Cornagra case study
Considerable tension existed between the marketing and sales organizations Personnel in both organizations were unconcerned about whether personnel in the other organization “really had a grasp on what it takes to drive the customers. ” Some sales personnel felt that it was very tiring and frustrating for them to have to fight for money for promotion events that were ultimately for the company’s benefit. The incompatibility of incentives magnified this problem. For example, some trade marketing managers complained that the sales managers “Just wanted to sell” irrespective of whether the additional volume generated was profitable or not. Ii.
Incompatibility of volume target The incompatibility of the volume targets set for the trade marketing and sales organizations caused some problems. For example, some trade-marketing managers were irked that the sales organization could be meeting its volume targets and getting its bonuses even though profit targets were not being met. The opposite situation could also happen, as sometimes, marketing rejects the opportunity to fund potentially profitable events proposed by a customer because they have already met their national profit objectives even the sales may not have met their volume targets yet. V. Quarterly trade spending allocation The quarterly planning trade spending allocations was believed to engender a short- term focus.
The short horizon prevent sales and their accounts more flexibility in planning promotional events. Most events required about 12 – 15 weeks lead time to implement, thus the short horizon could pressurize the sales organizations to planning their spending allocations. V. Continuous Misconduct Forward buying occurred where accounts bought larger quantities of products being offered at special prices than they could sell during the promotional period.
Diverting occurred where accounts bought extra product (more than their consumers would buy) at special prices and then sold the product to other accounts that were not offered similar pricing.
The accounts were very up-front about this practice. Both forward buying and diverting were harmful to CAP. These practices reduced the amount of trade spending that was effectively merchandising the products. Q – Does the new trade spending system and incentive system mitigate the weaknesses in the old system? Weaknesses In ten 010 system Improvements in the New System How the New System mitigate the weaknesses
Overspending problems New incentive compensation system The bonus plan was changed to emphasize achievement of the overall company objectives. The criteria to be used in making the annual Performance Planning Appraisals (Papas) of sales personnel, which were used to determine annual salary increases, were changed to include a specific importance weighting on achievement of case rate objectives.
Spiffs were discontinued. CAP managers believed that in many cases spiffs had contributed to bad, excessively short-term oriented business decisions. Some contests among customer sales teams were offered .
Considerable tension existed between the marketing and sales organizations Creation of new role : Customer marketing manager The customer marketing managers served as liaisons between the marketing and sales organizations. It was hoped that the customer marketing managers would improve communications and both ease the transition to the new system and relieve the cross-organizational tensions.
3. Incompatibility of volume target Sales organizations to set volume and spending objectives Allow the sales teams, rather than trade marketing managers, to set volume and spending objectives.
This change was important both because it passed significant authority and responsibility to the sales organization and because it ensured that the volume objectives set for sales personnel tied directly to the volume targets set by trade marketing. 4. Quarterly trade spending allocation Semiannually trade spending allocations This change was made because quarterly planning was believed to engender a short- term focus.
The longer horizon also allowed sales and their accounts more flexibility in planning promotional events. 5. Continuous misconduct New variable allocation system called a case rate system
Under this rate system, the trade promotion funds available for each account increased automatically with an increase in shipments. Trade marketing managers allocated a case rate to the 25 sales teams, and the sales team directors allocated the case rates down to the account level. The case rates would reduce the ability of CAP personnel to tailor its promotional offerings and further reduce the forward buying and diverting problems Q – Do significant problems remain with the introduction of the new system? If so, want would you recommend to arrest tense problems?
Problem: Increased work ND skill load placed on the sales organization The sales organization faced the greatest challenges in adapting to the new case rate system. Many sales managers had been in the field for 20 or 30 years, and had been primarily volume focused and tended to focus on short-term objectives.
Under the new system, they still had to perform all the tasks they had been performing, and had to do more planning and forecasting and to manage budgets?to plan promotional events and arrange deals that stay within the case rates.
Some sales personnel struggled with this challenge. Recommendation: Acknowledge any increased pressures, demands, or workloads One of the biggest mistakes most organizations make when they adapting new system is they fail to acknowledge the increased pressures, demands, and workloads that temporarily fall upon remaining employees. In this case, the organizations should promote a better package salary or incentive to the sales organization to encourage them become motivated with their workloads and to guide them setting a realistic expectation on their work in the organization.
Problem: The tendency to make sales personnel conservative in their use of promotions One particular concern f many was that the case rate system was causing sales personnel to be overly conservative. It was difficult to anticipate the volume that would be generated through the various trade spending programs.
Recommendation: Set realistic high target volume for each sales personnel Related to the new case rate system, the sales personnel should clearly understand organization objective to use new case rate system as a better trade spending allocation.
The organization has to set realistic high volume estimation for each product or brands for the sales personnel to achieve. The supervisor also should putting pressure and work with the sales response to help them focus on the goals and content with their work in order for them to achieve target volume. Problem: Lack of customization of the system to significant product, geographical, and customer characteristics The case rate system allows flexibility to plan at account level, but it may not be suitable for certain brands and products. Some products may need only a simple strategy such as every-day- low-price strategy.
Other products, such as Van Camp, only contribute small volumes.
It may not be worthwhile to manage such products through the complicated case rate system. Recommendation: Flexible case rate Perhaps the case rate system should only be used for the larger growth brands. The organization also can use flexible case rate that is different for certain products to meet its demands in different geographical and customer characteristic. The flexible case rate could be used to determine the price of different products or brands in term of low or high price.
