- Writing a Business Plan
- Financial Statements
- Business Forecasting
- Business Checklist
PART C - Advertising & Promotions
J&B recognizes the key to our success is through extensive promotion. In year one, we have budgeted $130,000 in advertising and promotions, $150,000 for year two and $170,000 for year three. These budgets will be distributed among newspapers, magazines, radio stations and the Internet. Below provides details on each of the selected media.
$90,000 in year one, $105,000 in year two, and $120,000 in year three has been allotted for newspaper advertising. In the United States, many of the 6,500 newspapers have sections called "Books, Tapes, and Software" and "Business Opportunities". It is under these sections that J&B plans to spend its newspaper advertising budget.
The decision to use newspaper advertising as our primary media is the result of several factors which include;
In year one, the first two months (March and April - 200W) will act as a Test Phase. During this period we plan to spend $5,000 per month to evaluate various ad messages. The purpose is to create and determine several ads that result in a response or call. The remaining ten months will see the Company invest $8,000 per month into its newspaper advertising campaign. In year two and three, our forecasted monthly cash outflow for newspaper advertising is expected to be $8,750 and $10,000 respectively.
The newspapers we have selected have a daily cost per thousand ranging between $0.41- $0.75 and a weekly (IE 6 days) cost per thousand ranging between $2.46 - $4.50 . (To be objective, however, the Company has used a $4.50 weekly cost per thousand in its forecasted financial statements and we will continue using this assumption in the figures below). A total first year newspaper advertising budget of $90,000 is expected to reach 20 million U.S. households ($90,000 / $4.50 per thousand x 1,000 persons = 20 million people). The exposure, however, has a capacity of 120 million (20,000,000 @ 6 possible viewings per week = 120 million exposures). We estimate the majority of potential customers will require between 3 or 4 exposures to the ad before calling to inquire about our business training product. As a result, the Company will advertise in each selected newspaper for a one week period - no longer or no shorter.
In year one, J&B's newspaper advertising objective is to receive one sale for every 3,400 household reached or .02941% of our reach. Management's past experience with advertising in these sections of the newspaper, resulted in sales of .07% of the number of household reached ( approximately 1 purchase for every 1,430 households reached). Since our product requires the use of a computer and the product in hard copy form is priced extremely high, we adjusted the past results (.07%) to reflect the number of individual either owning or having access to a computer. Furthermore, J&B has estimated that 41.5% of households either own a computer or have assess to a computer. Therefore, 41.5% multiplied by .07% equals .029% or approximately 1 sale per every 3400 households reached. As a result, we are forecasting that newspaper advertising will generate sales of 5,882 units during the first year of operation (20 million households reached x .02941% newspaper advertising objective = 5,882 unit sales in year one).
With more and more households purchasing computers each year, the Company has set higher newspaper advertising objectives for years two and three. Moreover, in year two the Company's newspaper advertising objective is 1 sale for every 3150 households reached (i.e. 03174% of all households reached). With a budget of $105,000, an advertising objective of 0.3174%, and a cost per thousand of $4.50, we expect newspaper advertising will generate sales of 7,407 units. ($105,000 newspaper budget * 1,000 persons / $4.50 cost per thousand * .03174% selling objective = 7,407 unit sales generated by newspaper advertising).
In year three, the Company's newspaper advertising objective is 1 sale for every 3100 households reached (i.e. 03225% of all households reached). With a budget of $120,000, an advertising objective of 0.3225%, and a cost per thousand of $4.50, we expect newspaper advertising will generate sales of 8,602 units. ( $120,000 newspaper budget * 1,000 persons / $4.50 cost per thousand * .03225% selling objective = 8,602 unit sales generated by newspaper advertising).
The Company has allotted $30,000, $35,000, and $40,000 to its magazine advertising campaign for years one, two, and three respectively. We will NOT promote in large magazines such as Business & You Magazine, Hi-Business Magazine, and Entrepreneurs and You Magazine for the following reasons.
Our strategy is to buy advertising space in small magazines that target aspiring entrepreneurs and computer users. The selected magazines must have monthly circulations and a minimum readership ranging between 75,000 and 125,000 people. Magazines sharing these characteristics usually have lower advertising prices as well as a lower cost per thousand.
