The Problem. Haverwood Furniture is examining its marketing budget for the year 2008. There are competing requests for a limited amount of promotion dollars. After hearing both requests and arguments, Haverwood is faced with the following problem:
- What should be Haverwood’s marketing communications (promotion) program and budget for 2008 in order to achieve its communication objectives?
Recommendation. As Charlton Bates noted in the case study, it is just as important for Haverwood to examine how funds are apportioned within the budget as to determine how much additional funds should be applied to the overall budget. Table 1 details the recommended changes Haverwood should make to the four line items that comprise the 2008 promotion budget. The recommended changes for the upcoming year our based on the communications objectives identified for Haverwood Furniture.
Penetrate Existing Outlets. One of the most significant trends in furniture sales is the gallery concept. The opportunity to showcase a manufacturer’s entire line of products in a comfortable setting is an excellent opportunity to help buyers visualize the individual pieces of furniture as they fit together. As Exhibit 5 details, 58% of buyers in Haverwood’s target market have used a gallery store to get ideas for their own homes. Additionally, 53% of buyers have used furniture stores and department stores for ideas. Haverwood’s top priority must be to increase their presence in existing outlets, both to enable the gallery concept, as well as to get more products in front of the buyer. To achieve this, Haverwood needs to move forward with hiring the additional salesperson to ensure existing salespeople do not become overloaded. Additionally, increasing the trade advertising budget will put more resources into the major trade shows where retail buyers often make decisions about what manufacturer products they will sell.
Maintain Retail Support. According to the Standard & Poor’s Industry Surveys mentioned in the case study, retailers are going to need more support from manufacturers moving forward. This support comes directly from the sales personnel associated with each retail store. Additionally, Haverwood’s sales personnel are responsible for as much as half of the company’s sales. In order to ensure that retail outlets receive the support they need, Haverwood must add the additional salesperson as indicated in the budget. Furthermore, the increased spend at trade shows can be used to educate retail sales personnel on the unique benefits of Haverwood furniture.
Reach Consumer at Critical Points. The Better Homes and Gardens survey indicates that 72% of buyers browse furniture stores before they need to make a purchase. Additionally, Exhibit 5 indicates that buyers get ideas from furniture stores that do not always turn into purchase. The most critical point of interaction with the customer is inside the retail outlet. This is the best opportunity to turn a shopper into a buyer. Rather than trying to convince buyers to buy Haverwood furniture before they enter the store, the most likely opportunity to convince the buyer is after they are already inside. The aforementioned survey also indicates that 99% of shoppers want a salesperson to show them what options are available, and 63% want decorating advice. All of this points to the need for more contact between Haverwood sales people and retail sales people, as well as improved training for those sales people.
Improve Image and Awareness. Like all companies, Haverwood wants to improve the image and awareness of their brand. Michael Hervey believes that building the brand means spending additional dollars on consumer advertising. Unfortunately, research indicates that although 95% of Better Homes and Gardens subscribers get decorating ideas from magazines, less than 10% believe that the reputation of the manufacturer is one of the two most important factors when making a furniture purchase. Rather than improving the image of their brand in the eyes of the consumer, Haverwood needs to focus on improving their brand awareness with retail salespeople. These salespeople play a critical role in influencing the purchasing behavior of consumers. Therefore, it is important to increase the both the sales expense and trade advertising budgets.
Push vs. Pull Promotion. Push promotion involves getting products into retails stores and in front of consumers. Pull promotion, on the other hand, focuses on getting consumers into the retail stores. Because of the importance of penetrating existing retail outlets and maintaining retail support, push promotion is the larger focus of Haverwood furniture. This requires an increase in the sales expense and trade advertising budgets. That being said, pull promotion has its place, too. Since Haverwood furniture is not in every retail store, getting consumers into the right retail stores is also important. Therefore, a decrease in the cooperative advertising allowance is not recommended. Although an increase in consumer advertising is not warranted, a decrease is not necessary thanks to the expected four percent growth of sales in 2008.
Slipping Margins. Thanks to the increasing cost of labor and materials and pricing pressure from competitors, Haverwood is expecting gross profit margin to shrink in 2008. Although the effect of this will not be fully understood until the budgeting for 2009 begins, a conservative approach with the promotional budget is advisable. As such, it is recommended that the $75,000 left over from the 2007 budget not be spent, and the full $3.9 Million 2008 budget cap not be met. The recommended budget falls $57,000 short of the five percent percentage-of-sales policy limit and should remain there in case a cushion is needed to cover a slippage in gross profit margin.
I would have included the tables mentioned above, but converting them was a big PITA.