Advertising is very useful tool used in marketing area, especially in launching the new products. However, its powerful effect was ignored by Jingle Bell’s top managers at beginning of the business. The result was obvious that sales of the second period was not satisfying, only 44% finished goods were sold. Although this result was mainly caused by the low price competition and the wrong forecast in market share, it should be admitted that without any design in advertisement and promotion made the situation even worse.
The new products could hardly get the customers’ attention without the associated advertising package. According to the feedback from period 2 and 3, advertising seemed more efficient as a market lever comparing with pricing strategy. For instance, in period 3, Super Toy Ltd. ‘s AJAX products accounted for 15% market share under the price of 1. 3 per unit. Compared with that, another company Win-Win, only had 12% portion of total market with the extremely low price 1. 12. The major difference between them was Super Toy spend 3500 on advertising.
The total market demand of AJAX in period 3 was around 1million. Thus Win-Win’s gross potential losses in sales would be nearly 200 thousand pounds. From those previous survey and analysis, Jingle Bell began to focus on advertising and promotion activities. Since period 4, Jingle Bell has adopted advertising-intensive policy. The expense on advertising per each period was around 10,000 to 15,000. The design of advertising package was highly flexible in coordination with the major company objectives.
For instance, in order to sell out the exceed finished stock, a great amount of advertising input in period 4. In period 7, due to the increase in productivity, 30,000 advertising expenses were tied up in order to raise the sales. Also, the advertising was used to balance the adjustments in price. Because Jingle Bell was a new business, the first important thing in its operation was to decide the capacity of the business. This should be determined by the current market situation, financial support and the availability of labour resources.
Based on the previous market research and the 400,000 set-up capital, the operation capacity was designed as its productivity around 160,000 units per period. 97 employees and 10 supervisors were recruited in the second period. However, after failure of selling the rest half finished goods in period 2, it was obvious that the previous designed capacity was larger than the really market needs. In order to sell out all finished goods stock and reduce the huge labour costs, a big redundancy has been made in period 4. The number of workers decreased by 43% to 55. This approach worked quickly. Until period 5, there was no finished goods stock existing.
However there was serious problem as the consequence of this, low work efficiency! In period 4, because the existing operators were strongly affected by the big redundancy, the current working efficiency has plummeted to 77. 5%. Low working efficiency has directly caused two problems in operations: 1) restriction in productivity; 2) Increasing costs due to labour resource waste. After Jingle Bell successfully solved the stock problem, the products were totally sold out nearly every period. The limited operation capacity has directly restricted the Jingle Bell’s profitability in future.
Thus how to match the gap between the current capacity of business and the market requirement has become the operation managers major concern during the following period. Though the 8-period expending, the number of operators has gone up again to 80. However, due to the continuous recruitment, the efficiency never reached the normal level. Apart from increasing the price, to minimize the production costs is another way to enhance the profitability. Thus one of main tasks of operation managers in Jingle Bell is how to reduce the production costs to increase the profit margin.
The chart 2 below shows Jingle Bell’s production costs allocation in details: From chart 2, it can be seen that labour costs consists of the major part of the total cost of production, around 60% at the end of 2003. Following that, it was other production overheads, account for about 20% of total costs. The rest of the sections were all under 10%. Hence, in order to reduce the production costs efficiently, those two areas need to be focus first. Due to the wage of the operators are fixed, the most possible way to reduce the labour costs is improving their efficiency.
However, because of the big redundancy during period 4 and the following recruitment for expending, the efficiency level have not returned to the normal level until the end of 2004. Although its C/S ration reduced, the weight of the labour costs has increased at 2004 to 63%. On the other hand, Jingle Bell has noticed that larger operation capacity could reduce the production overheads on average. The unit costs of production of AJAX and ZORO have decreased from 1. 16 and 1,72 to 1. 04 and 1. 59 respectively since the company expend its capacity. Also it can be proved in terms of change in Contribution to Sales Ratio.