Abstract
The case of Travelware Marketing Limited (TML) depicts a typical scenario where the company tries to boost the sales figures in short term through aggressive sales promotion. TML was a marketer of plastic moulded luggage in India. Two months prior to the year-end close in 2018, TML’s central leadership team identified a projected profit shortfall of ₹7.5 million. Mr. Rath, the General Manager, Sales and Marketing of TML, figured out that the profit shortfall could be recuperated by additional sales of ₹55 million in two months, beyond the balance sales quota of ₹220 million. Mr. Rath, who had long years of experience in the industry made one fundamental assumption that the additional ₹55 million sale would generate a gross margin of ₹22 million. In order to recover ₹7.5 million profit shortfall, he could invest around ₹14.5 million in an inclusive sales promotion program for two months.
Product/Market Analysis
Luggage as a product category could be divided into framed luggage (FL), integrated moulded luggage (IML) and soft luggage, and their total share in the Indian markets was 30 per cent, 45 per cent and 25 per cent, respectively, in terms of unit sales (case facts). Unit price of IML is lower than FL or soft luggage. TML did not have soft luggage in its product portfolio. TML used a pricing model such that the gross margins were same for both FL and IML, with average selling price of FL and IML being in ratio of 10:7.
The competitor analysis could be summarized in Table 1.
Competitor Analysis
Luggage industries, the market leader had the highest customer pull, hence had minimum dealer margin and credit period. However, the ROI 1 for dealers was the maximum. TML had intensive distribution network and predominately implemented push strategy (TML also used dealer push … sales of luggage peaked, case facts). All India luggage market was in mature state with an annual growth rate of 2–3 per cent, with stable market share pattern. However, sales persuasion, dealer discount, point of purchase influences, like gifts and lucky draws, etc., played very important role in influencing customer preference during the final transaction.
Luggage was an essential item for storage and transportation of belongings. Consumers selected their luggage based on their affordability, brand preference, dealer persuasion and discounts on retail price. Though its use was primarily related to travel, sales of new luggage was correlated with marriages. Luggage was a popular gift item in marriages and on an average, 4–8 pieces of luggage were purchased in every marriage. Quarter-wise breakup of primary sales at all India level was Q1 (January–March): 35 per cent, Q2: 25 per cent, Q3: 15 per cent and Q4: 25 per cent. The fourth quarter primary sale was driven by annual bonus eligibility leading to stockpiling at dealer level.
Analysis of Demand Side of Supply Chain
The sales organization of TML is represented in Figure 1.
The regional managers (RM) were located in four metro cities in India, the branch managers (BM) were in charge of states and the sales executives (SE) were handling the districts. The sales organization chart would be helpful in analysing the inclusive rank order incentive plan in tandem with the dealer network.
The distribution network of TML is depicted in Figure 2.
TML had a dealer base of around 3,500 in India, out of which around 2,800 could be considered to be active dealers (transaction of ₹50,000 at least once in a quarter). Almost 80 per cent of TML dealers were multi-brand luggage dealers and only 20 per cent of these dealers had TML as their highest selling brand. It was observed that the effect of dealer persuasion could account for 30 per cent of the total IML sales. The influence of dealer’s push is more significant in rural belt. In FL the dealer persuasion could possibly influence brand choice in only 20 per cent consumers. Most of the consumers made a transaction after making a price comparison across outlets, and dealer discount typically varies in the range 5–10 per cent, because of intense inter-dealer competition.
A large number of dealers, who stocked TML as a second or even third brand, did not focus on selling it. TML had traditionally classified dealers as A, B, C, D and E categories based purely on the business with TML only, not on the total luggage selling potential of the dealer.
Problem Identification
The marketing manager was supposed to develop an incentive scheme for the sales team and a promotional scheme for dealers so as to achieve an additional profit of ₹7.5 million for the company by increasing the sales quota to ₹275 million.
However, there were certain constraints under which the above objective was to be achieved.
There was a product line factory capacity constraint. Though IML was the flagship product category of TML, the scheme should focus more of FL, which was difficult to sell because of intense competition. Additional ₹20 million and additional ₹35 million for IML and FL, respectively, could be targeted at.
There should be no increase in current pipeline stock of ₹120 million at the end of the scheme period. That means the scheme should focus on secondary offtake rather than primary sales. Otherwise it might lead to sales pipeline clog in the subsequent quarter in 2019.
There should be no increase in current market outstanding of ₹150 million at the end of the scheme period. That means the scheme should not encourage credit sale to the dealers to receive incentive.
