Are investment spending market tests a good strategy or a waste of time and overly cautious?
I'm working on a case study and I'm having trouble picking a side to argue. The instructor wants us to decide how promotion money should be allocated in the case.
The full case can be found here:
docstoc. com/docs/122750087/Lever-Case
The gist of it is:
One person believes more marketing funds should be allocated to a key market area, with a very high population, where sales are down and products are threatening to be delisted by 2 major chains. The other disagrees and believes funds should be allocated to where its business currently is and support their areas of strength.
It was suggested that money should be used to conduct an investment spending market tests for a year, in the high population, "key market area" to see if incremental spending yields higher sales or profits large enough to justify allocating higher spending there.
My thoughts:
There are risks either way, products could be delisted from major stores during the market tests and the company could be missing out on an opportunity to grow in one of the most highly populated areas, but allocating funds directly to "key market" could end up not increasing sales and being a waste. I could build arguments around either, but am curious to which option seems like the best strategy.
I've tried researching to find similar cases to help pick a side and attempted to find information on both strategies but have had little luck :/
Is the investment spending market test a good strategy or a waste of time and overly cautious?
Any help is appreciated.
To determine if an investment spending market test is a good strategy or a waste of time, it is important to consider the potential benefits and drawbacks of conducting such a test. Here is an approach you can take to analyze the situation and make an informed decision:
1. Define the objectives: Start by clearly understanding the objectives of the investment spending market test. Is it to assess the effectiveness of allocating more marketing funds to the key market area? Determine if the incremental spending justifies higher investments? Understanding the specific goals will help in evaluating the strategy.
2. Evaluate potential benefits: Consider the potential benefits of conducting the market test. If the key market area has a high population and the products are at risk of being delisted, investing in this area could provide an opportunity for growth and increased sales. The market test can help evaluate whether additional spending in this area leads to higher sales or profits, thus justifying the allocation of higher funds.
3. Assess risks: Identify and assess the risks associated with conducting the market test. One potential risk is the possibility of the products being delisted during the test period, which could have negative consequences for the business. Additionally, there is a risk of allocating funds directly to the key market area without the assurance of increased sales or profitability. Evaluate the potential impact of these risks on the overall business.
4. Consider the existing strengths: Evaluate the current areas of strength for the business. If there are certain markets or regions where the company is performing well, it might be worth considering whether allocating funds to support those areas would yield better results rather than focusing on the key market area. Assess the potential opportunity costs of directing funds away from those areas.
5. Study industry benchmarks: Research industry benchmarks and similar case studies to understand how other companies have approached similar situations. Analyze the outcomes of different strategies to gain insights and make an informed decision. Look for data or insights that could support either side of the argument.
6. Balance short-term and long-term goals: Consider the short-term and long-term goals of the business. While the investment spending market test may provide insights into the potential of the key market area, it is essential to evaluate if the strategy aligns with the long-term objectives of the company. Consider both immediate sales impact and the potential for sustainable growth.
By following these steps, analyzing the potential benefits and risks, and considering the company's objectives and industry benchmarks, you can make an informed decision about whether the investment spending market test is a good strategy for this case. Remember, there may not be a one-size-fits-all answer, and the choice ultimately depends on the specific circumstances and goals of the business.