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There are many factors that must be taken into account in determining the type and level of marketing communications support to give a brand.  A key factor is what the company and brand can afford without making the brand financially unattractive.  As with decisions about the formula and price of a product, marketing managers typically develop alternative profit and loss scenarios in order to determine the impact of higher or lower levels of communications support on their brand.

Determining the Marketing Communications Budget

Let’s continue with the Ariadne project. You, the brand’s marketing manager, have thus far decided which version of the product to launch, and what price to charge retailers for it given that your best distribution option is an indirect channel involving key retailers such as Shoppers Drug Mart.  You have also adjusted your profit and loss statement to reflect the impact of the quantity discounts that these key retailers in your channel of distribution will likely earn.  Now you must finalize the marketing communications spending that the brand’s communications campaign will be based on.  You have two options given the brand’s marketing objective of becoming a solid number 2 or 3 in this already saturated market.  You can either spend at a comparable level to competition or you can spend more than competition.  You cannot spend less than competition since that would undermine Ariadne’s potential for achieving its marketing objective.

The financial estimates you have developed for Ariadne thus far have assumed that your communications spending will match competition, which you have estimated at $5.00 per case.  You are considering increasing this level by 20% to $6.00 per case. 

Revise your profit and loss statement for Ariadne B once more to establish whether increasing your communications spending from $5.00 to $6.00 per case is affordable.  Note that the sales volume estimate for Ariadne has been increased in the information provided below to reflect the increased demand expected for the brand as a result of having stronger communications support.

 

	Ariadne B Original Estimate	Ariadne B Revised Estimate 2	Ariadne B Revised Estimate 3
Estimated Total Annual Sales Volume (cases)	120,000	120,000	125,000
Estimated Price per case ($)	28.00	60,000 cases @ $29.88; 60,000 cases @ $28.39	62,500 cases @ $29.88; 62,500 cases @ $28.39
Total Fixed Costs ($)	750,000	750,000	750,000
Average Variable Cost per case ex. communications ($)	7.50	7.50	7.50
Average Variable Cost per case – communications ($)	5.00	5.00	6.00
Total Average Variable Cost per case ($)	12.50	12.50	$13.50

Record your revised profit and loss estimate for Ariadne B in the following chart:

	Ariadne B Original Estimate	Ariadne B Revised Estimate 2	Ariadne B Revised Estimate 3
Sales Revenue ($)	3,360,000	3,496,200
Total Fixed Costs ($)	750,000	750,000
Total Variable Costs ($)	1,500,000	1,500,000
Net Profit ($)	1,110,000	1,246,200
Profit Margin (%)	33.0	35.6

Based on the above financial estimates, should support spending for Ariadne be set at $5.00 per case or $6.00 per case?

Given your answer to the above question, what absolute level of marketing communications spending will the brand’s communication campaign be based on?