Bluemountain

Running head: BLUE MOUNTAIN

Blue Mountain Coffee Company Advertising Analysis Charulata Ghosh, Graeme Hamilton The University of Texas at Austin

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2 Blue Mountain Coffee Company Advertising Analysis Executive Summary

Blue Mountain Coffee Company has been experiencing a decline in market share, with a floor seemingly around 5.4%. After launching a new campaign along with an increased budget failed to return adequate results, management returned to maintenance level spending of $2 million of ad spend per quarter. While new advertisements are currently in development believed to have a higher copy effectiveness - they will not be ready until the last two quarters of the coming fiscal year. With the new fiscal year approaching and a short-term goal of achieving at least a 6% market share and boosting profits set by management, this report looked at a number of scenarios. The result of this report is to recommend an increase in ad spend in the third and fourth quarters of the coming fiscal year. Following this recommendation is expected to produce a market share of over 6% by the end of Q4, and a three-year outlook of almost 8% if the expenditure continues at the recommended value.

Analysis With new advertisements with higher copy effectiveness in development, this report recommends an increase in ad spend with their release. The current market share Blue Mountain Coffee Company has puts the company at risk of losing distributors, something that will likely force the company to go out of business. To increase their market share they must increase awareness, and it is for this reason that this report recommends an increase to the advertising budget.

It is true that Blue Mountain Coffee Company is coming off of an unsuccessful campaign that saw management reduce ad spend to $8 million a year from $9.6 million. As such it is not unreasonable that there may be some reluctance to increase ad spend again. This is an important issue, and one this report addresses by recommending to continue maintenance level spending of

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$2 million per quarter for Q1 and Q2 of the upcoming fiscal year. Beginning in Q3 and Q4 it will be necessary to raise spending $2.4 million per quarter to incite an increase in the market share, making for a total ad spend budget of $8.80 million in the upcoming fiscal year. The key reason to wait is that the failure of the previous marketing push can be attributed to the low copy effectiveness of the advertisements. Beginning in Q3, new advertisements that are predicted to have a copy effectiveness of 1.15 will begin running. Therefore, it makes sense to not waste money promoting ineffective advertisements and instead wait to increase the budget with the launch of the new advertisements. The increase in budget along with the new advertisements, which for the purposes of this report are assumed to have the more conservative copy effectiveness of 1.10, is expected to show a market share increase of 0.82% in Q4 over Q2. This is representative of a total market share of 6.22%, which exceeds the current 6% goal set forth by management. In addition to this increase in market share, this report also expects an increase in brand sales from $20.4 million to $24.3 million.

Although the increased copy effectiveness is important, it is also necessary to increase the budget if management wishes to see a 6% market share by the end of the upcoming fiscal year.

Indeed, if ad spend remains at the current level, even with an increase of copy effectiveness in Q3 to 1.10, market share at the end of Q4 is expected to sit at 5.70%. This market share is well below the level management wishes to see and may leave Blue Mountain Coffee Company in continued danger of losing distribution, as the time table to reach 6% market share extends to Q3 in the fiscal year following the one that is upcoming.

The motivator of losing distribution, in addition to the expectations of management, were the chief factors that led to the decision that short-term market share should be considered the most important factor. Once a stronger market position is asserted, a longer-term view can be taken at expense to the short term. To this end the weights set in the multicriteria goalseek were

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as follows; short term market share was weight at a 5, short term profit at a 3, long term profit at a 2 and long-term share at a 1. In addition to this, similar weightings were tried such as; short term market share was weighted at a 6, short term profit at 4, long term profit at a 2 and longterm share at a 1. This was able to produce a market share of 6% within three years, without an increase in copy effectiveness or ad spend. However, this time line may be too long for Blue Mountain Coffee Company. Although this report aired in favor of short term market share when goals came into conflict with each other, the increased ad spend greatly reduced the pressure of this decision, as it allowed for enough room that most goals could be met without serious neglect of the others.

Justification of Assumptions and Limitations of Analysis The largest assumption that is made by this report is that without action Blue Mountain Coffee Company will lose distribution. While this prediction agrees with the position of management, without this threat it may have made more sense to continue the status quo. That is to say one should never throw away a business that is breaking even or better. However, the outcome of losing distribution would be so disastrous, that it cannot be ignored. The position that this report then takes is one of proactivity to meet the threat before it can do harm to Blue Mountain Coffee Company.

The second largest assumption that is made by this report is that when the new advertisements are released in Q3 they will have a higher copy effectiveness, of at least 1.10 when compared to the current advertisements, and that the copy effectiveness of these advertisements and any subsequent advertisements will remain at least at this higher level. Much of the expected growth hinges on this. If the new copy effectiveness is no higher than the current advertisements, than this push will be as unsuccessful as the last. However, early indicators on copy effectiveness are showing at 1.15, and while the advertising agency may be overconfident,

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Blue Mountain Coffee Company’s advertising manager believes the new advertisements to be better than what is currently running. Using this vote of confidence, while being aware that advertising agencies are sometimes over optimistic, this report settled on a final copy effectiveness of 1.10 In addition to these factors there is the concern that the new advertisements are finished on time. If the advertising agency fails to deliver the new advertisements by Q3, it becomes unlikely that Blue Mountain Coffee Company can reach a 6% market share in the upcoming fiscal year. This, however, seems unlikely and of bigger concern would be if competitors launch a big push to counter the moves made by Blue Mountain Coffee Company. While it is impossible with the given information to predict what the competitors will do, unless Blue Mountain Coffee Company is very unlucky, it is unlikely that a competitor happens to independently be planning a big push as well. This means that any moves to counter Blue Mountain Coffee Company will be reactionary, with little fore planning which will likely lead to poor media effectiveness and could also be indicative of poor copy effectiveness on the part of the competition.

The final major assumption that is made by this report, is that the response curve is roughly correct. The long term consistent spending combined with the temporary spike, as well as the bottomed-out market share all provide data points that might not normally be available when determining the response curve. This likely increases the response curve reliability. In addition to this, the increase in advertising budget made pulsing no longer the most effective option. The use of even ad spend reduces the role the response curve plays as persistence becomes less important when advertising is constant.

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6 Conclusion

While Blue Mountain Coffee Company has recently seen its market share bottom out and been challenged with an ineffective advertising campaign, this report lays out a plan for the company’s stabilization and renewed growth. With the threat of losing distribution it has become necessary for Blue Mountain Coffee Company to become proactive. To do this, this report recommends an increase in ad spend, to accompany the release of more effective advertisements starting in Q3 of the upcoming fiscal year. If the recommendations of this report are followed, not only will Blue Mountain Coffee Company exceed management's expectations of a 6% market share by the end of Q4, but a solid ground work will have been laid and Blue Mountain Coffee Company can begin considering long term growth.

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