I'm working on a case study and I'm having trouble picking a side to argue. The question is, Is the investment spending market test a good strategy or a waste of time and overly cautious?
The instructor wants us to decide how promotion money should be allocated in the 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 :/
Again, Is the investment spending market test a good strategy or a waste of time and overly cautious?
To determine whether the investment spending market test is a good strategy or a waste of time, you can approach the question by considering the potential benefits and drawbacks of conducting such a test. Here's a step-by-step approach to help you decide:
1. Evaluate the potential benefits:
- Market insights: Conducting a market test in the high population "key market area" can provide valuable insights into customer preferences, demand, and competitive landscape. This can help the company make informed decisions about future allocation of marketing funds.
- Revenue growth: If the market test yields positive results, it could lead to increased sales and revenue in the key market area. This growth potential can justify the investment in the test.
- Competitive advantage: Successfully penetrating a high population area could give the company a competitive advantage over rivals and help secure its position in the market.
2. Consider the potential drawbacks:
- Financial risk: Conducting a market test requires allocating funds that could otherwise be used in other areas. There is a chance that the test may not yield the desired results, resulting in a loss of capital.
- Opportunity cost: If the company diverts marketing funds to the key market area during the test, it might neglect other regions where it currently has strength and is generating sales. This could result in missed opportunities for growth and potential customer dissatisfaction.
- Time and resources: Running a year-long market test involves dedicating significant time and resources. It may divert attention and resources from other important aspects of the business.
3. Explore additional research:
- Look for case studies or examples in similar industries where market tests have been conducted. Examine the outcomes and assess whether they align with the company's goals and circumstances.
- Analyze industry trends and competitor strategies to see if there are any indicators or best practices that could inform your decision.
Ultimately, it is important to make a well-informed decision based on the available information and the company's unique context. Consider the potential benefits, drawbacks, and risks associated with conducting the investment spending market test and weigh them against the company's goals and priorities.