CLIQUE PENS: THE WRITING IMPLEMENTS DIVISION OF US HOME.

Meeting with Chen and McMillan

Chen
- Shift to consumer-oriented MDF could generate an additional increase in
retail sales of 5% and would result in increase in gross profit margin of 2
points from 36-38%
- Wanted to use MDF to buy more co-op advertising and consumer-directed,
such as instant coupons.
- Consumers were losing touch with the clique brand and that long-term
sales would be reduced by cutting marketing efforts directing to the
consumers
- Profit margins could also be enhanced with advertising.
- Had data indicating that consumers were not very price-sensitive, he
believed that the sales force could implement a price increase that could
help clique and its retailers improve profits.
- 6% price increase would produce only 1% reduction in sales.
- Normal trade discounts at Staples consist of a volume allowance (5.5%), a
warehouse allowance of 3%, and a stocking fee of 1.5%.
- Wholesale price of the pen and pencil set tested is $0.94, cost of the set
delivered is $0.46. with those discounts, gross profit margin is reduced
from 51% to 45%. If reduce the price so that the retailer makes the same
mark-up [gross profit margin] he makes at the regular price, instead of all
other discounts, then we make almost 7% more profit on the sales, the
consumer gets a better value, and we gain market share.
- Drive more profitable sales for Clique, has to be with funds that actually
reach the consumer. The consumer would be receiving a better value, and
that should result in taking market share from competitors. Taking controls
to the funds, allow us to be more consistent in our relationship with
retailers.
- Biggest customer service and accounts receivable nightmares is the
myriad discounts.
McMillan
- Implementing MDF as Chen wanted would result in a decrease in sales of
over 9% if discounts were reduced, but conceded that a positive impact
on gross profit margin of 2% could occur.
- Sales had to control any MDF or other discounts. If sales had the
opportunity clique could increase market share by as much as 0.4 % next
year
- Although the gross profit percentage would decrease, he asserted that the
overall gross profit had a chance of increasing by 3.5 %.
- Retailers did not like instant coupons as they had to put at the POS and
taken down when the promotion ended
- Price reduction had a serious negative impact on their profit unless offset
with additional discounts.
- The company was spending 30% more on advertising than necessary.

Consumers not swayed by advertising and that money be used to take

more shelf space from competitors by essentially buying it from retailers.
No one sees much difference in the products out there, so retailers are
just going to go with the deal they perceive as giving them the most
profit.
Use additional MDF to take advantage of opportunities.
Discounts to the consumers dont work for our accounts or us.
Ran test at Staples in 100 stores with our popular two-pack pen and pencil
set in March. Normal retail price: $1.97. We price it at 10% off thats
$1.78. The store sold 7% more units than comparable stores at regular
price, but this resulted in lower retail sales revenues.
Overall unit sales did not increase at all in the test stores. He simply
traded unit sales that would have gone to one of our competitors at a
higher price for more of our units at a lower price.
Cant take away the warehouse and stocking allowances. If had MDF funds
to run price-off promotions to offset the loss in profit to the retailer, some
retailers might agree to maintain a lower retain price. Total cost to clique
wouldnt be much different than that of the current volume discount.
The buyer at Staples gets a bonus heavily weighted to his realized gross
margin, so discounts off our wholesale are extremely important to him.
The buyer at wal-mart pretty much lives with a set margin, around 35%,
but is rewarded for obtaining things that effect cost, like warehouse
allowances, roll-back promotions, and center-aisle programs. The buyer at
walgreens has a bonus with a component that rewards dating and
payment discounts. Tailor programs to these different angles of selfinterest. If I went to Wal-Mart buyer with MDF funds, shed just laugh and
tell me to discount our price more.

