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Cases in Advertising

 

      

 
     

 

Weilbacher W. Cases in Advertising. – New York, Macmillan Publishing Co, 1982. – 152 p.

 

…

Case 8. The Advertising Appropriation and Media Plan

 

ALLGOOD DRUG COMPANY INTRODUCES SINUGUARD, PART 2

      
     

 

As work progressed on advertising copy for Sinuguard (see Case 7), Product Manager George A. Benson turned his attention to the development of an advertising appropriation recommendation for the brand.

Allgood Drug Company had, over the years, been guided by a relatively strict philosophy about how advertising appropriations for the company brands were to be developed by Allgood product managers. This philosophy contained several elements.

1. First, the company believed it to be improper from a marketing standpoint for Allgood to introduce a brand in any product category that could not be supported by an advertising appropriation larger than the advertising appropriation of leading competitive brands. This rule of competitive superiority was applied as follows:

a. When a new Allgood product was introduced into the marketplace, its advertising appropriation for the introductory year should exceed, in total dollars expended in media, the advertising appropriation of that brand in the category with the largest advertising appropriation.

b. In marketing years following the introductory year, the Allgood brands advertising-to-sales ratio should exceed the advertising-to-sales ratio of that brand in the category with the highest advertising-to-sales ratio.

In practical terms these rules meant that, when introduced, a new Allgood brand would be supported by more advertising dollars than any other brand in the category and that, in subsequent years, the AUgood brand would advertise at a higher rate than any other brand in the category.

The rule of competitive superiority was designed to build upon and amplify the basic Allgood philosophy of new-product development. Allgood would only introduce new products that were, in some way, superior, in consumer terms, to those that were already available in the marketplace. Allgood believed that if such superior products were, in turn, supported by a higher level of advertising than that enjoyed by competitive brands, the success of the new Allgood brand would be inevitable. This Allgood philosophy did not depend solely on superior products and higher advertising appropriations. It was also assumed by Allgood, as we have seen in Case 7, that a compelling statement of brand superiority had been developed in advertising copy.

2. The actual computation of the advertising appropriation for a new Allgood product depends upon the interrelation of three factors. These three factors are:

a. The projected factory price of the new Allgood product. Although Allgood product pricing depends to some extent on the actual costs inherent in the manufacture of the product, the single most important factor in price determination is the competitive price structure that already exists in the marketplace. Allgood almost always trys to market their superior products at roughly the same price as those competitive products currently available to the consumer. Occasionally, if the new Allgood product appears to be significantly superior to available competitive brands, the company policy permits a premium pricing strategy for the Allgood product. Under usual circumstances, however, a strategy of competitive price parity is imposed upon newly developed Allgood brands.
     
     

b. Once the factory price is established, relevant cost factors are then computed. The first of the costs is the actual cost of producing the product. This cost is determined by the Allgood manufacturing department. Three other "costs" are determined by the Allgood accounting department. These costs are standard percentages of the established factory selling price. The first standard percentage reflects company sales, distribution, and administrative costs. This percentage stood at 9.24 percent in 1979 and reflected a standard allocation applied to all company brands by the accounting department. It is designed to recoup actual expenses for these functions from individual brands during each fiscal year. The second standard percentage reflects corporate overhead and was 18.72 percent for 1979. Finally, the marketing research allocated cost was 1.75 percent for 1979.

с. Dollars "available" for profit, promotion, and advertising are then computed by subtracting the sum of these four costs from estimated factory sales.

3. Special rules apply, as follows, to the division of these "available" dollars between promotion, profit, and advertising.

a. In the introductory year, company policy permits all "available" dollars to be devoted to advertising. The company philosophy is simplicity itself: Advertising expenditures are maximized in the introductory year as a means to build a broad-scale consumer-product trial. If the Allgood product is, in fact, superior to that of the competitors, this broad-scale trial will build an enduring consumer franchise. Company policy permits new products to yield zero profit in the introductory year. It is understood and expected that profits from each new product will be forthcoming in marketing year two and thereafter.

b. Company experience indicates that advertising is considerably more efficient in generating consumer trial of new products in the proprietary-drug category in the introductory year than any kind of consumer or trade promotion. Thus, company policy dictates that there will be no consumer promotion for new Allgood brands. The promotional activity for new brands is limited to standard trade price promotions and advertising allowances. These permitted promotional expenditures should not exceed 20 percent of the total allocation for brand advertising. This promotional policy holds both for the introductory marketing year and for subsequent marketing years.

с. In post-introductory marketing years it is expected that each Allgood new product will contribute approximately 40 percent of funds "available" for promotion, profit, and advertising to profit.

These several assumptions and rules interact so that no new Allgood product can be introduced in the market unless costs and potential sales guarantee, at least on an arithmetical basis, competitive advertising expenditures and potential profitability. The way these rules are applied to Sinuguard is illustrated in Exhibits 8-1 through 8-6.

Exhibit 8-1 shows sales of sinus-infection remedies from 1970 to 1979 and projected sales for 1980, 1981, 1982, and 1983. These sales data are based, as you will recall from Case 7, on Allgood market research department analyses of the actual number of medication doses devoted to sinus infections, regardless of the advertised use of individual remedies…»

 

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See also:

Advertising Media Sourcebook

Advertising Media

The Media Handbook

Books on Advertising

Books on PR

Books on Mass Media

 

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