I. Problem Statement:
Mike Hervey, the advertising consultant to BatesManor Furniture Inc., proposed the manufacturer increase their advertising expenditures by $225,000 for 2008. This would boost new product exposure, brand awareness, and enhance the quality image of the manufacturer. However, the $225,000 increase in promotions is slightly out of line with the manufacturer’s policy of budgeting 5 percent of expected sales for total promotion expenditures. Even though Mr. Bates estimates higher material costs, pricing pressures, and recent wage increases in addition to launching several new furniture styles, can he find a way to juggle funds to allocate the advertising plan while staying within the company’s budgeting policy?
Although Hervey recommended an additional $225,000 solely for the promotions budget, John Bott, the vice president of sales, noted sales expenses and administration costs were expected to increase a total of $135,000 in 2008. Thus, in addition to establishing funds to allocate the advertising budget, how can Chuck Bates support the budget expenditures as well?
II. Recommended Action:
During the January 9th budget meeting, John Bott announced sales of $75 million in 2007. He assumed a 4 percent increase in sales in 2008, totaling the budget to $3,975,000. Ultimately, a $147,000 increase over the 2007 budget. Out of the $147,000 increase, budgeting would need $135,000. Of the $135,000, $65,000 would fund the increased sales expenses and administration costs, and $70,000 would be directed towards hiring an additional sales representative to service BatesManor’s 50 new accounts. Due to the importance of having established sales personnel who are committed to BatesManor, I believe Mr. Bates should accommodate John Bott with $135,000 out of the $147,000 increase in order to support the budget expenditures.
According to a recent summary of furniture buying behavior published in Standard & Poor’s Industry Surveys, many consumers consider the furniture shopping process to be enjoyable, yet they acknowledge they lack the confidence to assess furniture construction, make judgments about quality, and accurately evaluate the price of furniture. Many consumers also find it difficult to choose among the many styles available and often fear they will regret their choice years later without having the option of returning the items. In fact, educated salespeople are so important that results of a consumer panel sponsored by Better Homes and Gardens showed that 99 percent of subscribers like the salesperson to show them what alternatives are available and answer their questions. Because of this exponentially large proof, I believe if given $135,000, John Bott should use a certain amount to establish an education center for his new and existing sales personnel. There, the salespeople would be introduced to new training programs where they would be educated on the construction details of the furniture, the warranty facts/statistics, and more. They would learn in detail about the new styles of living room and dining room furniture for the upcoming advertising year. Not only would his sales personnel be more developed on the subject of BatesManor furniture, but would further engage consumers in the furniture buying process. In addition to benefiting the consumers, better educated sales personnel would help eliminate the competition. A recent clip in the Standard and Poor’s Industry Surveys says that the competition for retail floor spacing will require even more support from store personnel training and inventory management. With proper education come reputable sales people as well as increased reputation in the furniture business for BatesManor.
In addressing the first problem of how Mr. Chuck Bates can juggle funds to allocate the advertising plan while staying within the company’s budgeting policy, I believe Mr. Bates can increase his advertising expenditures by $225,000...
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