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Table of Contents
Abstract Introduction Advertising Media Planning The Company The Product Analysis Quarterly Consumer Promotions Evaluation Increasing Advertising Cost Summary References
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For this purpose. This assignment analyses the trend of the revenue according the advertising expenditure. Our analysis examines the data of 20 quarter years starting from first quarter of 2005. we have selected the product. Nowadays for any business. This product has a direct competition from Horlicks and Viva. If any business. Nestomalt for the analysis. small or big. one of the steps that they need to do is to select the right advertisement strategy to promote the business. while competing with the other hot drinks like coffee.Abstract The main objective of this assignment is to study the relationship between advertising expenditure and generated revenue due to the advertising. every rupee is precious. tea and Milk (Share of Throat). is ready to get the word out about its business. In summary this assignment presents a real business scenario of a product‟s sales behaviour according the advertisement expenditure. Businesses want to get the most return for their spending and maximize the wealth of their product and services. . During this study we have also come across and explored the effect of advertising spends during consumer promotions to sales volumes of Nestomalt.
newspapers. The business organizations need to find clear answers for the questions such as How much to spend. billboards. Nowadays. quantify. The difference between the two indicates whether the planned action is advisable. Advertising is a powerful tool which is capable of reaching to the far out masses. 2. It's probably the toughest part of any business. Increasing the usage of a certain product and hence acquiring more orders. Advertising informs the buyers about the availability of a certain product or service in the market and encourages them to buy it. quantifies. These are the benefits. and add all the positive factors. wall paintings. In order to evaluate the success of the advertising. magazines. business environment. To obtain feedback from customers regarding a certain product.Introduction Advertising Advertising is the name given to the process of commercial promotion of goods and services in order to increase its sales. we find many advertisements on the internet too. what message to send. To indicate introduction of new products or replacement of old ones. . Creating new customers and increasing brand recognition. The main objectives of advertising are: 1. The real trick to doing a cost benefit analysis well is making sure you include all the costs and all the benefits and properly quantify them. new competitive products and other factors which affect the market condition also need to be considered during this cost benefit analysis. and subtracts all the negatives. a cost benefit analysis is used to find. Then it identifies. by the word-of-mouth and in many other ways. the costs. Other factors such as the consumer behaviours. 4. where to place the advertisements. and to who? Advertising can be done by means of a number of mediums like television. how often. 3. These advertisements in most cases have been successfully in connecting the user with the information he requires and the details of the organizations‟ products and services. Internet.
If the organization is new in business. If advertising budget is not spent well. The first phase of any advertisement campaign always requires a clearly set target for the allocated spending.. The percentage amount will also vary depending on the organization‟s profit margins. One of the main reasons most businesses like this form of budgeting is the safety factor.Advertising that doesn't work is like an employee that doesn't work. monthly or quarterly expense. Since major part of advertising budget is spent on media. the history of both the costs and results of the advertisements will be readily available. When the time comes to run this promotion again. it is important to select best media vehicle to advertise. industry standards can be used from associations or trade magazines devoted to the same type of business. industry. Rather than having to "predict" the future and adjust. . Creating a tracking sheet for each and every ad you produce is very much useful for the study of the performed advertisement campaigns. which can effectively communicate to the target audience. Depending on the business this amount may be a daily.it's costly. weekly. location and market size. or vain. The organization must be able to track whether the ad is working or not and why. a specific percentage of the previous year‟s sale amount is allocated for advertising. The down side is an opportunity to capitalize on changing events or customer trends are often lost due to the restrictions of the budget which is tied to a set amount. not the current business climate. companies may not achieve their marketing objectives. In general.. they are always dealing with a known amount.
KIT KAT & POLO with an annual turn over of 14 bio LKR. Stationary and Miscellaneous items including match sticks. Ready to Drink (RTD) Milo. It was founded in 1866 by Henri Nestle as a baby food company. Nestle was established during the middle of the 20 th century. of Vevey.A. Nan. including Nescafe. Today it operates in 130 countries and territories across the Globe with 475 factories employing 250. MILKMAID. Nescafe Ice and Confectionary items Kit Kat & Polo are also part of the portfolio. NAN.The Company Nestle Lanka PLC is part of Nestle S. Initially Marketing Food. Nestle mostly concentrates on its core food business. Nescafe is for a different taste segment and Hi calcium Nutren for the older generation. Starting from infant formula in Lactogen. It is a public quoted company. . MILO. Nestle markets products from birth to death of a human being. Cerelac & Nestum. San Pellegrino. later it became the Anglo Dutch company and marketed a diverse range of products including Food. overlooks the Maldivian operation and exports coconut Milk powder to over 50 countries in retail and industrial packs. Nido and Milo to name a few of the 10. NESCAFE. NESTUM. MAGGI. Maggi. Cosmetics & Pharmaceuticals. 3+ and milks Nespray and Milkmaid.A. NESPRAY 1+.000 products/ brands it owns. Milkmaid. Nespray Milk shakes. they are used as food ingredients or manufacturing ingredients. The leading local Brands are NESTOMALT. Switzerland. Buitoni. 90% of the shares are held by Nestle S. Nutritious drinks. India & Bangladesh. Nestle Lanka manufactures and imports Food products in Sri Lanka. Kit Kat. NESPRAY. CERELAC. In 1965 it took over the Milk board operated Sweetened Condensed Milk factory in Polonnaruwa. Milo and Nestomalt are also part of the portfolio. through a range of Globally accepted Brands. CHF (Swiss francs).. NUTREN. In 1981 it set up its own factory in Pannala manufacturing up to 70% of its products and helping the local farming community immensely. to growing up milk in Nespray 1+ . In Sri Lanka. and the balance held by the public. LACTOGEN. NESTEA.000 people with an annual turnover of 15 Bio. Today it boasts of the finest Nestle factory in the South Asian Region (SAR) which includes Sri Lanka. Indulgence products.
