Representatives from Campbell Soup Co., General Mills Inc., KelloggCo. and others were told that the retailer doesn’t want to put as much money and effort into promoting some of their products as it did in the past, people familiar with the matter said.
Bottom line: Target said it wants to do less with Cinnamon Toast Crunch and Corn Flakes and more with granola and yogurt. Canned soup, a category facing a long decline, will be de-emphasized. The processed foods sold by Kraft Foods Group Inc. and others will move down the totem pole, while fancy sauces and oils will move up, the people said.
How can we understand these changes? In Chapter 12, we introduced the link between promotion and price by talking about the effects of promotion on price elasticity of demand:
- If "promotional pricing" makes demand more price elastic, a retailer can raise profit by reducing price during promotional periods.
- In contrast, brand building or "advertising" tends to make a demand less price elastic, so that it makes sense to raise price when the brand is advertised.
The article says that Target is switching part of its promotional budget from older brands to newer ones. One can infer that this switch is profitable, and from what we know about "promotion," it probably also means that demand for these older brands doesn't respond as much to promotional efforts as do the newer more trendy brands. If so, it would make sense to switch promotional dollars to products that respond more to promotion.