Craft Marine Corporation Case Study

Craft Marine Corporation Case

Statement of Major Issue:

Craft Marine is a successful boat company looking to continue its momentum from previous years into the coming year, 2002. The company has recently spent considerable amounts of money on developing new aspects of its ever-growing product line. The major issue we now face is to develop a new advertising budget for 2002 and determine how that budget is best allocated amongst the product set, advertising outlets, and under which time frame.

Objectives:

The objective to determine an optimal advertising budget and mix will be based on the following objectives

1. Showcase product development activities undertaken in 2001
2. Increase top-of-mind boat awareness among boat owners and those likely to become involved in boating
3. Maintain the sales growth momentum from the previous year (+15%)

In 2001, the company had spent $600,000 on their advertising budget, which equated to approximately 0.50% of total sales. This was on the very low side compared to industry averages of .70% and 0.90% of sales for the large pleasure boat segment. The marketing manager has indicated the desire to reach industry parity for their 2002 marketing budget. Assuming we spent approximately 0.80% which is in the middle of the large pleasure boat and the overall industry average, the overall budget for Craft Marine would need to be $1,000,000 for 2002, which represents a substantial increase from previous years. In the analysis below we will look at the financial implications of two separate alternatives, maintain the current advertising mix, or to increase the mix to 0.80%, which is closer to parity to the overall industry average.

Alternative 1: Maintain Current Advertising Mix

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Pros:

The benefits of this mix that it continues to grow the overall advertising budget consistent with the growth in sales, which has resulted in net profits after taxes in previous years. It will focus the advertisements in the national verticals which are lower cost compared to the general interest national magazines, and will directly target consumers who are likely boat enthusiasts, which will reach the buyers most likely to seek Craft Marine Boats.

Cons:

The downside to this strategy is that it does very little to showcase the product development activities that have been heavily invested in over the past year. Research shows that while quality of construction and performance are critical elements for prospective boat buyers, these features are difficult to properly convey through traditional print media. This type of benefit is best described by dealers or by word of mouth from other boat enthusiasts.

Alternative 2: Increase Marketing Mix to Parity to Industry & Adjust Overall Mix