and the latest is “Keep on running” with Nestomalt. “Nestomalt for active life style”. Most of the products are market leaders in their respective categories except for a few. The Nestle seal of guarantee is an expression of this promise to the consumer. Distribution and delivery to customers and consumers on time. The company also purchases around 60 Mio Coconuts per annum and earns 2 Bio LKR as foreign exchange. Marketing. across the length and breadth of the country. Viva and Horlicks are the main competitors for Nestomalt and both the products are marketed by Glaxo Smithkline. It has one of the best sales forces in the country who are highly motivated and focused on achieving ambitious results/Objectives of the Company. LKR per annum which gives a tremendous boost to the local economy. irrespective of their age. The company has a very close relationship with 10. Nestomalt was introduced to the Sri Lankan market in 1960. Now. Then it came up with few new strategies and changed its position to “first cup for the day”. The company aims to create value that can be sustained over the long term by offering people a wide variety of Quality products at affordable prices. In the year of 2003. Fontera Lanka launched Anchor Power Malt as a competitive brand for Nestomalt. Anchor Power Malt is no more in the present market. The Product Nestomalt is a product of Nestle Lanka which is a malted food drink and considered as the flagship brand of the company as it contributes to almost sixty five percent of the company revenue. Earlier it was positioned as a drink for patients in consumer mind.The products marketed by the company are mostly mass market products and every Sri Lankan. They in turn earn around 900 Mio. is a potential customer. In this year it celebrates its fiftieth anniversary with a mega promotion for their consumers. . Nestomalt is the market leader in malted drink category and enjoy the largest portion of the market share (Seventy four percent).000 milk farmers who supply the majority of the milk required for production. It provides farmers with much needed technical support to increase productivity and supply quality milk to the company. The strength of the company is its Production. location or walk of life. because of clever market strategies used by Nestomalt. But.
782 Graph 1.495 Q1 20.904 2009 Q2 Q3 33.445 27.850 7.150 7.100 31.815 Q4 25.175 8.040 7.403 2006 Q2 Q3 20.650 8. t Xt Yt t Xt Yt Q1 16.240 2010 Q1 25.445 7.050 20.010 8.015 17.Analysis Quarterly Following data set (Table 1) of quarterly figures from the year 2005 to 2010 can be plotted on a scatter diagram.Scatter diagram .868 2008 Q2 Q3 34.040 7.783 Q1 27.492 7.075 7.605 8.029 Q1 20.829 Q4 20.980 7.645 8.353 2005 Q2 Q3 18.628 7.105 7.145 8. Table 1.500 24.966 Q4 16.560 8.490 8.126 Q1 21.450 8.000 8.395 2007 Q2 Q3 21.054 Q4 13.025 7.635 Q4 10.
243 18. four outliers can be identified.605 20.Y avg 133 (268) (28) (261) 230 144 8 (67) 344 129 (81) (114) 70 (401) 114 158 (113) 0 xt*yt -699.570.761 107. consumer promotions were carried out in the entire three months of the quarters.126 8.105 33.980 27.888 495.628 -506.043 25.324) (5.700.000 20.145 18.399) (1.528 12.096. Advertising expenses in '000 Yt.X avg (5. (25.734 1.047.843 11.When we analyze Graph 1.040 10.645.175 21. Ho: β1=0.445 27.010 8.206 (954) 0 yt=Y t .919 906.790 21.461 118.612 55.995 20.940.153 -194.677 981. So we have taken out those four outliers from the data set in order to determine the relationship between Sales and Advertising of Nestomalt.650 25.8.029 12.614. there is a relationship between Advertising and Sales .075 16. Because of this they have to change themselves from the normal routine to accommodate this.495 8.560 13. Alternative Hypothesis Lets assume the best fit line as.015 17.294) 12. Null Hypothesis HA: β1≠0.025 7.349) (839) (7.249) (1.829 8.949 4.635 8.196 38.593 -6.399 Yt 8.454.738 xt^2 27.324 19. Xt.556.912 704. (21.193 1. Hypothesis can be formulated as.450. t 2005 Q1 Q2 Q3 Q4 2006 Q1 Q2 Q3 Q4 2007 Q1 Q2 Q3 Q4 2008 Q3 Q4 2009 Q2 Q3 Q4 Total Ave Xt 16.500 24. (34.744 71.046 6.251 4.they have introduce GLOBE system to the entire worldwide network to amalgamate worldwide transactions and purchases and through this they have introduced three centralized negotiation centres for regional transactions.902 613.371.776 101 3.826 4. In the first quarter of both 2009 and 2010.737 145.324 1.820.194 yt^2 17.451 676. there is no relationship between Advertising and Sales .509.537 27.958.714 773 68.966 7.783 134.419) 5.353 1.395) and respectively figures of 2008Q1.563.723 607.478 16.929 160. 2008Q2.652 10.628 7.According to Nestle in the first half of 2008.353).029 7.566. 2009Q1 and 2010Q1.991 12.636 13.419 10.384) (4.050 20.357.229 7.7.403).671 33.736 92.868 7.326 120.375.040 7.807.054 7.942 127.815 7.795 67 4. They are (20.490.987.608. Sales volume in Metric Tons Table 2.118 10.641 (11.451 9.325 910.150 20.694 6.850 31.904 7.492).8.896 xt=X t .100.832 .8.573 1.445 363.254) (3. Yt = β0 +β1 Xt Where.275 52.782 7.640 -322.240 8. It is an exceptional situation compared to normal behaviour.997 -262.526.
