Recommendations and Analysis

What are recommendations for Regnante to achive 2008 profit target? what changes do you propose to trade and consumer promotions to make them more effective? Develop a pro forma income statement (see template in Case Exhibit 10) and be prepared to discuss and ahre your recommendations and analysis to the class.

According to what emerges from the case, RBS is spending too much on trade promotions. 72% of products sold on discount is not acceptable. So, trade promotion spending should be reduced.

At the same time, consumer promotions expenditure has been shrinked excessively from 2006 to 2007. I t should be increased.

Evaluating the performances of consumer promotions and trade promotions is not an easy task. Looking at exhibit 7 and 9 is it possible to get data about the net incremental contribution of every single promotion (consumer promotions are displayed for 2006 only). What emerges is the following: in 2006 the best consumer promotion has been the fourth, with a return of 24% (net contribution over allocated costs) and the worst has been the second, with only a 13% return. As regards the trade promotions, we have to considerate some hurdles to a systematic analysis. First, there are net contributions for every promotions since 2002, but data about their cost is missing. Second, as it is mentioned in the case, this contributions are not sterilized from the positive externality given by consumer promotion and other forms of advertising developed by RBS. Taking as an example 2006 data (to have a comparison) trade promotions have an interesting return, 22.7%, given by the sum of net contributions divided by the total cost of trade promotion. But if we subtract the cost of consumer promotion as a proxy for the positive externality, the return goes down to 13.8%, and two promotions turn to get a negative net contribution.

A stronger enphasis on consumer promotions seems thus to be required. 50% increase in consumer promotions and 50% decrease in trade promotions.

Looking at the construction of a hypothetical income statement for 2008, we need to analyze every entry on a case by case basis.

We are reducing trade promotions and increasing consumer promotions. So we can consider a null effect on prices.

A conservative hypothesis is to increase manufacturing costs by 5%. As it was mentioned that the price increase of 2007 has been only a shock on raw produts' prices, so a small or null price increase is very likely .

Factory shipment, our sells, will increase. We can assume a 10% increase. In exhibit 4 in 2006 a 24% increase in sells followed the increased expenditure on promotions and in 2007 a 10% decrease followed a decreased expenditure on promotions. Given the way in which we are modifying promotion exopenses