REYNOLDS METAL COMPANY

1. REYNOLDS METAL COMPANY Prepared by: Michael Miyagishima Peter Atmali MKT 642 – 10/22/2003

2. Reynolds Metals Company • 1919-United States Foil Company • 1929-Officially Reynolds Metals Company • 1947-Household aluminum foil introduced • Entry into consumer products industry • Other consumer products include plastic wrap, freezer bags, wax paper • Market leader in food bags & wraps industry

3. Category Management • Industry wide strategic initiative • Improve effectiveness of marketing-mix • Stresses cooperation and coordination • Channel members (manufacturers & retailers) • Managerial Divisions (marketing & sales) • Efficient promotion • Efficient distribution & shelf replenishment • Efficient product assortment • Efficient new-product introduction

4. Marketing Department Temporary per case discounts to retailers & distributors Objective: higher purchase orders Benefits retailers & distributors Sales Department Case allowance tied to retail merchandising support Objective: category management Benefits all parties Off-Invoice vs. MDF Off-Invoice MDF

5. Off-Invoice vs. MDF • Major issues for transition • Competition still use off-invoice • Elimination of off-invoice may result in 5% higher prices to consumers • Benefits of transition • Average daily inventory would be reduced • Five additional weeks of retail price cuts • Total of 8 weeks of price cuts

6. Which is more effective? • Ultimate goal of promotion: “to attract competitors’ customer to try a superior product and these customers switch as a result”(Kotler) • Push Strategy vs. Pull Strategy • Familiarity-Favorability Analysis

7. Push Strategy • Definition: Push strategy involves the manufacturer using sales force and trade promotion to induce intermediaries to carry, promote and sell the product to end users (Kotler) • Off-Invoice Promotion • Push strategy is appropriate where there is: • low brand loyalty in a category • brand choice is made in the store • the product is an impulse item

8. Pull Strategy • Definition: Pull strategy involves the manufacturer using advertising and consumer promotion to induce consumers to ask intermediaries for the product, thus inducing them to order it (Kotler) • MDF Promotion • Pull strategy is appropriate where there is: • high brand loyalty • people perceive differences between brands • people choose the brand before they go to the store

9. High brand loyalty Would not substitute High market share aluminum foil - 41% plastic wrap - 24% wax paper - 60% High quality perception aluminum foil ranked #7 of 200 Used day-to-day Push Strategy (off-inv) low brand loyalty brand choice made in store impulse item Pull Strategy (MDF) high brand loyalty brand choice made before going to store perceived brand differences Pull Strategy Is More Fitting

10. MDF Promotions • Stimulating trial by non-users • Introducing new usage ideas to the current users

11. Familiarity-Favorability Analysis • High market share • Aluminum foil: • #1 in unaided recall • high quality perception • Plastic Wrap: mixed attitude

12. Familiarity-Favorability Analysis • A: Must work at maintaining its good reputation and high awareness • Increase advertising budget (MDF) • Increase trade promo at the cost of advertising (Off-Invoice) • B: Must gain the attention of more people • Promote to directly to consumers (MDF)

13. Obtaining Retailer Support • Retailer support needed: • To secure shelf-space for Reynolds’ product line • To discourage negative reactions (increasing shelf-price by 5%)

14. How? • Build on Reynolds’ “preferred supplier” status • Emphasis trust and good intention • Cooperation needed for a win-win situation • Greater profit and margin • Lower inventory cost • More store traffic

15. Greater Profit and Margin • Reynolds’ Sales - Trade Case Allowances - Coupon Fees = Retailer Cost of Goods • Retailer Operating Margin: 2% • (Retail Sales - Retail Cost - Retail Expense) / Retail Sales = 2% • Assume retailer expenses as $0 for ease of calculation

16. Greater Profit and Margin • No Promotion • Gross Profit: $18.1K & Gross Margin: 2.0% • Current Promo. (60% Off-Invoice & 40% MDF) • Gross Profit: $99.5K & Gross Margin: 10.8% • 100% MDF (with 5% shelf-price increase) • Gross Profit: $63.6K & Gross Margin: 6.7% • 100% MDF (without 5% shelf-price increase) • Gross Profit: $149.7K & Gross Margin: 14.9%

17. Lower Inventory Cost • Inventory Cost: • Cost of losing the use of funds tied up in inventory • Rent (extra warehouse / storage space) • Record keeping • Theft • Interest of loans used to purchase inventory • Breakage • Obsolescence (holiday products)

18. Lower Inventory Cost • Retailers were stocking up • Forward-buying and Diverting practices • Inefficient (can they compete with Wal-Mart?) • MDF could reduce the average days worth of inventory: 30 days to 15 days • Borrowing rate: 10% • Inventory cost savings: $3.2 millions

19. More Store Traffic • MDF promotion • Coordinated marketing • More overall sales for retailers

20. Transition of Responsibility • May cause problems • Marketing department – reaction? • Sales department – up to challenge? • Shift is benefit to entire organization • Gradual change • Smooth transition to get all parties comfortable with the change

21. Questions?