β1: gradient/slope=( Xt *Yt)/(Xt^2)=0.527 Therefore the best fit line.err) =[(∑ ℮t^2)/((n-k) (∑ Xt ^2))]^ 1/2 Degree of freedom (n-k) = 17 . the relationship exist between two variables is POSITIVE. Standard Error (Std.2 ( variables)= 15 .(β1*Avg Xt))=7.017 Xt As the Gradient is POSITIVE. Graph 2.017 β 0: intercept =(Avg Yt . Yt = 7527 + 0.
712 36.178 581 540 209 16.126 7.837 7.err) = 2.783 et = Yt .062 7.445 27.102 Therefore.003 8.Yn 224 (209) 47 (171) 254 167 23 61 245 127 (137) (190) (96) (206) (93) 51 (96) et^2 50.495 8.821 7.632 9.050 20.635 7.445 Yt Yn = B0+B1Xt 7. Std.336 9.729 .782 8.240 7.972 7.040 514 3.879 7.857 43.040 7.103 8. That means there is a statistically significant relationship between sales volume and advertising cost.029 7.052 43.873 8.150 20.428 270 182.500 24.883 16.952 7.805 7.898 8.899 3 3.249 18.729 Yn .980 27.533 Degree of freedom at 15 with 5% level of confidence.277 9.829 7.399 5.872 8.768 7.529 8.995 8.881 7.701 7.605 20.284 425.194 64. TSS = ESS = RSS = 607.Y avg)^2 8.850 31.868 7.904 7.010 8.145 18.560 13.131) t ratio is outside the above range therefore the null hypothesis is rejected.Table 3. Xt 16.175 21.054 7.000 20. critical t value= 2.131 ≤ t ≤ 2.102 425.err = 0.181 29.075 16.878 27.815 7.136 5.105 33. p (-2.650 25.Yt Avg (91) (58) (74) (90) (24) (23) (14) (128) 99 2 56 77 166 (195) 208 107 (16) (0) (Yn .192 42.628 7. TSS = ESS+RSS Where.706 2.550 8.007 t ratio (β1 /std .675 28.582 37.193 3.723 59.015 17.805 8.131 Where.040 10.060 11.886 2.966 7.832 182.025 7.
Summary According to the above facts and figures Nestomalt have to increase their advertising spends annually in order to remain as the market leader in the malted food drink category. The degree of association between advertisement expenditure and sales is represented by coefficient of correlation. So regression line is not much fit to the data. And also as the leader in the category always Nestomalt should come up with new strategies to grow the category and win the majority percentage of that growth. household penetration grown by double digits increasing it up to 36% within on year. premium pricing opportunity and indirect monopoly situation because Viva and Horlicks are paying a government tax as powder is imported for them (Nestomalt is locally produced). R ^ 2 (ESS/TSS) = 0. Also it helps to prevent new entrants to the market indirectly.299 This means that 30% of the total variation in the Sales volumes is explained by the Advertising spends. Denoted by r. In late 2002 before Powermalt launched.55 This means that there is a weak association or correlation between Sales and Advertising spend. Maliban biscuit is a classic example for that as Munchee (CBL) gain market . In other words. Nestomalt is enjoying super normal profits. Advertising spends and Sales volumes vary together 55% of the time.Lets consider the Coefficient of determination (R^2) to see how well the line fits the scatter plot. r ((R^2)^ ½) = 0. Currently household penetration is about 49% and Nestomalt is the market leader with 73% share. household penetration of malt food category was around 25%. There are examples for well established brands to loose their position because of withdrawing advertising due to prevailing position in the category/market.After its launch and due to high advertising spends in the category in 2003. Viva is an aggressive player in the category in terms of spends in advertising but always follows Nestomalt strategies.
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