Background Information

Clive, the owner of the Little Italy Pasta company, was still not happy. He had recently sacked Mitchell (who had since started a business in competition with Little Italy). And Clive had also given up using consultants and had instead hired Sue-Anne as his new marketing manager. Clive was now convinced that he needed a new marketing plan to achieve the $3m per annum profit he wanted within the next three years.

Clive did not plan to work forever and wanted to build his fortune fast. As part of hercontract agreement, Sue-Anne was able to establish her own marketing department,consisting of: Prue, Astrid and David.

Excerpts from the Management Meeting

Sue-Anne:

Astrid, what were the key findings of the market research with our customers?

Astrid:

The research showed that we have established good customer loyalty. Around 60% of our customers buy our products on a regular basis.

David:

What about non-customers?

Astrid:

Well, the figures arent as strong there. We have a less than 5% unprompted awareness and less than 10% prompted!

Prue:

Thats surprising after all the advertising that was done last year. But hang on didnt I see a brand awareness figure of 25%?

Sue-Anne:

That figure included both customers and non-customers, so the numbers a lot lower when we look at non-customers only.

David:

So is the sales growth a result of increased brand awareness or growing loyalty of existing customers?

Prue:

Its probably interrelated. A higher level of advertising will lead to increased loyalty, because the advertising is more noticeable by those customers, which then reinforces their initial purchase decision.

David:

So what youre saying is that we need to continue the advertising.

Sue-Anne:

Look the keys to success are going to be distribution, brand, and product range and quality in that order. Therefore, a level of advertising is always going to be important for brand building.

Astrid:

But how do we improve distribution? We already sell to 70% of suitable restaurants, cafes and delicatessens in the main cities.

David:

Well that gives us a great track record to expand nationally.

Prue:

Plus we can sell more product varieties to those existing stores. Like the new frippaloni our own pasta style to the world.

Sue-Anne:

Sure, we have lots of good ideas, but they all cost money. Each new product line will cost around $500,000 to bring to market. Interstate expansion is at least $1m per area to set up, and then another $500,000 per year to maintain.

David:

And on top of those costs, we need to combat Mitchells new pasta company. Its a sure bet that he will be targeting our retailers, because he knows many of them.

Sue-Anne:

Well, weve got to make sure that our retailers have a reason to stay with us namely a broad product range, a trusted name, loyal customers, and good trade promotion deals.

Their recent financial figures are as follows:

The break-down of their marketing expenditure for Year 3 was:

Question

Given these research results and the other information in the case, what marketing advice would you give them in order to achieve their financial goals?

\begin{tabular}{|c|c|c|c|} \hline Metric & Year 1 & Year 2 & Year 3 \\ \hline Sales ( $ms) & 7.4 & 8.2 & 10.8 \\ \hline Market share & 6.1% & 6.5% & 8.2% \\ \hline COGS($ms) & 2.2 & 2.5 & 3.2 \\ \hline Marketing (\$m's) & 1.4 & 1.5 & 3.5 \\ \hline Fixed Costs ($ms) & 2.6 & 2.7 & 2.9 \\ \hline Pre-tax profit (\$m's) & 1.2 & 1.5 & 1.2 \\ \hline Brand awareness & 16% & 17% & 25% \\ \hline \end{tabular} Marketing Salaries $500,000 Advertising $2,000,000 Trade Promotions $750,000 Sales Force Incentives/Bonuses $250,000 TOTAL $3,500,000