Ferguson:
We have to compete for retail space, and the consumers mind, in a way that
enables us to stop the continuing erosion of our brands power with our major
accounts, and it cant be driven just by lowering our prices. We need to
resolve this dilemma between marketing and sales-this battling back and
forth needs to end.
To chen:
1. Our costumer should perceive a higher value benefit from lower price, but
will they really?
2. Can value differences be discerned with the crazy pricing out there-one
competitor with a 3-pack for $2.56 vs 2-pack at $1.78?
3. Are there really differentiated at all in the consumer minds?
4. Does the retailer see any difference, except price?
5. How much spending is required to maintain our brand?
To Logan:
1. Can we implement a price increase as logan has outlined?
2. Can we deploy funds that allow us to gain market share by providing
discounts directly to the consumer, but still allow the retailer to make
acceptable profit?

3. Do you really think our advertising does nothing to help this war?
Consumer Purchasing Behavior.
-

65% purchased 3 or more pens and pencils two times per year. Of the
businesses, 100% purchased 10 or more pens and pencils 3 times per
year.
Clique made approximately 7% of its sales to ad-specialty dealers.
Purchase of writing implements was not seasonal except for the back-toschool period from July 15 to September 1, when 18% of industry volume
was sold.
Competitors fought for POS displays, end caps, and cash register space
because customers often chosebrand, package size, etc., on impulse.
Although 85% of consumers knew what type of writing implement they
wanted when they entered the store, they still were heavily influenced by
point-of-sale displays and merchandising.
Over 85% of writing implements distributed through major retailers were
sold in various packs consisting of two or more items, almost of which
were sold in packaging hung on pegs. These packages made it somewhat
difficult for consumers to compare prices directly.
Consumers paid attention to price-off deals when posted at the point-ofsale. However, the relative infrequency of purchase by consumers made it
hard for them to discern product value.
Office supply retailers carried many more brands and covered the full
range of products available. Pricing was little different among brands in
each category. Consumers almost never shopped around, even if their
brand of choice was not available when the thought of buying pens or
pencils occurred to them.
Coupons were used by only 1.3% of consumers, and Clique's coupon
redemption rate was in line with that.

Retail Chain Management

-

Writing implements took relatively little space to display, but even a small
retailer had to offer a plethora of styles and types of pens, pencils, and
markers at a number of price points and package configurations.
It was not clear how discounts affected this issue, but forward-buying
(retailers stocking up on discounted items and special deals) resulted in
frequent over- and under-stocking.
Many retailers responded by forcing distributors and manufacturers to
hold inventory and provide it just-in-time (JIT), but this was very difficult to
accomplish in the writing implements category because of the large
number of SKUs retailers needed to carry.
Some retailers based their buyers' bonuses on the spread between gross
manufacturer's prices and the net prices achieved. Others based bonuses
on obtaining "dating" or favorable payment terms, such as 2% 60 net 61
days.
Clique's salespeople tended to be very accommodating for specific buyer
and account "needs," which resulted in serious inconsistencies in

promotional and pricing programs from account to account. This caused

obvious problems with Clique's customer service and accounts receivable
personnel.
Marketing and Promotions
On average, Clique allocated 15%of its total promotional budget to
advertising, 30% to consumer promotions, and 55% to trade promotions.
Most manufacturers had steadily increased promotional dollars devoted to
the retailers (the trade), usually by reducing consumer advertising and
promotion and by reducing profit margins.
Consequently, advertising tended to focus on consumer promotions and
price-off deals.
Many of the receipt coupons were highly targeted, taking advantage of Clique
research coupled with sophisticated point-of-sale (POS) data available from
major retailers.
Manufacturers often used joint promotions with vendors such as notebook
and stationery suppliers. Increasing costs as much as 10%. Clique also used
social media, as possible, but the low consumer interest in the category made
it a very minor part of the marketing effort.
Ferguson had data which indicated that over 80% of Clique's sales were sold
on some type of deal.
Employing discretionary funds would allow Clique to direct the monies toward
more effective retail display and positioning and would support more co-op
advertising2 that improved consumer demand for Clique products. Price
discounts, in her view, were most effective for Clique if they went to the
ultimate consumer.
They told her candidly that a change in discount policy would likely require
them to take an increase in regular retail prices of at least 5%in order to
maintain their gross profit margins.

