Case Study: Effectiveness of Advertising

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SITUATION OVERVIEW
Blue Mountain Coffee kept 5.4% market share in the past several years. The senior level management wanted to win back the lost market share by increasing consumer awareness of the Brand. They could do so only through advertising and all advertising budget should go to spot television. Reginald was confident that the market share could increase from current 5.4% to 6% if the advertising budget could increase from current $2 million to$ 2.4 million—20% increase. However, after the second Quarter of 1994, the market share did not reach the expected 6%, but only 5.6%. The controller reported the loss to CEO and CEO decided to cut the budget from the second quarter of 1994, and then the market share fell back to 5.4% in the fourth quarter of 1994. Reginald changed advertising agency and the copy effectiveness of the advertising increased from 0.95 to 1.15. Now Reginald needed to make plan for 1995 advertising budget. How to convince the senior level of management to accept his budget plan and how to allocate the budget in the short-term and long-term was the task for him now. Since Reginald has already lost the trust of the senior level of management, the short-term profit and market share had to be as high as possible. Things to keep in mind:

* The maximum budget is $2.4M per quarter, $9.6M annually * The copy effectiveness, 1.15 is too optimistic, but it the effectiveness should be larger than 0.95. * Coffee industry has seasonality

* The new market share has to be larger than 5.4%, and reach 6% as soon as possible. RECOMMENDATION
Conditions: Copy Effectiveness=1.05; Media Effectiveness= 1.00, Coffee has seasonality and the top sales happens in winter and bottom sales happens in summer (see below chapter-- “Assumption” for the explanation)

SHORT TERM:
Budget Assessment: Since weighted objective keeps increasing until the budget reaches 112.5% of the current budget, 8M$ quarterly, we get conclusion that the budget...
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