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BateManor Furniture Inc is company that deals with the manufacturing of medium to high priced furniture for the dining room, living room, and bedroom. The president of the company, Charlton Bates, has asked Dr. Thomas Berry, a marketing professor and a consultant to the company to investigate a tentative 2008 advertising program proposed by the company’s ad agency. The following case study will provide a summary of the company’s expenditures, distribution, budget, and consumer’s expenditure on their products.
The dilemma befalling the president of BateManor Furniture Inc Company is whether to increase the company’s advertising expenditure by 225,000 dollars. This increment of funds will contradict the budgeting policy of 5% of expected sales to be used for promotion expenditures, even though trade economists had predicted a 4% increase in sales for the year 2008. The president of the company Charlton Bates has hence requested the company’s consultant Dr. Thomas Berry analyze this predicament.
The company deals with the manufacturing of medium to high valued wooden furniture for domestic use. In the year 2007, the company registered an end of year net sales of 75 million dollars with a pre-tax profit of 3.7 million dollars. In the beginning of 2007 the company had allocated 3,675,000 dollars for expenditures attained from promotion during that year. The expenditures were categorized into four groups, with each being allocated a lump sum of money:
- Sales expense and administration-$995,500;
- Cooperative advertising programs with retailers -$1,650,000;
- Trade promotion-$467,000;
- Consumer advertising-$562,500 (BATESMANOR FUNITURE INC, p. 303).
Identifying the Root Problem Component
According to the January 9 meeting attended by Batesmanor executives, there was stalemate on whether or not more funds should be added to consumer advertising. This increment will result from shelter magazine adverts. The problem with this increment is that there will be limited or no funds to service other company expenditures that had been accounted for in the near future e.g. sales representatives’ increment.
Evaluation of Alternatives
BatesManor Inc Company has various methods they can employ to deal with this problem. One of the methods is that the company’s advert agency has a variety of advertising options to choose from apart from the use of shelter magazine e.g. material corporate advertising, which includes newspapers. The company might also decide to cut down the expected administration expenditure in orders to achieve the suggested effective way of consumer advertising.
Bearing in mind that the sales expenses and administration costs are expected to rise; the company should consider not incurring more expenses by way of increasing funds for consumer advertising. Instead, the company should identify relatively cheaper and effective methods of advertising.
By increasing allocation of funds to consumer advertising, the company will be acting contrary to its policy of 5%of expected sales for total promotion expenditures. In addition to this, the company is not limited to only advertising through the shelter magazine, but it can source for other relative cheap methods of advertising their products. Moreover, increment of funds for consumer advertising plus other additional expenses that had been accounted for tend to threaten the company’s objective of achieving a 5% net profit margin before taxes as indicated by Bates the company’s president.
BatesManor Furniture, Inc. case study (Attached PDF).