The Difference Between Co-op Marketing Funds and Market Development Funds
By Jon Tonti on December 4, 2013
MDF, Co-op Markeing
You can make more friends in two months by becoming interested in other people
than you can in two years by trying to get other people interested in you. Dale
Carnegie authored that quote in his famed book How to Win Friends and Influence
People.

Lets apply that idea to our context as distributed marketers: you can achieve
greater buy-in from your network of channel partners in two months by being
intelligently interested in their success, than you can in two years by trying to get

them interested in your success as a brand. Why do I say intelligently interested?

Because one might think that money (often assumed the ultimate and only
motivator) offered through co-op marketing funds or market development funds
(MDF) is enough to show partners that you, as a brand, are interested in their
success. To demonstrate to channel partners that you are really interested in their
success you must know the difference between co-op & MDF, know how each is
suited for a different context, and stay away from common pitfalls.

The Difference Between Co-op Funds and MDF

Market Development Funds Funds are issued to partners in advance of sales. The
funds are discretionary in nature because they are awarded based on predicted or
expected behavior.
Co-Op Funds Funds accrue based on a percentage of partner sales, essentially
rewarding partners that are already performing.
How Do You Choose One or the Other?
Market Development Funds fit well with dynamic markets where a partners past
sales are not necessarily the best indicator of how funds to promote products in
dynamic markets should be awarded. An example of this would be dedicating more
MDF funds to channel partners promoting a product very early in its lifecycle, when
those channel partners have access to a consumer base considered first-adopters.
Those partners may not generate the most sales, but they have a unique link to first
adopters and the ability to get traction for early lifecycle products in dynamic
markets.
Co-op funds on the other hand are more stable and allow partners to plan long-term
marketing activities. These types of fund are usually better suited to channel
partners that are consistent large-volume distributors, essentially your clean-up
hitters. Making sure the right promotional allowance is available to the correct
channel partner is being intelligently interested in your channel partners.
What are the Most Common Mistakes Made When Creating Co-op/MDF Programs?
Co-op and market development funds often go unused because of these pitfalls:
Brands dont provide preconfigured marketing programs for channel partners to optin to spend their promotional allowance
When funds are not provided upfront, partners have to engage in cumbersome
reimbursement processes
When partners craft their own marketing programs not preconfigured by brand (not
recommended) heavy reporting is required to verify funds were appropriately spent
Manual processes for fund request, approval, and preconfigured program enrollment
slow down the whole B2B2C or B2B2B marketing apparatus

For a more in-depth look at co-op and market development fund management
strategy for your channel, take a look at our co-op marketing white paper.
A company's earnings before interest, taxes, depreciation, and amortization
(commonly abbreviated EBITDA,[1] pronounced /ibtd/,[2] /btd/,[3] or /
btd/[4]) is an accounting measure calculated using a company's net earnings,
before interest expenses, taxes, depreciation and amortization are subtracted, as a
proxy for a company's current operating profitability, i.e., how much profit it makes
with its present assets and its operations on the products it produces and sells, as
well as providing a proxy for cash flow.

Although EBITDA is not a financial measure recognized in generally accepted

accounting principles, it is widely used in many areas of finance when assessing the
performance of a company, such as securities analysis. It is intended to allow a
comparison of profitability between different companies, by discounting the effects
of interest payments from different forms of financing (by ignoring interest
payments), political jurisdictions (by ignoring tax), collections of assets (by ignoring
depreciation of assets), and different takeover histories (by ignoring amortization
often stemming from goodwill). EBITDA is a financial measurement of cash flow
from operations that is widely used in mergers and acquisitions of small businesses
and businesses in the middle market. It is not unusual for adjustments to be made
to EBITDA to normalize the measurement which allows buyers to compare the
performance of one business to another.[5]