Leona Richie is the marketing manager at Cabot Pharma. Her responsibilities include advertising for her product group.
Question:
Leona Richie is the marketing manager at Cabot Pharma. Her responsibilities include advertising for her product group. She has now designed a marketing plan spread over three years to increase sales and market share for her product group. Her plan calls for significant increases in digital advertising. She has hired a marketing agency that has helped her come up with the three-year plan. The plan calls for an ad campaign consisting of 12 ads spread over three years. The ads are based on a common theme and would help create a brand identity. Each ad is expected to run for three months in a digital marketing channel followed by the next ad in the sequence. The plan calls for using 5 digital marketing/social media channels (for example, Facebook, Linked in, etc.) for the campaign.
The campaign common theme would be followed in other non-digital marketing channels (for example, TV ads, direct marketing, etc).
The cost of the campaign is as follows:
year 1 | year 2 | year 3 | total | |
number of ads | 4 | 4 | 4 | 12 |
number of channels | 5 | 5 | 5 | |
cost per ad | 8000 | 85000 | 9000 | |
digital advertising cost | 160000** | 170000** | 180000** | 510000 |
other marketing costs | 90000 | 100000 | 120000 | 310000 |
total costs for campaign | 250000 | 270000 | 300000 | 820000 |
** (Number of ads X Number of Channels X Cost per ad)
Normally, in accordance with policy, the firm prepares an annual budget with no carry forwards of unspent monies allowed. Richie is requesting several exceptions to policy. First, she wants to budget for three years. Second, she wants a firm commitment for her plan for three years, namely, that her budget for all three years be approved as a whole now. This would give her freedom to carry out her campaign and also carry over any unspent funds and use them as she sees fit for the campaign. Her argument is that her campaign is an integrated campaign and needs to be approved in its entirety or rejected. As part of her plan, she has also established measurable outcomes and benchmarks over the plan period for evaluating the success of the plan.
Questions
1. Evaluate Richie’s request. Recommend whether the firm should approve her request for her three-year budget. What modifications if any, would you suggest and Why?
2. As part of your evaluation, discuss the advantages and disadvantages of Richie’s proposed three-year advertising budget. You can assume for your answers that the advertising campaign is expected to be profitable overall for the firm / product group.
Horngrens Financial and Managerial Accounting
ISBN: 978-0133255584
4th Edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura