Blue Mountain Coffee Case

611 Words Apr 3rd, 2013 3 Pages
Blue Mountain Coffee case
In this case we use the adbudg model. The adbudg model is a sales response model which suggests the optimal level of advertising and when to advertise e.g. how to allocate the advertising budget, do we use it all in the first quarter, how much should we spend etc.
In this case we will determine the optimal budget for Blue Mountain Coffee. Their current advertising budget is 8m a year. However, by using the adbudg model we will see if this is the appropriate amount to spend on a yearly basis or if there should be an increased budget.
Scenario 1
The model analyses quarter by quarter. As off now the budget and expected revenue is as follows:

As we can see the budget is allocated equally in each quarter, with
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Many managers are pressed with getting results in a few quarters. With the adbudg model we can adjust for this by changing the weight of the short term profit and/or short term market share.
If we change short term profit weight to 2, like the following:

And hereafter run solver, we get the following results:

If we analyze the numbers now we see that there are small changes, by the end of the first year, in Q4 we get $15.2m instead of $15.1, a subtle change but still a faster result. The market share is 6.46% in Q3 instead of 6.40%. This way we can get results faster. However, I would not recommend the advertising manager to do this as it gives a poorer end result. By the end of the third year we get a result of $57.1m in profit where we made $57.2m if we weight short term the same as long term. Also the final market share is 7.65% instead of 7.66%, a small change albeit, but still no reason to choose scenario 3 over scenario 2.
In summary: My decision in this case is that I would choose scenario 2 and discard scenario 1 and
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