calgary marketing services

Marketing Education Part 3

Budget Request

We have charted a scenario using a budget request of $8.91M.

Considering the performance from fiscal ’82, and the lessons we have learned, Dorothy and I feel that building a strategy based on sound statistical analysis and seeing the strategy through to completion will put Castle Coffee back on the map as a major force in the Coffee market.

All calculations are found in the attached appendix and assume there is a measurable and direct correlation between not only advertising and market share but also of the quality of the advertising. As you may recall, fiscal ’82 had a budget request of $9.28M, which was $0.37M over this year’s budget request. The lower budget request for this year can be attributed to a much higher quality of television advertising. In designing the following budget, statistics were used to find the dollar amounts but what method is there to allocate the funds over each quarter. We are sure you will agree that it is better to start a campaign heavy as this method will allow the rest of the season to benefit from the early advertising (the opposite would be impossible).

Autumn ‘83 Winter ‘83 Spring ‘83 Summer ‘83
Budget $X M $X M $X M $X M
Ad Rating[1] 1.15 1.15 1.15 X.xx
Share[2]  5.6  5.75 5.9 6.0

Using the calculations from the appendix, the following information completes the budget:

Autumn ‘83 Winter ‘83 Spring ‘83 Summer ‘83
Budget $3.04 M $2.22 M $2.01 M $1.64 M
Ad Rating 1.15 1.15 1.15 1.075
Share  5.6  5.75 5.9 6.0

A criticism of this budget may be that it is not until the summer quarter that the target 6.0 share will be reached. Our only response is that to go too heavy with advertising too soon will leave little advertising placement for the last two quarters and we would be unable to sustain a progressive market share.

Also, one season builds on the next as does one year. If we rush things and ask for too much too soon, we risk over-saturating our potential customers with advertising and as we know, after a certain exposure, ads loose their efficiency and effectiveness.

A concise methodology for finding the Autumn ’83 budget follows. Assuming Advertising Elasticity has a value of .5 and plugging in the values given and solving for the missing value (Budget):

Є.5 =   ▲ Share

▲ Budget

.5  =   (5.6-5.47)/((5.6 + 5.47)/2)

X(1.15) – 2.4(0.90)

                       (X(1.15) + 2.4(0.90))/2

After doing the mathematical factoring, the last equation before the final answer is .87743873X = 2.671941168 therefore X= 3.045 or $3.045M. The same methodology was used for Qu. 2 to Qu. 4.

A final note regarding the top heaviness of this budget is that once it is implemented, the investment is in the first quarter. If the executive pulls the plug half way though the campaign, the only change will be a $50,000 reduction in advertising spending. Maybe making them swallow the pill sooner rather than later will make sure it stays down.

[1] The first three quarter’s advertising received a rating of 1.15, though no information could be provided for Summer ’83. We feel it is reasonable to average the previous summer’s rating with the prior quarter’s rating ((1.0 + 1.15) divided by 2 =1.075).

[2] This was probably the most difficult number to find. We also think it is reasonable to assume that if the advertising quality is better and the budget is higher then a significant gain can be made. This theory also lends itself to an advertising blitz to start the campaign (much like the pulse method of the soft drink market which is nearly the exact same as coffee but moves in the opposite direction).

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