Braincell

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BrainCell Internet Advertising Analysis Charulata Ghosh, Graeme Hamilton The University of Texas at Austin

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BrainCell is a new company that wishes to sell cell phones, call plans and other mobile services through the internet. Using the internet to cut down on overhead costs and partnering with an existing popular communications network for use of infrastructure, BrainCell is well positioned to offer competitive prices. While currently only operating in 6 EU countries (Germany, France, the United Kingdom, Italy, Spain, and Poland), BrainCell hopes to expand into all EU countries at some point in the future. With the objective of eventually entering all EU countries in mind, an analysis was made to determine the best course of action that balanced both the optimization of net margins and increasing the customer base of BrainCell.

As a growing technology company with lofty ambitions, it is very important for BrainCell to expand its user base. Although net margins are very important, in order for BrainCell to reach its goal of being in every EU nation, an increase in customer base is vital even at the expense of profits in countries with less potential. This growth centric strategy follows the standard set by Amazon.

Following these guiding objectives, this analysis concluded that a total advertising budget increase of around â‚Ź87,000, with reductions in spending in the UK, Poland and Spain, and accompanying increases in spending in Germany, Italy and France are the most productive ways forward for BrainCell.

Analysis While overall BrainCell seems to be making some headway breaking into its respective markets, some countries appear to need more adjustment than others. Poland, in particular, appears to be in the worst shape.

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Poland While BrainCell has limited to some degree the losses in Poland by allocating the smallest portion of their advertising budget to the country, they are still experiencing a negative ROI. While it is true that this analysis takes the position that short term losses are acceptable if they result in a larger customer base, this is simply not the case in Poland. With the smallest target population out of all the other countries as well as the very low internet usage and mobile phone penetration, it becomes very hard to reach the few people who are potential customers for BrainCell. This results in Poland, which, again, has the smallest potential customer pool, being the most expensive place to acquire customers, with €21.05 being spent per acquired customer.

The solution offered by Solver was to pull out of Poland entirely, but such a move would be imprudent. Keeping in mind BrainCell’s ambition to operate in all EU nations, it makes more sense to reduce spending to a lower maintenance level, rather than lose any progress that was made and have to break back into the market at a later date when there may be more competition following BrainCell’s initial model. In view of this, it is recommended that BrainCell reduces its ad spend in Poland from €40,000 to €10,000, which will result in a predicted net loss of 1,311 customers as compared to the current model, and a change in the ROI from negative to positive.

The United Kingdom In addition to reducing the ad budget in Poland, the analysis concluded that the ad budget of the United Kingdom should be cut by 50%. The reasoning behind this is that ads in English are the most expensive. Compounding this is the fact that click through conversion rates are lower in English due to the prevalence of English outside of just the UK. While reducing the ad budget does result in fewer new customers, the predicted drop from 12,300 to 7,117 is quite reasonable considering that it frees up money that can be put to more efficient use in other markets. Since the budget for UK is so large, it can be cut without routing BrainCell’s presence

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in the market. This reduction in ad budget is also in line with the net margin conscious solver tool and will increase the ROI in the UK from 64% to a predicted 90%.

Spain The analysis concluded that the ad budget should be reduced in Spain as well. Like Poland, Spain has a small target population and low internet usage, resulting in a hard to reach population. Because of this, current ad spend makes Spain the third most expensive country to acquire a new customer after Poland and the UK, at over €13 per customer. To better maximize ROI this analysis suggests a reduction in ad spend from €62,500 to €55,000. This results in a predicted ROI change from 69% to 74%, as well as a predicted loss of 438 customers over the current ad spend, while allowing the funds to be reallocated to more fertile markets.

Germany After freeing up all of this money, it only makes sense to start putting it to work in more profitable markets. One of those markets is Germany. With its large population, high web usage and high mobile phone penetration, Germany looks to be an ideal market for BrainCell’s plan to sell mobile phones over the internet. Importantly the ad budget in Germany is approaching the saturation point but is not quite there yet. An increase in ad spend from €187,500 to €250,000 is predicted to take BrainCell right up to the edge before ROI starts to drop off. This increased spending is predicted to improve the number of acquired customers from 16,200 to 19,989.

Italy Another country that appears to be an excellent place to increase ad budget is Italy. With the third largest estimated target population and very high mobile phone penetration, more money is predicted to have excellent effects here. With an increase from €150,000 to €275,000 predicted to result in an increase of acquired customers from 15,400 to 24,126. This also helps to set BrainCell up in a position that will make it easier to roll out its services to the rest of

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Southern Europe when the time comes, which helps to justify the slight price per customer increase of â‚Ź1.26.

France France is another country with a large target population and relatively good mobile phone penetration as well as internet use. However, the gross margin per customer in this region was quite high - â‚Ź30. In order to optimize this market, the solution offered by Solver was kept in mind while increasing the ad budget by â‚Ź31,000. This recommendation maintains a good ROI as well as increasing the customer base. This keeps BrainCell on track to be in all EU nations eventually.

Justifications of assumptions in analysis, limitations of analysis The most major assumption in this analysis is that the calibrating data provided by the managers is correct. While the use of such data is an accepted norm, with an history supporting its accuracy, if this data is indeed inaccurate the conclusions of this analysis will also be inaccurate. This analysis also assumes that the mobile phone industry will not substantially change in the short term, before BrainCell can roll out its new strategic plan. The stability of the industry seems likely, given the maturity of the industry in many of the markets BrainCell operates in. In fact, if the recommendations in this analysis are implemented, BrainCell will reduce their stake in the less saturated and more volatile markets. The analysis also assumes that with changes in ad budget, the effectiveness of the individual advertisements, or any new advertisements created for this strategy shift, stay about the same. It seems likely, as long as BrainCell continues to use advertisements similar to those currently in use, that there will be no significant change in advertising effectiveness. While this analysis should be a helpful guide in the near term, after some time its accuracy will decrease, and a new analysis will need to be conducted. This is because over time the industry will change, and as BrainCell grows its needs

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will be different. Additionally, it is assumed that countries with higher internet usage will be more likely to be affected by internet advertising. However, mobile phone penetration can reach a saturation point in some markets, meaning that effective advertising might not increase customers.

Conclusion BrainCell has the long-term goal of operating in all EU nations. While this goal is ambitious, BrainCell seems to be well positioned to make it happen. Following the recommendations from this report will help BrainCell to reach its goal and maintain profitability while doing so. By adjusting BrainCell’s ad budget on an individual basis with each country, it is possible to optimize the levels of spending across all of the countries BrainCell currently operates in. While the total ad budget advocated for by this analysis is €829,750 - an increase of €87,250, it is important to look at the total predicted increase in acquired customers, which is 69,410, or 7,610 more than the current strategy provides at a reasonable price of just over €11 each. In addition to this, the ROI has also been improved in many of the countries that BrainCell operates in. Combined, these factors make for a more popular and more profitable company.