CMA CASE - Belldihide Study

BELLDIHIDE
CORPORATION
COMPANY BACKGROU
Belldihide is an organization that sells a range of household and
bathroom fitting via salesmen to specialist stores
Belldihide marketing division is now considering embarking on a

comprehensive advertising campaign on its most popular product,
a mini-hot water heater.
COMPANY DATA
Current Sales $50,000,000.00
Incremental Sales $20,000,000.00
Sales Response Rate 5
Saturation level of sales $150,000,000.00
Losses rate per period (if no advertising is made) 0.08

1. ESTIMATED ADVERTISING BUDGET USING PROJECTED
CONTRIBUTION OF ADVERTISING TO SALES METHOD
2. ADVERTISING EXPENDITURE TO GENERATE THE TARGET LEVEL
OF INCREMENTAL SALES USING THE VIDAL-WOLF MODEL.
Constants
r = sales response constant (sales generated for every dollar spent on advertising) 5
M = saturation level of sales (maximum sales potential of a product) $150,000,000.00

s = sales decay constant (sales lost per period) 0.08

Variables:
S = current Sales $50,000,000.00
A = rate of advertising expenditure ????
dS/dT = incremental sales per period $ 20,000,000.00
Equation:
dS/dT = r.A. ((M-S)/M) - sS
20,000,000 = 5 A ((150,000,000-50,000,000)/150,000,000) - 0.08(50,000,000)
20,000,000 = 5 A (.66666667) A - 4,000,000
20,000,000+4,000,000 = 3.33333335A
24,000,0000=3.33333335A
(24,000,000/3.33333335)=(3.33333335A/3.33333335)
A = $7,200,000
Advertising expenditure of $7.2M is required to generate the target level of incremental sales.
3. VIDAL-WOLF VS. ADVERTISING TO SALES
METHOD
The Vidal-Wolf model resulted to $7.2M advertising budget while the Projected
Contribution of Advertising to Sales Method derived $2.6M advertising budget.
The Vidal-Wolf model considers the function of four factors-advertising expenses;

constants expressing sales reactions on advertising; saturation level of the market
with advertised goods; and constants expressing the reduction of sales volume. It
measures how much of the additional revenue will be allotted to advertising to
generate the desired increase in sales. $7.2 M is 36% of $20M incremental sales so,
the net contribution margin to sales should be above 36% for the company to be
profitable.
The Projected Contribution of Advertising to Sales method advertising cost at 13%

is from managers and salesmen’s subjective estimates based on current period.
Because it is subjective, result is also subjective.
4. MINIMUM SPEND REQUIRED TO MAINTAIN THE CURRENT LEVEL
OF SALES FOR THE PRODUCT
Minimum spend of $1.2M for advertising in order to maintain $50M current level sales
5. HOW CAN BASIL HELP THE AD MANAGER IN
SELECTING THE APPROPRIATE MEDIA FOR THE
ADVERTISING CAMPAIGN
Basil Tucker can measure the effective reach. This tracks the percentage of the
possible audience that sees the advertisement and how often that advertisement is
viewed. This will provide the advertising manager and insight on the quality of the
exposure to the ad. Basil can recommend to use social media advertising platforms
to save on advertising.
The company could partner with social media influencers by providing them with
the products that they could share to their vlog where they can give reviews. They
could also enter into an ex-deal agreement with primetime TV shows where their
products can be given away in exchange for free advertising exposure. They could
also arrange with malls where they could showcase and demonstrate the use of the
products.
SENSITIVITY ANALYSIS
r = sales response constant (sales generated for every dollar spent on advertising) 0.55
M = saturation level of sales (maximum sales potential of a product) $150,000,000.00

s = sales decay constant (sales lost per period) 0.1

Variables:
S = current Sales $50,000,000.00
A = rate of advertising expenditure ????
dS/dT = incremental sales per period $ 20,000,000.00
Equation:
dS/dT = r.A. ((M-S)/M) - sS
20,000,000 = 0.55 A ((150,000,000-50,000,000)/150,000,000) - 0.10(50,000,000)
20,000,000 = 0.55A (.66666667) A - 5,000,000
20,000,000+5,000,000 = .36666667A
25,000,0000=.36666667A
(25,000,000/.36666667)=(.36666667A/.36666667)
A = $68,181,817
For Belldihide to achieve the $20M incremental sales, they will have to spend $68.1M on advertising.
Because of the low response rate, they should not proceed with the comprehensive advertising campaign.
SPREADSHEET CALCULATIONS
Microsoft Excel
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BELLDIHIDE

Belldihide marketing division is now considering embarking on a

Current Sales $50,000,000.00

Incremental Sales $20,000,000.00

Sales Response Rate 5

Saturation level of sales $150,000,000.00

Losses rate per period (if no advertising is made) 0.08

M = saturation level of sales (maximum sales potential of a product) $150,000,000.00

The Vidal-Wolf model considers the function of four factors-advertising expenses;

The Projected Contribution of Advertising to Sales method advertising cost at 13%

M = saturation level of sales (maximum sales potential of a product) $150,000,000.00

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