Unsatisfied Result of Advertising – Cut Back the Increased Budget
Essay by 295071080 • February 17, 2019 • Coursework • 416 Words (2 Pages) • 649 Views
Essay Preview: Unsatisfied Result of Advertising – Cut Back the Increased Budget
Background
Unsatisfied result of advertising – cut back the increased budget
Market share dropped back toward 5.4%
Improve market position:
Increase consumer awareness and develop more favorable attitudes
Strategy of increasing advertising weight
Revitalize advertising program:
All the advertising budget should go to spot tv
20% increase in the quarterly advertising budget
The new campaign was to start in the autumn of 1993, the 2nd quarter of 1994 fiscal year (July 1, 1993 to June 30, 1994) – October, 1993
Advertising on average of $2 million per quarter
Enough to maintain 5.4% market share
Anticipation: competitors’ expenditures would change much during the new few years
Van believed increasing advertising by 20% (to $2.4 million) would increase market share to 6%
Messages in memo:
Wholesale price of coffee: $17.20 per 12-pound case
Average retail ad and promotional allowance: $1.60 per case
Variable costs of production and distribution: $11.10 per case
Average gross contribution to fixed costs and profit: $4.50 per case
Increase in gross contribution: $4.50* 22 million * 6% = $0.60 million
Advertising payout rate: change in gross contribution – change in ad expense
Change in ad expense: $0.10 million / $0.20 million = 0.5
We can expect to make $0.50 in net contribution for each extra dollar spent on ad
A quarter later, the market share only increased to 5.6% (Jan 1994)
A 0.2 point increase in share generated only $200,000 in extra gross contribution per quarter, which must be compared to the $400,000 we have expended in extra ad.
The ad payout rate is thus only 0.50 – much less than the breakeven point
Oct-Dec: 5.6%
Jan-Mar: slightly over 5.6%
Apr-Jun: 5.5%
Planning for fiscal year 1995 (from July, 1994)
Reduce ad expenditures below its tentatively budgeted “normal” level of $2.0 million
Quality of ad copy and the appeals:
rated only about 0.95 on a scale that average ad at 1.0
Currently, rated about 1.0 on the same scale
New ads expected to rate at least 1.15
ADBUDG calibration and managerial estimates
If ad budget were reduced to 0, perhaps half of the market share would lose in the next year, or 1/8 lost in next quarter
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