The Happy Dog Company ADV370J/PR367 MWF 8-9 Eric Webber Name(s): Paige Kroll UTEID: pk5926 Case: 6.1 The Happy Dog Company Date: 11/2/15 Problem Statement: The Happy Dog Company needs to mark their territory by expanding their share of the organic dog treat market and acquiring more loyal customers in a time when new competitors are entering the market rapidly. Opportunity Statement: The Happy Dog Company is turning a profit and now has a healthier budget with opportunity to expand advertising expenditures to reach a larger population of their target market. Critical Factors: • • • • • • • • •
The Happy Dog Company’s target market is a ratio of 60% male to 40% female with an average income of $85,000. After trying the products for two months, the Happy Dog Company’s customers became frequent buyers with only 10% loss of all customers over the three years of operation. After investing in marketing and advertising for the first time, the brand had almost a 33% increase in gross sales. The Happy Dog Company wants to increase gross sales by 20-25% each year until they reach 50% of the market share in their organic dog food and dog treats market. The organic pet food market is rapidly growing. The competitors had gross sales of approximately $100,000 in 2002, and they are planning to expand their sales. Advertising costs for the specialty pet food industry were between 3% and 8%. Manufacturing expenses are expected to increase by 5% for 2003 due to increasing demand for ingredients and rising utility costs. The Happy Dog Company needs to generate a net profit of $40,000 to $50,000 each year to continue to finance future expansion.
Solution: I believe that the expectation to match the 33% increase in sales is too high and unrealistic. The percent increase from year to year has decreased from 50% after year two to 33% after year three. Word-of-mouth and advertising are influencers on each increase in gross sales, but neither can be pinpointed as the sole source of the increase. With the organic and natural pet food market becoming crowded due to more competitors, it is important to understand that this will affect the number of sales for the Happy Dog Company. I believe that the company’s gross sales may continue to increase each year, but at a lower percentage. To create the advertising budget, it is sometimes recommended to compare the Happy Dog Company’s budget to the budgets of the competitors. Other companies in the specialty pet food industry set their advertising expenditures budget between 3% and 8%. Happy Dog Company’s marketing and advertising expenses were about 7% of the gross sales. I believe that using the comparative-parity method is not the best fit for this scenario because their two direct competitors are producing and selling significantly fewer numbers of their products compared to Happy Dog Company. If the company is projected to have $876,600 in gross sales, then 7% of sales is $61,362. If we compare this number to what is used for the comparative-parity method, 5% of the gross sales and the advertising budget would be $43,380. After calculating the pro-forma income statement for 2003, there is room for a larger advertising budget. This calculation included the increase of 5% for manufacturing costs and ending with a net profit before taxes of $50,000. If the Happy Dog Company kept the same advertising budget of $53,000 for the upcoming year, they