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
would have a net profit of $73,353. If the company adjusts their expected net profit to $50,000, then they would have $23,353 to apply to the advertising budget. The most appropriate method to budget for the Happy Dog Company is the objective-and-task method because they have a clear objective for their company’s sales. Objective: Increase of 20-25% in gross sales (Total of $876,600 in gross sales for 20% increase) Target Market: Adults ages 25-65 with an interest in healthy and active lifestyles; average household income of $85,000 The recommended advertising budget for the upcoming year (2003) is $76,000.
Using the Advertising Budget: 1. 2. 3. 4.
Promoting the Facebook page: $15/day, $5,475 Boosting 4 Facebook posts a month: $15/post, $720 Cost-per-click ads: $20/day, $7,300 Digital ads: $48,000 a. Shape Magazine: $12,000 b. Men’s Health: $12,000 c. Real Simple: $12,000 d. Men’s Journal: $12,000 5. In-store displays/samples: $11,000 6. Contingency: $3,505 1. Promoting the Facebook Page: • The Happy Dog Company should promote their Facebook page at $15 a day to expose their target market to their brand. The success will be measured with the analytics on Facebook to gather how many page views and likes the page received. 2. Boosting Facebook Posts: • By boosting two Facebook posts a month, the Happy Dog Company’s content will be seen by more potential customers. The content should be tailored to relevant topics or current offers to gain the attention from potential customers. The budget can be set to $15 a post, which will control the number of people who will see the posts. Facebook analytic tools will be used to measure the success by looking at the level of engagement with each boosted post. 3. Cost-Per-Click Ads: • The Happy Dog Company can set their budget to $20 a day and bid for cost-per-click ads. Google Analytics will be used to help track the amount of traffic driven to the Happy Dog Company website. 4. Digital Advertisements: • The Happy Dog Company should switch from print advertisements to digital advertisements because of the ease of clicking to find the website or searching for the brand within moments of looking at the advertisement. These ads would be found on magazine websites that reflect the interests of the target market. Specifically, the Happy Dog Company targets people with an interest in a healthy, active lifestyle. Shape Magazine, Men’s Health, Real Simple and Men’s Journal are four magazines that could attract the target market. Advertising expenses for each website should be around $12,000. 5. In-Store Displays and Samples: • It is important that sales representatives for the Happy Dog Company communicate with local, healthy pet stores to place in-store displays and set up times to hand out samples. This gives the target market a chance to interact with the brand and have their dogs try it. These customers are already choosing to shop for high-quality pet products, so they these products will align with their interests. The understanding that only 10% of their customers were lost after trying their products is important in this choice of advertising expense. If more customers are trying their products, it could be expected that they will continue to purchase them. The budget for displays and samples should be $11,000. 6. Contingency: • A contingency of approximately 5% is left to cover any extra advertising expenses throughout the year.
Rewards: Increased expenditures for advertising will enable the Happy Dog Company improve efforts to reach a larger audience. Cost-per-click ads will also send customers to their website, where they can learn about the products and where to buy them. Promoting their page and boosting posts on Facebook will place the brand in front of the target audience on a medium that they frequently use. Using Facebook’s analytic tools can help the Happy Dog Company adjust their content as they can see their performance with each boosted post. In-store displays and samples at local, healthy pet stores will reach their target market and provide an opportunity for customers to learn about the products. Risks: Increasing the advertising budget may not get the best return. Potential customers may ignore digital ads and CPC. If they are clicked, some people may view the website but never seek out the products. Facebook posts and promotions may annoy potential customers, who could look at them as spam. In-store displays and samples may only be done at certain times at a limited number of locations, so the brand may miss the chance to make contact with different potential customers that may be interested in the products. References: Advertising Opportunities. (n.d.). Retrieved November 1, 2015, from http://www.realsimple.com/static/rsr/digital- media-kit/opportunities.html Advertise with Men's Journal. (n.d.). Retrieved November 1, 2015, from http://www.srds.com/mediakits/mens_journal/web.html Boost Post. (n.d.). Retrieved November 1, 2015, from https://www.facebook.com/business/help/547448218658012/ Men's Health - SPH Magazines. (n.d.). Retrieved November 1, 2015, from http://www.sphmagazines.com.sg/magazines/mens-health#websites Schumacher, D. (n.d.). A pet food campaign from Natural Balance that’s leading the pack. Retrieved November 1, 2015, from http://blogs.imediaconnection.com/blog/2015/06/11/a-pet-food-campaign-from-natural-balancethat’s-leading-the-pack/ Shape - SPH Magazines. (n.d.). Retrieved November 1, 2015, from http://www.sphmagazines.com.sg/magazines/shape