set of parameters on which to base their promotions in order to achieve superior
results. The parameters included:
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What day part mix to increase (e.g. Lunch time sale or Dinner time sale)
What channel part mix to increase (e.g. Dine in sale or Take away sale)
What week part mix to increase (e.g. weekdays sale or weekend sale)
What menu mix to increase (e.g. Chicken product/Burgers/Desserts/Beverages?)
how often to promote items
what discount range to promote items
number of items to include in promotions
type of items to include in promotions,

The sales promotion analysis gives the company an upper hand position to determine its future marketing
tactics and strategy which is very good for the growth of the company.

REFERENCES
YUM! Brands Guidelines for New Product development
YUM! Brands Guidelines for promotion Analysis
YUM! Finance College Study Book
YUM! Franchisee Market Development Guideline

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