The Company has budgeted $10,000 each year for radio promotions.. This budget will be spent on a professional copywriter, radio productions, production testing, and promotional materials. J&B does NOT expect to pay for its radio air time (advertising) since we plan to utilize something known as P.I. Advertising.
P.I. stands for "Per Inquiry", and is a method of advertising most generally associated with radio broadcasting. The advantages of P.I. advertising favors the selling organization. Furthermore, there is no financial risk in placing a P.I. advertisement and by using this kind of advertising arrangement, the seller only pays for the sales the radio ad produces. It is similar to the barter system whereby a radio station "gives" a company free advertising space in return for a percentage of the profits generated by the advertisements. The profit percentage is usually between 50 or 60 percent.
Over 13,000 radio stations are operating in the United States. J&B will first make a list of the cities in which it wants to target. We will then select all the radios stations that transmit to these cities and whose programming best targets J&B's customer profile. Each selected radio station will be contacted to determine whether or not they support P.I. advertising. Those supporting this type of advertising will be briefly informed about our product, its selling price and its profit margins. A media kit and a P.I. contract will be sent to all radio stations interested in entertaining this arrangement. Those stations having access to the Internet will be given a password so that they can instantly view the media kit, P.I. contract, and the actual product. When a contract is signed, two - thirty second and two - sixty second advertisements will be produced locally and distributed for airing.
The above description of P.I. advertising is rather simplistic, however, this initiative requires extensive planning and negotiating. Contracts usually are revised more than twice and advertisements are usually aired one or two months after the initial signing.
On a lighter side, P.I. advertising can prove extremely profitable, since radio stations air these campaigns during the most "effective" periods. By doing so, it increases the likelihood of generating higher sales for the company, thus increasing their revenue.
The Company's P.I. advertising objectives are as follows;
Since our business training product is offered over the Internet and it lists all radio stations in the United States, we can use it to gain leverage when developing our P.I. Advertising contracts. Moreover, J&B can offer consumers of our product in Internet form a direct link to any radio station's web site address. We simply develop a hypertext link to the radio station web page. When customers click on the name of the radio station, they will immediately leave J&B's web site and be transferred to the radio station's web site.
The Internet will also play an important role in our advertising campaign. We plan to develop a web site describing the product's features and benefits. Our web site address will be promoted in our newspaper advertisements, through Internet newsgroups, and through Internet Classified Ads. The Company also plans to research the economic benefits of advertising on Internet Search Engines
A web site will also "legitimize" the Company and its product; thus lending itself well to those who may feel skeptical about our offering. In addition, those individuals logging into our web site will have more product knowledge relative to those who are not connected to the Internet. This knowledge is expected to reduce the "phone time" needed to close the sale, thus reducing the Company's per unit variable costs (IE telephone expenses).
Advertising and Promotions Summary:
Newspaper adverting will act as the Company's main promotional vehicle and is expected to generate 5,882 unit sales in year one, 7,407 unit sales in year two and 8,602 unit sales in year three. Magazine advertising, radio advertising and Internet advertising will act as our secondary promotional vehicles. These three promotional initiatives are expected to generate 2,000 unit sales in year one, 2,500 unit sales in year two, and 3,000 unit sales in year three. As a result, the Company is forecasting 7,882 total unit sales in year one, 9,707 total unit sales in year two and 11,602 total unit sales in year three.
As mentioned earlier, J&B's total advertising & promotions budget for year one, two and three is $130,000, $150,000, and $170,000 respectively. Although the Company's advertising budget will remain constant each month during the three year forecasted period, the resulting sales are estimated to vary from month to month. Below illustrates the percentages at which sales are expected to materialize each month during the first three years of operation. Please note; these percentages have been used in the Company's Forecasted Cash-Flow Statements.
|MONTH||Year 1||Year 2||Year 3|
Notice sales are expected to be lower for May and June of year 1 since this period is considered our testing phase. Also, notice the sales percentage forecasts for year two and year three are the same. The main considerations used in forecasting the above monthly sales percentage include, the seasons, employment periods, and pre/post holiday conditions
This concludes J&B's Marketing section of the Business Plan.