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Marketing Education Part 2

Budget Strategy, Performance and Projection

Fiscal 1982: Eight months of fiscal ’82 are in the books. The goal of 6.0 percent market share was not achieved but I do not feel that budget strategy was the cause. Looking at the advertisement ratings, hind sight now tells us that a significant opportunity was missed. Advertising testing showed an 11 percent improvement in viewer rating from quarter 2 to quarter 3. Had such an improvement not occurred, market share would have dropped; based on the averages of  the average of the previous two quarters [(2.4 x .9) = 5.67 & (2.4 x .9) = 5.67] then (2.0 x .9) = X and X may have equaled  a market share 5.1 percent.[1]

Had the 20 percent across the board advertising budget increase remained, Spring ’82 may have seen a market share (based on the above ratios) of 6.3 percent.[2] Castle Coffee would have surpassed its goal of 6 percent.

Autumn ‘82 Winter ‘82 Spring ‘82 Summer ‘82
Budget $2.4M $2.4M $2.0M $1.6M
Ad Rating .90 .90 1.00 ~1.00[3]
Share 5.47 5.67 ~5.5[4] Predict 5.5

In summary, fiscal 1982 was saved by a second half increase in the quality of advertising but hampered by not capitalizing on the same opportunity. By not following the budget strategy as set out at the beginning of the year, Castle Coffee flirted with disaster.

Fiscal 1983:

There are two options for the upcoming advertising budget. Considering the reduction in advertising over the second half of ’83, there seems to be uncertainty as to what amount of future sales can be driven by advertising. As we saw in the second half of fiscal ’83, an opportunity was missed. Dorothy and I are excited to tell you that the next three quarters of advertising will bring with them a customer quality rating of 1.15, and this is 15 percent above Spring ’82. Therefore we can follow one of two paths: A) remain at our previous budget of $8.0 M annually and make modest gains in sales based on the improved advertisement or B) re-institute the planned 20 percent advertising increase as was planned for in the beginning of  ’82 and take advantage of an opportunity (one that stares straight at our faces).

[1] And 2 Assuming a linear correlation.

[3] And 4 Reasonable predictions.

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