Case Analysis (75 points)
For the following Ducks Agency case, prepare a managerial report (10 points) that addresses the case Assignment on page 6 of this exam, and that answers all case questions on page 8. Merely answering the case questions without a report is not acceptable and will result in score reduction. Finally, please attach all charts, graphs and tables used to make your conclusions and recommendations.
The Ducks Agency
The Ducks Agency (TDA) is a small advertising agency in Portland, Oregon that helps clients get the biggest return on their advertising dollars. TDA specializes in working with companies that are looking to advertise their products and services for the first time. Such companies are typically newer businesses that have begun to grow and now have the revenues to take the next step by investing in advertising. TDA has a good track record of helping these companies feel comfortable with their expenditure of advertising dollars. As pointed out by Donalda Ducks, founder and CEO of this agency, the costs incurred with advertising can be considerable and are always perceived as a relatively high percentage of clients’ revenues. For first-time clients, the thought of investing in advertising, no matter how much sense it might make, always leads to questions about whether the expense will be worth the investment
Companies like TDA typically try to identify the particular market segments that are most likely to buy their clients goods and services and then locate an advertising outlet that will reach this particular market group. Client groups require considerable explanation about how this “matching” occurs. Donalda Ducks typically explains it like this:
We collect a lot of information on clients’ actual sales over a two to three month period and on the people who make those purchases. We get this information from a variety of sources, including surveys, interviews, credit records, mailing lists, contests, and so forth. Our goal is to learn as much as we can about our clients’ customers to see whether there might be a distinct “profile” of the typical customer for a particular product o r service. If a distinct profile emerges from our research, then we try to match that profile to advertising outlets, such as TV, radio, newspapers, and magazines known to be watched, listened to or read by people with this particular profile. In this way, we target advertising directly to high potential customers. This procedure goes a long way in helping our clients feel more comfortable that at least the money spent on advertising is putting their products and services in front of the right audience. We’ve been doing it this way for years and have a long track record of being successful.
TDA recently signed a new client, Cycle Emporium, in nearby Seattle. Cycle Emporium markets, under its own name, three lines of racing and mountain bikes, made by several bicycle manufacturers. Cycle Emporium currently sells its bikes in their six retail outlets in major cities throughout the Northwest. Cycle Emporium is now ready to launch a direct sales campaign of their products by advertising bicycles in nationally distributed magazines.
This direct sales effort will rely on reaching potential customers by placing half-page, two-color ads in popular magazines that have large national subscription bases. The marketing campaign would attempt to (1) create name recognition for Cycle Emporium’s products based on placing five ads in each issue of chosen magazines and (2) offer customers savings that result from eliminating the “middle-man.” Thus, it is clear that choosing target magazines for each product is crucial in order to insure that Cycle Emporium’s new venture will be successful. They have set aside $240,000 to advertise their products in this manner. In addition to the costs of placing the ads, this budget must also cover TDA’s separate charges to Cycle Emporium for the creation and production of the advertising copy as well as their fee and overhead charges. Choosing the wrong magazine not only means that this total budget is being spent on multiple ads to reach the wrong audience, but that the real potential customers would still go unreached.
Cycle Emporium sells three lines of bicycles. The lower line includes “basic” racing and mountain bikes. These bicycles, made by the largest bicycle manufacturer in the U.S., tend to be heavy as far as bikes go, have relatively few features and offer few customer options. Their middle line, made by a popular West Coast manufacturer, includes bicycles that are made of light- weight metals with many features that serious bikers want and that provide a modest number of options to help buyers customize their bikes. The upper line is made by one of Europe’s leading bicycle manufacturers, and includes bicycles that are made of ultra-light alloy metals with all the “bells and whistles” which can be put on a bike. Customers are allowed to choose among a number of options to customize their purchases from the upper line of bicycles.
Donalda Ducks put together a market research team to identify the profile of the typical customer for each product line. To do so, the market research team collected information from persons who purchased bicycles at Cycle Emporium’s six retail stores. A random sample of customers during a two-month period was asked to complete a short survey that contained descriptive questions about themselves. To encourage customers to complete the survey, each was offered as a gift for their participation, a biker’s helmet, a mileage meter, or a bicycle tire pump. Over 90 percent of the sampled customers completed the survey. Questions were chosen to get an understanding of the demographic background (i.e., age, gender, marital status, education) and the interest level in biking (i.e., extent of use, fitness level, self-rated interest) of customers.
Based on these data, a profile of the “ typical” customer for each product line of merchandise needed to be created and compared to the “typical” subscriber profile for a list of magazines. The list of potential magazines was chosen to reflect three issues: (a) the subscriber base needed to be a national one, (b) the subscriber list needed to fall in the moderate size category for nationally- distributed magazines, and (c) the magazine needed to focus on a particular topic or theme.
Cycle Emporium very specifically wanted to reach a national market in their first attempt to enter the direct sales arena. They reasoned that this was the best way to guard against the problems created by unpredictable, cyclical, regional economic downturns. The choice of looking at magazines in the moderate-sized national subscription base would mean that ads would be similar in costs and within Cycle Emporium’s advertising budget. Finally, the typical subscriber was expected to represent a larger proportion of the subscriber base for magazines with a particular focus or theme. The list of potential magazine outlets and the profile of the typical subscriber for each are provided in Table1.The magazines in Table1 were chosen as possible advertising outlets because they have a moderately large national subscription base and focus on particular themes.
The data in Table 1 reflect the average age and salary, activity level of subscribers (1 = none to 5 = very active), the percent of subscribers who are male, and the modal educational background of subscribers (HS =high school diploma, BA = bachelor degree, and Tech = technical certificate from a trade school). The average cost of a half-page ad in these magazines is approximately $2,000 per issue.
Assignment
As a member of the market research team, your job is to examine the data that contains descriptive information about Cycle Emporium’s customers. You’ll find the data in the Ducks Excel file. A description of this data set is provided in the Data Description section.
You will need to analyze these data in order to create a profile of the “typical” customer for each line of bicycles. Once done, compare your understanding of the typical customer for each product line to the “typical” subscribers given in Table 1. Based on this comparison make a recommendation about which two magazines should be targeted as advertising outlets for each product line. Finally, estimate the total cost for advertising all products. Assume that each ad will take a half-page, run five times in each issue and in four issues a year. The Case Questions will assist you in your analysis of the data. Use important details from your analysis to support your recommendation.
CaseQuestions: TheDucksAgency
1. Describe the profile of the “typical” customer for each product line. Be sure you use statistical indices that are appropriate for the data being analyzed.
2. Compare each of these product-line profiles to the profiles of typical subscribers of the magazines listed in Table 1. Recommend the two most appropriate magazine outlets for advertising each separate product line.
3. Based on matching product-line and subscriber profiles, how many different magazine outlets are needed to ensure that each product line is advertised twice (in two different magazines), as required in the Assignment? List the final set of magazine outlets that you recommend.
4. Estimate the total cost of advertising bicycles in the chosen magazines. Assume that each half-page ad will run five times in each issue and in four issues a year.
5. What percent of the total advertising budget does your recommendation represent?
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