The company also should constantly review how a case rate would affect the price change of the products. Problem: Inflexibility’s caused by the still-short semiannual planning process.
Some customers, particularly, were unconcerned about the inflexibility in the use of excess funds that were generated late in the six-month period. Most sales and account personnel also did not like the fact that case rates often changed at the six-month point, sometimes significantly. For retailers who planned their promotions far in the future, this change and uncertainty was annoying.
Many trade-marketing managers admitted to be struggling with even the six-month horizon. Recommendation: Deploy annual planning process I en organization snouts plan ten volume targets Ana trace spending allocations on annual, rather than a semiannually basis. The longer horizon allowed sales and their accounts more flexibility in planning promotional events.
It’s also the one time when sales personnel can examine the many changes for example the trade spending that typically occur any given 12-month period. Furthermore, sales personnel get the opportunity to reduce the paperwork requirements.
Problem: Ineffective solution to the problems of forward buying, diverting, and lack of customer compliance. Some customers would take deductions they did not earn. Some would deduct for unseasonable without supporting documentation. Some, if a shipment were short, loud order from a competitor and bill CAP for the difference in price.
In many of these cases, CAP managers concluded that they had little recourse unless they were willing to shut off the customer’s supply of product. Recommendation: Implementing national case rates CAP can implement national case rates to further eliminate the diverting problem.
National case rates would reduce the ability of CAP personnel to tailor its promotional offerings. But with mergers in the grocery industry and the growth of larger customers (e. G. , Walter), applying case rates on a national, or at least a larger genital, basis was becoming easier to do.
Q – Are there any lessons in CAP that can be applied to other companies? 1 . The needs of marketing and sales organization to work together towards the same objectives. Companies that apply best practices find that communication between marketing and sales organization plays an important role.
Marketing management must take the lead in developing a strategic promotion to increase the sales volume of the products. But to develop those, marketing management also needs information about customers, competitors, economic and technological change – information that just come from sales personnel.
As lessons from this case, the organization should integrate the marketing and sales function and tighten the relationship between them to work together towards achieving the same objectives. Companies that establish effective channels for communication these two functions find it easier to set challenging yet achievable strategic goals. . The importance of effective management and allocation budget system Within any company, competition for resources is inevitable. Best practice companies find that resource allocation is part science, part art. Fortunately, following certain best practices leads to better results.
One such practice is coordinating the review of operating and capital budgets. Another practice is to develop sophisticated measures for evaluating proposed budgets. The measures used tend to vary by industry, but most take into account the company’s weighted average cost of capital.
Many measures also assess the degree of risk involved in competing plans of action, the costs or advantages associated with deferring action, as well as factors such as expected developments in interest rates. Accurate cost information is fundamental to budgeting.
Companies that use accurate cost management techniques and provide budget developers with ready access to cost information improve both the accuracy and the speed of their budget process. 3. The modifications of better monetary incentives in the organizations Many companies still evaluate managers primarily on how closely they hit the volume targets. Nile tons may seem logical, In reality tons type AT one-Lemonades evaluation tempts managers to “win” by playing games with volume targets. Such game playing isn’t always in the company’s best interest.
At best practice companies, eating volume targets is secondary to other performance measures. Such companies use a balanced set of performance measures to chart progress toward strategic goals, and use the same measures in their incentive programs. This reinforces the importance of key strategies and communicates what results will be rewarded. 4.
The importance of reducing budget complexity and increasing the planning process period Best practice companies strive to reduce budget complexity and increase the planning process period.
Such long period allows management to collect budget information, make allocation decisions, and communicate final targets n much time, at lower cost, and with less disruption to the company’s core activities. Another key step is to minimize the amount of detail included in the reports used to paperwork requirements. These companies make sure that marketing and sales personnel are thoroughly trained in new planning process.
This training, together with ongoing monitoring of information needs accompanied, helps best practice companies deliver the right information to the top management, on time and at the right cost. 5. A better looks on the organization’s ability to absorb the significant change in a relatively short time period.
Employees adapting to change display a wide array of responses. Coping with change can be difficult for some individuals, whereas some employees may not be bothered by change; instead they look at it as a chance to grow and learn.
Best practice companies should find the solutions in order to encourage its employee to absorb the significant change in a relatively short time period. It is always advisable for company to recognize the different stages of change and anticipate its impact in order to take preventive measures. This practice makes it possible for companies to respond more quickly and effectively if any resistances occur in the process. Companies also build flexibility into new change of system by setting aside a training programs to teach the employee about the greater benefits and the needed of change for a better long term growth and success.
The new case rate system was a good step for CAP. However, it does not completely mitigate the weaknesses of the old system. In fact, other problems arose after implementing the new system. The suggestions are: Acknowledge any increased pressures, demands, or workloads; Set realistic high target volume for each sales personnel; Flexible case rate; Changing to annual basis horizon for making business sections; and Implementing national case rates including monitoring of forward and diverting activity by the sales personnel as one of the criteria in incentive compensation system.
In sum, there are lots of factors that have to be taken into account when companies are deciding to adopt or change to a new system. Besides that, they need to anticipate the problems that might occur in the future and plan the alternatives or contingency plans to overcome tense problems.
10 change to new system Is not easy because it will require some times for the managers and employees to absorb the changes.
