Overview
(this is for reference)
“Be serious,” June’s voice rose in frustration.
Sensing this, Mike did not press the issue. “Okay, how do we start?”
June, believing Mike was sincere, reiterated her approach. “We have to test the ad with our customers. I say we give the ad to customers who come in, offer them a free dessert for analyzing it, and ask them to write down how we could improve it on the ad. And while we are at it, we could ask for their names so we can start a database of customers.”
“Sounds good to me,” said Mike, not wanting to cause June any more grief. “And we both know we need more customers. We’ve been open for a month now, and we are running about 30 percent of projected sales (daily). I’ll get started on the ads,” he continued, hoping to defuse June’s anger toward him.
June decided to research the problem further; she found some information on the Internet about advertising. It said you need to start with an objective then develop a budget before deciding where to advertise (that was easy: achieve daily sales projections within six months). And it stated multiple times; you must test the ad first. The page was developed by an Ad Agency, a full-service agency, whatever that was. It listed a number. She called.
The operator transferred her. “Rhett Johnson, how may I help you?” She briefly explained who she was and about her company.
“Yes, our agency can help you.”
Fifteen minutes later, June was overwhelmed and scheduled to meet Rhett in two days.
Rhett met June in the reception area and took her back to his office. “The way the agency works, the account executive will coordinate everything for you: our research, layout and design people, and media placement people will research, create, and test the ad for recall, aided and unaided, likeability, believability, of course, and then place the ad to maximize GRPs (Gross Rating Points = Reach multiplied by Frequency). We’ll do TV, radio, social media, billboards, and newspaper ads. We are paid 15 percent of the ad placement cost. Given you are a new business that is underutilized, and how much did you say you were estimating for first-year sales?”
June answered him, and Rhett did some calculations. “For a new business, you should probably be doing 30 percent of sales in advertising per year. And, since sales are down, you should probably be doing about 35 percent. I think your ad budget should be $40,000.”
June stood, incredulous. “We have cash reserves of nine thousand and are operating in the red now.”
Rhett answered without hesitation, “You should probably get a loan for the difference. Remember, advertising is an investment just like buying a new coffee machine for your store. No ads, no customers. You have done no advertising yet and look at sales. Now, when you use us, we do everything for you, so you can concentrate on serving the customers who will be streaming into your business. I can have an AE (account executive) working on your account by tomorrow and ads placed within a week.” June’s confusion only increased on the way home when she tried to compare doing it herself or hiring an agency.
“June, I’m glad you’re here. I developed three ads,” Mike said. “Two are more developed than the other, but the third is better I think. I’ve started to test them. It cost eight desserts, but I’ve got some great results. I think I can do this. I can’t wait to see the store filled with customers. I can start putting the ads on cars in apartment complexes and homeowners’ mailboxes by randomly assigning one of the two best. This will allow us to test those two together.” June began telling Mike about her visit to the ad agency
BACKGROUND:
Located one block off the town’s main road, J&M Coffee (store’s name) is convenient for most people traveling from the northern suburbs to downtown. (It is about 20 minutes from downtown.) It offers a pleasant atmosphere with ample seating and parking (Mike had been an interior decorator) for sitting down or getting a cup of coffee quickly while rushing to work. The area is growing, and competition is minimal. The store’s sign had been developed by a graphics artist, a friend of June’s.
The store sells coffee, cappuccino, bagels, croissants, tea, latte, cookies, toast, juice, and soda. June and Mike are cappuccino aficionados with no small-business experience. They started the business with their life savings (no borrowing). They spent six months researching the market: demographics, competition, visiting stores in other areas, etc.
I attached the instructions for the assignment and what you have to do