The incentive plan should be inclusive in nature and should include logistics and commercial staff to achieve the increased sales quota. At least 35 per cent of SE and seven BM should get incentive. Hence, incentive scheme should take into account the regional imbalances in overall luggage sales and TML’s market share and degree of competition across geographies. Incentive plan should hinder any sort of free riding, but simultaneously should not demotivate the non-achievers during the scheme period.
The scheme should not result in aggressive price under-cutting by dominant dealers resulting in infiltration and poaching. The scheme should focus to bring few large dealers under TML umbrella with renewed interest in selling TML products.
Analysis and Recommendation
Sales promotion is a vital constituent in marketing campaign, which consists of a collection of incentive tools mostly short term, designed to stimulate quicker or greater purchase of particular products or services by consumers or the trade (Jha Dang et al., 2005).
Sales promotion comprises tools for consumer promotion (samples, coupons, cash refund, patronage rewards, free trials, warranties, point of purchase displays, cross promotions, etc.), trade promotion (discounts, display allowance, etc.) and sales force promotion (contest for sales representatives, trade shows and conventions, etc.) (Ailawadi et al., 2007)
Incentive type promotions attract new triers, reward loyal customers, and enhance repurchase rates. Sales promotion often attracts brand switchers who are looking for discounts or good value. Sales promotion if executed properly can lead long-term increase in market share (Mela et al., 1997). In markets with high brand dissimilarity, sales promotions can alter market share permanently. In addition to brand switching, customer may engage in stockpiling, purchasing earlier than usual (purchase acceleration) or purchasing extra quantities. However, sales may hit a post-promotion dip (Wathieu et al., 2004).
The marketing team of TML had outlined the objective and constraints of the sales promotion scheme. The promotion planner should take into account the type of market, sales promotion objectives, competitive conditions and each tool’s cost effectiveness. The competitive condition was provided in Exhibit 3 of the original case.
For branches (Ahmedabad, Indore, Lucknow, Cuttack, etc.) where IML sales quota constitute more than 50 per cent of total sales in unit, the focus should be maximum for FL category. An ideal plan would be to allow customers coupon offers of ₹500 on purchase of three luggage items, which they could exhaust before year-end on FL category product. Product wise IML had more acceptance, but there were manufacturing constraints for IML, hence, FL sales needed to be capitalized on to generate extra profit. Point of purchase advertising can be used to attract customers for FL category.
TML had deeper distribution network than the competition but had tighter credit control. The discount for dealers in rural belt could be linked to the scheme for two months for additional offtake. Since dealer influenced transaction in 30 per cent of cases in rural areas, dealer discount should be higher in rural belt for smaller dealers.
Since mass media campaign could not be simultaneously launched because of tight deadlines and budget constraints, digital campaign with lower cost implication can be tried out. Since marriage had been the single most social event generating maximum sale of luggage, the sales team of TML should develop an online database where the potential bride/bridegroom can register, film their emotions with TML products and upload in social sites and would get free FL category luggage, in case of any click through enquiries or likes.
As per case facts, for TML, all FL and IML products are sold at an average ₹1,000 and ₹700, respectively, with same contribution. An additional target of ₹7.5 million profit from 55 million additional sales revenue, assumed 13.4 per cent contribution. Superimposing this figure on Exhibit 3 (original case), it can be suggested that 26 per cent of additional revenue should come from west and north zone, 27 per cent from east zone and 21 per cent from south zone. TML would receive the money only when dealers sell more and pay for the previous order, hence multiplicative discount mechanism should be designed for dealers with repeated orders. The outdoor activities should include sales and display set up at malls and local shopping location in collaboration with dealers. There should be shop banners, danglers and stage for showcasing TML products at dealer point. Monetary and non-monetary benefits should be provided to the best dealer across the chain.
The incentive strategy for the sales force would derive its budget from the gross contribution after setting aside ₹7.5 million targeted profit. The TML incentive strategy should have a customized goal plan for each region and customized incentive plan for SEs in each region. TML should adopt a three-level inclusive team incentive plan, where the incentive would be provided once team achieved overall sales and profitable quota. Overall sales quota would be the summation of individual target. Extra incentive would be provided for region buddy for helping to meet their buddy goal after accomplishing their own targets, under buddy sales plan. Under star incentive plan greater incentive should be provided to field force for bringing competitor dealer into TML distribution network. In order to accommodate production capacity constraints accelerated and decelerated incentive plan should be introduced. Incentive should go 1.5 times once sales crosses target plan for FL product (₹35 million) and incentive should be halved after achieving target for IML product (₹20 million).