INDIAN INSTITUTE OF MANAGEMENT INDORE

Marketing ManagementII

Case Analysis

Advertising Experiments At the Ohio Art Company

Section C - Group 01

Submitted by

AYUSH JAISWAL BHAGAT OMKAR BHIMRAO K MANOHAR KUMAR VIKASH RAJLAXMI CHOUDHURY SARTHAK SRIVASTAVA

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Company Background The Ohio Art Company is an American manufacturing company founded in 1908. Based in Bryan, Ohio, the company is principally engaged in two lines of business. The first line of business is the sales, marketing and distribution of toys including Etch A Sketch and Betty Spaghetty. The second line of business is the companys Diversified Product segments which manufactures custom metal lithography for food container and speciality premium markets.About 25 % of the firms revenues are derived from sale of toys for writing and drawing. Product Portfolio

Distribution Channels

Wal-Mart Toys"R"US Target Speciality store Online sales

Highest market share of about 25% 17% of market share 12% of market share 20% of market share revenue of $1.3 billion of overall toy sales

In order to avoid conflict in distribution channels, many retailers chose to sell unique and customised toys. The Ohio Art Company also designed specific toys for speciality stores.

Immediate Concern of the Company Is it justified to allocate a $ 2 million budget of national advertising campaigns for Etch A sketch and Betty Spaghetty? How will Ohio Art company justify the shelf space allotted to Betty Spaghetty to the merchandise managers?

Comparative Study of the Advertising Experiments

Factors Test City Control Cities Duration Time Period Mode of communication Shows

Etch A Sketch Experiment Cincinnati Charleston, Cleveland, Indianapolis, Pittsburg (4) 3 weeks November 27 to December 16, 2006 TV commercials Morning and evening talk shows, daytime soaps, evening news program 3.7% of population in Cincinnati Adults and kids $30,150 $75,000 310 58% 36%

Betty Spaghetty Experiment Phoenix, Arizona California (1) 4 weeks June 17 to July 14, 2007 TV and Radio Commercials Cable channels like Nickelodeon and Cartoon Network; radio commercials on morning & evening commutes 1.8% of population in Phoenix Girls aged 2 -11 years $39,522 $150,000 664 56% 36%

Reach of each commercial Target Audience Media Spend Cost of Developing ads GRP Average gross margin Average Retail Margin

Analysis of Advertising Experiment Data of Etch A Sketch Considering the fact that November and December were peak sales season for Etch A Sketch sales, the experiment data can be analysed in the following ways: Directly evaluating sales data of Cincinnati pre and post the advertising was done : This could provide ambiguous results as the November and December months are also the peak sales period of toys. The growth in sales cannot be directly related to the advertisements as many other factors could be influencing the sales. Hence there is a need to have a control group in order to compare the sales data. Directly evaluating the difference between November 2006 and December 2006 in Cincinnati:

Even though there is a comparable increase in sales in December, this is not a advisable method to capture the effect of advertisement as the seasonality is not being captured. Comparing sales in Cincinnati during December 2006 to the corresponding sales in other 4 control cities: It is seen that the weekly sales growth in CINN is 3%-5% higher during the peak week than control cities. But still the difference in growth rate is not substantial enough to reach a conclusion
100.00% 50.00% 0.00% 1 -50.00% -100.00% 2 3 4 weekly growth rate in CINN weekly growth rate in control cities

Adjusting for seasonality in December 2006 sales using December 2005 EAS sales before performing analysis
The complete sales data of December 2005 is unavailable. Sales data only from third week of December 2006 is available, which restricted the analysis.

On comparing the sales of December 2005 with December 2006 it was found that sales has been higher in the year with advertisement. Hence the advertisement is effective. However, the effect could not be captured quantitatively. Adjusting for seasonality in December 2006 EAS sales using sales data of Doodle Doug in all the cities:
80.00% 60.00% 40.00% 20.00% 0.00% -20.00% -40.00% -60.00% -80.00% Nov 25-Dec 1 Dec 2-8 Dec 9-15 Dec 16-22 Doodle Doug Growth EAS Growth Rate in CINN

Growth rate of EAS in CINN is clearly higher than growth rate of DOODLE Doug in the second and third week. This led us to infer that advertisements were effective has boosted the sales of EAS. Comparing the sales growth of Control Group with CINN for seasonal and non-seasonal months in year 2006: On an average the control city sales are growing at 292% but CINN is growing at 404%. This difference can be attributed to advertisement.

500 400 300 200 100 0

404.1237113 291.8813706 growth rate of CINN Average growth of Control Cities Cities

Cost Benefit Analysis

References/ Formulas

Expected Sale without Advertisement in CINN Actual Sale with Advertisement in CINN Increased sale due to Advertisement Average Selling price Increased Sales in $

380.1236

Total pre adv sales in CINN * avg growth rate in control cities

489 108.8764 7.49 815.484236

Total sales for Nov 2006 -Dec 2006 in CINN Total actual sales in CINN (Nov'06-Dec'06) - Expected sales w/o adv in CINN(Nov'06-Dec'06) Page 4 Paragraph 1

Inference: The increase in sales as a result of advertising is $815 whereas the total cost incurred in advertisement is $1,05,150. It can be said that the advertisement is effective only when the subsequent sales are large enough to set off the fixed cost incurred. In the absence of any such data, it cannot be concluded with complete certainty that the advertisement was effective or not.

Analysis of Advertising Experiment Data of Betty Spaghetty Breakeven Analysis

TV Cost of advertising 31500 Radio 8022 Commercial 150000 Total Cost 189522 Reference Page 4 Paragraph 2

Gross Margin Percentage 56%

Contribution

Formula

Reference

7.358915989

gross margin % *Avg SP

Page 4 paragraph 4

Breakeven Units = Total cost / Contribution = 25754 Inference: Sales data is given for advertising period only and no information regarding the pre advertisement and post advertisement sales is given. In the absence of this data we cannot say if the

advertisement campaign was successful or not. From the table above it can be shown that to recover the fixed cost incurred in advertisement campaign 25754 units need to be sold to breakeven.