1707

Problem

Hamilton Tucker, president of Tucker Manufacturing Company, is concerned about the seat-of-the-pants approach managers use in allocating the marketing budget. He cites the Midwest and the East as examples. The firm increased its demand-stimulating expenditures (for example, advertising, personal selling) in the Midwest by 20 percent, but sales climbed only 6 percent last year. In contrast, demandstimulating expenditures were cut by 17 percent in the East, and sales dropped by 22 percent. Hamilton would like you to assist the Midwestern and Eastern regional managers in allocating their funds next year. Carefully outline the approach you would follow.

Step-by-step solution

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Step 1/4

Seat-of-the-pants approach refers to decision making process in which one makes decision using institution and experience rather than a plan.

Step 2/4

But before producing the product company is required to do research about the requirements and preference of the customers as well as the competition analysis.

Step 3/4

The company is required to make a breakeven analysis before making a decision on increasing and decreasing the marketing budget.

For example, if company is thinking of increasing the marketing budget by 25 percent, it is sure from that sales will not increase by 25 percent (from the experience).

Thus, company needs to analyze the percentage increase in sales that will create a situation of no profit and no loss.

Step 4/4

The same is true about the decision of decreasing the marketing budget.

It is not acceptable to an organization that cutting a marketing budget by $20,000 creates a decrease in profit by $30,000.

Thus, situation is required to be thoroughly analyzed before going for any decision.