Introduction
This Web site proposes an advertising budget for the introduction of Solo, Solonex's new brand of liquid laundry detergent, through the use of a multiple criteria budgeting model which is based on both short-term and long-term criteria.
THE SITUATION
For the last several years, the sales of Solclean, Kemper Corporation's brand of liquid laundry detergent manufactured by Solonex, Inc., had declined precipitously. KTL, an advertising agency that works on the Solclean account, found that there was an open opportunity for Solonex in the low-price segment of the market as this segment continued to gain more popularity. Solonex, consequnetly, decided to discontinue the Solclean brand and introduced Solo as a less expensive brand to compete in the lower-price segment instead. Solo's price of $1.39 per 64 fluid ounces (manufacturing price of $22.68) brought it down to the same level as most generic competitors with a retailer's price that was only 81% of the low-cost competitors' prices. Apart from the price, Solonex also considered other issues regarding a new product introduction from the liquid detergent industry to the retailers and the packaging. The MRD people at Solonex predicted that the liquid detergent industry's sales for the fiscal 2008 would going to be 14.335 million units. These sales would come from 77.4 % of all U.S. consumers who use the product category at least one time during a given year with a purchasing frequency of 2.1 bottles/ quarter. Regarding distribution, 43% of all retail outlets that could carry liquid detergents agreed to carry the Solo brand. And last of all, Solo's packaging was rated 6.8 out of 10 by four account managers at KTL.
THE METHOD
To determine the advertising budget for the introduction of Solo, Kemper requires that both short-term and long-term projections of profitability of this new brand be conducted before any specifics of the product introduction including the advertising budget be considered. In this case, the short-term planning, which focuses on the first 13 weeks of the fiscal year, involves the development of a new-product introduction model to predict the brand awareness, initial purchase rate, repeat purchase rate and, ultimately, the market share. The long-term planning, on the other hand, focuses on the analysis of financial factors such as the net profit and the net present value over the period of three years.