Volume Discounts and Promotional Allowances

Volume Discounts and Promotional Allowances

Each period we established the MSRP, and then we focused on the overall pricing strategy which included volume discounts and promotional allowances. We, as brand managers, thought sharing discounts and promotions to reward large volume customers, would improve our strategy, as a result profits and stocks failed horribly. With the over the counter cold remedy market, it is common industry practice for drug manufacturers to recommend to retailers what their suggested retail price for their product. However, the final determination of the final product price was made with the consumer in mind instead of profits and stock prices.

We lowered prices for manufacturers in order to provide an additional volume discount to retailers based on the volume quantities of products purchased (James, Kinnear & Deighan 2014). Once the volume discounts were established, there was little to no changes during the entire simulation. The strong brand equity and high demand for the Allround product line resulted in heavy discounting which lead to an eroded profitability. Consequently, pricing was managed primarily at the suggested retail price level once discounts were established.

Advertising Budget

Advertising budget for the Allround brand differed in the different periods of the simulation. Essentially, the total advertising budget was $15 million for the first period, which increased to $16 million for the second period. The budgets for the other periods in a successive manner were $15 million, $15 million, $10 million, $12.6 million, $13 million, $15 million and $15 million. These budgets were relatively similar because of the bigger size of the targeted markets for Allround. Furthermore, since the product was in its maturity stage, it had benefited immensely from economies of scale, a factor that informed the decisions not to increase the advertisement budget substantially.

For the new Allround+ brand, the advertising budget for the first and second periods was $6 million. This gradually increased to $6.5 million in the third and fourth periods while the figure reduced to $6.3 million for the fifth and sixth periods. We decided to increase the advertisement budget for Allround+ since we were still not getting the results that we required from the new product in terms of sales and revenues.

Since we expected to increase the market share and keep abreast of competitors, we also decided to increase the advertisement budget for Allround+ as we progressed through the periods. In addition, there was need to increase the advertising budget for the new product during the successive period in order to create brand awareness among the target market which mainly comprised of children suffering from colds and flu. In deciding the advertisement budget, some of the factors that warranted consideration included the competitive atmosphere, the available funds and the goal of the advertising, which is primarily to increase the awareness of potential customers about the existence of the brands.

The promotion allowance for both brands also had some variations. For the first five periods, the promotion allowance for Allround dropped substantially from 17.0% in the first period to 15.5%, 13.5%, 10.5% and 10.5% in succession. Since many consumers were already aware of this product, we decided that it was not necessary to allocate a majority of the advertisement budget to promotion allowance. For the sixth and seventh periods, the promotion allowance increased to 16.0% while for the period the allowance was 16.1%.

For the Allround+ brand, we decided to allocate promotion allowances in an ascending order, from 10% during the first period of simulation followed by 14.5%, 16% and 17.4% before reducing it to 13.0%. The decision to allocate the promotion allowances in an increasing manner stemmed from the rationale that since the brand was new and in the introduction stage, it would significantly benefit from increased promotion allowance geared towards enhancing brand awareness among the targeted consumers.

Selected Advertising Agency

The advertisement agency chosen for the Allround Brands during all the periods except the third period was Brewster, Maxwell, & Wheeler. For the third period, the agency chosen was Sully and Rogers. We thought that by reducing our advertising cost to a particular agency that we would increase sales for that period. However, we found that cheaper does not always mean better. The rationale for choosing Brewster, Maxwell, & Wheeler stemmed from the fact that the agency is a high cost agency; therefore, it is likely to generate higher quality ads (Kurtz & Boone, 2014). It was responsible for creating, handling and planning all the advertising initiatives at the organization. Moreover, the agency had the responsibility of handling overall branding strategies as well as sales promotions for the organization. As part of the advertising campaign, Brewster, Maxwell, & Wheeler also produced television and radio commercials, conducted mobile marketing, out of home advertising and online advertising. All these forms of advertising are essential for guaranteeing the success of the brands (Kotler & Keller, 2012).

Similarly, for the Allround+, Brewster, Maxwell, & Wheeler was the only advertising agency during all the periods. The team reasoned that the advertising agency would be responsible for commissioning surveys and market research, booking advertising time and providing other services that aid the organization to succeed in the targeted market. It also became apparent that the agency was highly knowledgeable about media placement and other aspects of business strategy, a factor that would be of great benefit to the organization and the Allround+ Brands. The advertisement and logo designed in period 2 can be viewed in Appendix D

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