Vodafone Marketing Issues - Assignment Example

Not to curtail ad spend. Objective: To emphasize the importance of ad spend. Current Background: As one of the world’s leader in the telecommunications sector specializing in mobiles, our presence is now felt in many places viz. Middle East, U.S., Asia Pacific, Africa, Europe with our corporate office established in England. Although mobile business is the core activity of our organization, we are slowly entering into its integration services with PC to provide better connectivity to our customers (Anon 1, 2008). All these have been achieved through various advertising efforts. Our ad spend as such has increased considerably in the previous year which is being reflected in the improved income statements in comparison to the then previous year’s performance as reflected in the annexure below: (Anon. 2, 2008). Proposal: From the above annexure, it is observed that sales as well as the market capitalization of the organization has increased in the past year owing to the advertising efforts taken up by the company from past 2007 in the Hong kong as well as the other units. Out of the total revenues generated by the advertising companies, a 9% increase is attributed to the Vodafone advertising campaigns (Eaton. M, 2007). With increase in the ad spend, the company could boost its sales of mobiles and network services so much that even though the Average Revenue per User (Arpu) has been reduced to its rock bottom prices, the increased customer base improved the profitability levels of the company. As already known, due to the recessionary pressures in this year, the sales targets were cut down twice already. The company is gearing up to face the turmoil by cost cutting measures. In this exercise, reports suggest that severe cut in the ad spend would be taken up as one such measure along with the other measures of job cuts and logistics. (Thiel. S, 2009). As already emphasized, ad spend is directly related to the increase in sales and customer growth, a cut in that expenditure may cause negative repercussions for the organization. Instead, if increase in the Arpu is considered commensurate to the industry levels, given the existing large customer base of 289 million customers (Anon. 1, 2008), more revenue can be generated per customer which could be utilized for the required ad spend thereby giving a scope for the growth of the customer base in the future also. Research conducted by the Mc. Kinsey and London Business School suggests that firms which reduce their ad spend during the worst of the times tend to lose both in the short and the long terms. On the contrary, firms which never cut on their advertising expenditure even in the worst of the times, were the first ones to recoup at the time of recovery of the downturn thereby snatching the market cap of the firms which have gone in for ad spend cutting. The same research has also brought into light that indiscriminate reduction in the prices of the core products of the firm by 25% directly will have an impact on the bottom line of the firm. The best plan would be to focus on worthy customers and promise them quality to their satisfaction. For the smaller customers, old price plans can be remodeled to offer slight discounts in the call charges so that they get allured to stick to the mobiles of our company and even advertise about it to their fellow beings as smaller customers are known for their mouth-to-mouth publicity about good or bad service. (Garrett. A, 2009). To understand the impact of the ad spends to the company, the following table could be considered: Year 31/03/08 31/03/07 Sellling, General & Admin. Exp. 12,746,694 8,574,000 Arpu 44.6 48.6 Customer base 2,100,000 1,098,000 (Errity. M, 2007). It is seen that an increased spending in the selling, general and administration expenditure resulted in a growth in the customer base and even at reduced arpu levels of $44.6 while the competitors demand around $50 on an average thereby providing scope for increased arpu to the firm. Owing to the sustained ad spend till September, 2008, the customer base increased to 289 million. However, now that ad spends budgets are cut down; the sales forecasts are being revised twice already as those targets are not reachable currently. This is not strategically commendable from the long term point of view of the firm. Advantages of the proposal: 1. An increase in the advertising expenditure especially when the other firms are cutting on it ensures wide publicity that too in the prime slots of all types of media. This encourages more and more customers to enroll for our company’s mobiles and others services. The other customers would also be satisfied that they are enjoying the best of the technology in the world. 2. Increase in the customer base directly reduces the Arpu per customer and as such, the company would be in a better position financially. Furthermore marginal increase in the Arpu helps in realizing better profits also. Conclusion: From the above analysis, it is evident that cutting down the ad spend though may be a little bit profitable for the firm in the short run, if we consider the long term strategies, this option should never be taken up. Instead, increasing the marginal revenue (arpu) would be commendable to finance the required amounts for consistent ad spends. Journal References: Garrett. A. (2009). Crash Course in dealing with falling sales. Management Today –Pg. No. 20. February, 2009. Hay Marketing Management Group. London. Internet References: Anonymous, 2008. About Vodafone. Vodafone. Available from: http://www.vodafone.com/start/about_vodafone/corporate_governance.html. 14th March, 2009. Anonymous, 2008. Income Statement: Vodafone group plc. Yahoo finance. Available from: http://finance.yahoo.com/q/is?s=VOD&annual.14th March, 2008. Eaton. M. (2007). Hong Kong Ad spend soars. Marketing – interactive.com. Available from: http://www.marketing-interactive.com/news/2804. 14th March, 2008. Errity. S. (2007). Customer numbers up, ARPU dips at Vodafone. ENN – Irelands IT news source. Available from: http://www.electricnews.net/article/10077221.html. 14th March, 2009. Thiel. S. ( 2009). Vodafone said to plan hundreds of job cuts at U.K. Division. Bloomberg.com. Available from: http://www.bloomberg.com/apps/news?pid=20601204&sid=aDdGdj51MPYU&refer=technology. 14th March, 2009. 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