Jul 022012
 

In this mini case study, the firm is discussing the results of some of their market research and considering what they should do next. Your task is to help them decide. So given the research results given and the other information in the case, what advice would you give them?

 

ACTIVITY/TASK

Clive, the owner of the Little Italy Pasta company, was still not happy. He had recently sacked Mitchell (who had since started a business in competition with Little Italy). He had given up using consultants and had instead hired Sue-Anne as his new marketing manager. Clive was convinced that he needed a new marketing plan to achieve the $3m per annum profit he wanted within the next two years. Clive did not plan to work forever and wanted to build his fortune fast. As part of her contract agreement, Sue-Anne was able to establish her own marketing department, consisting of: Prue, Astrid and David.

The following is an excerpt of their most recent marketing meeting:

Sue-Anne:

Astrid, what were the key findings of the market research with our customers?

Astrid:

The research showed that we have established good customer loyalty. Around 60% of our customers buy our products on a regular basis.

David:

What about non-customers?

Astrid:

We’ll, the figures aren’t as strong there. We have a less than 5% unprompted awareness and less than 10% prompted!

Prue:

That’s surprising after all the advertising that was done last year. But hang on – didn’t I see a brand awareness figure of 25%?

Sue-Anne:

That figure included both customers and non-customers, so the number’s a lot lower when we look at non-customers only.

David:

So is the sales growth a result of increased brand awareness or growing loyalty of existing customers?

Prue:

It’s probably interrelated. A higher level of advertising will lead to increased loyalty, because the advertising is more noticeable by those customers, which then reinforces their initial purchase decision.

David:

So what you’re saying is that we need to continue the advertising.

Sue-Anne:

Look the keys to success are going to be distribution, brand, and product range and quality – in that order. Therefore, a level of advertising is always going to be important for brand building.

Astrid:

But how do we improve distribution? We already sell to 70% of suitable restaurants, cafes and delicatessens in the main cities.

David:

Well that gives us a great track record to expand to nationally.

Prue:

Plus we can sell more product varieties to those existing stores. Like the new frippaloni – our own pasta style to the world.

Sue-Anne:

Sure, we have lots of good ideas, but they all cost money. Each new product line will cost around $500,000 to bring to market. Geographic  expansion is at least $1m per area to set up, and then another $500,000 per year to maintain.

David:

And on top of those costs, we need to combat Mitchell’s new pasta company. It’s a sure bet that he will be targeting our retailers, because he knows many of them.

Sue-Anne:

Well, we’ve got to make sure that our retailers have a reason to stay with us – namely a broad product range, a trusted name, loyal customers, and good trade promotion deals.

 

Their recent financial figures are as follows:

 

Year

Year 1

Year 2

Year 3

Sales ($m’s)

7.4

8.2

11.0

Market share

6.1%

6.5%

7.9%

COGS ($m’s)

2.2

2.4

3.2

Marketing ($m’s)

1.4

1.5

3.7

Fixed Costs ($m’s)

2.6

2.7

2.9

Pre-tax profit ($m’s)

1.2

1.6

1.2

Brand awareness

16%

17%

25%

 

The marketing expenditure for Year 3 was:

Marketing Salaries

$500,000

Advertising

$2,000,000

Trade Promotions

$750,000

Sales Force Incentives/Bonuses

$450,000

TOTAL

$3,700,000

 

QUESTIONS

  1. There are several research results provided in the above discussion, along with some financial information; which particular metrics do you consider to be the most important? Why?
  2. Given the case information, what would you recommend to the firm? Are they tracking well, or do they need to revise their strategies approach?
  3. What other information would you need to better advise this firm?

 

 

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