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P
rofessor Kenneth A. Merchant and Research Assistants Lay Khim Ong and Liu Zheng prepared this teaching note as an aid to
Marshall School of Business
University of Southern California
ConAgra Grocery Products Company
Teaching Note
Purpose of Case
The ConAgra Grocery Products Company (CAGP) case was written to motivate a discussion
and for the evaluation of an important aspect of a food companys control system. This element
of the system was aimed at ensuring good trade marketing spending decisions. The case
Suggested Assignment Questions
1. What were the deficiencies of the old trade spending system and incentive system?
2. Does the new trade spending system and incentive system mitigate the weaknesses in the
old system?
3. Do significant problems or issues remain? If so, what would you recommend to address
those issues?
4. Are there any lessons in CAGP that can be applied to other companies?
Case Analysis
Figure TN-1 summarizes the major changes from the old system to the new system.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
435
Figure TN-1
Comparing the Old and New Systems
Old system New system
Trade marketing developed a national
objective and a national trade-spending budget
for each brand, which was then approved by
top management.
No change.
Trade marketing managers established volume
objectives for each of the over 300 grocery
buying points.
Trade marketing managers established
volume objectives for 25 sales teams.
Sales team directors then allocated
volume objectives down to the buying
point level.
Trade marketing set up deal parameters such
as the lowest unit price a product can be sold
for, dates of a deal, etc. Sales managers had
to secure the approval of trade marketing
manager for exceptions to the established deal
parameters.
No significant change. Date parameters
were eliminated, allowing sales more
flexibility in timing.
Sales volume quotas were generated
independently of trade marketings volume
targets.
Sales volume objectives tied to the
targets established by trade marketing.
Sales managers bonus incentives based on
Sales managers bonus incentives based
436
1. What are the deficiencies of the old trade spending systems?
The problems associated with the old system were (1) overspending of trade dollars, (2)
tension between marketing and sales, and (3) diverting and forward buying by customer
accounts. Those problems could be traced to different sources, some of which were
common to the whole industry while others were directly traced to the deficiencies in the
old system.
The grocery industry faced the common uncertainty over whether manufacturers were
getting much bang for the buck for the trade promotion dollars spent. Diverting and
forward buying were very common in the industry. These problems were mainly due to
severe competition among manufacturers, the trend of retailer consolidation that gave
2. Does the new trade spending system and incentive system mitigate the weaknesses
in the old systems? How?
As mentioned in the case, the new system involved five major changes. First, CAGP
replaced the old lump-sum trade spending allocation system with the new variable case rate
system. Second, trade marketing set the volume and spending objectives for 25 sales teams
rather than for 300+ buying points. Third, the quarterly trade-spending plan was replaced by
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
437
The new systems allowed for more flexibility. Sales personnel, who had better knowledge
about the customers and accounts, would be getting more flexibility to allocate and transfer
3. Are there remaining problems or issues?
Although the case rate system improves the incentives of Sales, it also increased their
workload. This might lead to the frustration of the Sales force, especially since many of
them find the new case rate system perplexing.
Case rates were still not directly linked to the profitability of the brand and the product.
4. What should be done to address the remaining issues?
CAGP might have to consider tailoring its trade spending system to its trade strategies,
which should in turn be tied to overall market strategies for each product. For example, the
case rate system, which was more complicated, need not apply to all products. Some
products with simpler trade strategies might be better off with the traditional lump sum
system. Of course, the costs of tailoring have to be measured against the benefits.
438
5. Are there any lessons in CAGP that can be applied to other organizations?
Although CAGP was a food company, the problems that it faced could be generalized to
other companies. First, the need to align the goals of different employees within the firm
towards the same set of organizational goals is emphasized. The tension between Sales and
Pedagogy
This teaching note, which follows the ordering of questions in the student assignment, provides
a reasonable, organized way to let the discussion unfold in class. The case is appealing to
business- and marketing-oriented students, more than accounting-oriented students. They know
the company and find the issues interesting. With such an audience, class energy is high and the
instructor has to do little more than channel the discussion.
There are other possibilities. Instructors might find it useful just to start the discussion by
allowing students to brainstorm about the issues in the case. Students from different disciplines
and backgrounds may identify different issues. For example, students focusing on marketing
probably have more thoughts on the marketing strategy and promotion tactics used in CAGP
