Advertising Budgeting for Blue Mountain: Objectives, Results, and Proposals

Task:

Even though advertising budgeting was preoccupying her, Pogue kept thinking that, in light of recent trends, more could be done to help Blue Mountain’s long-term position in the coffee market. What for a long time seemed to be a rather static market was now undergoing profound structural changes. In recent years, the coffee bean had begun a renaissance as consumption in the United States slowly climbed after more than two decades of decrease but Blue Mountain, along with other traditional roasters such as Procter & Gamble, Philip Morris, and Nestlé, had been unable to capitalize on this trend. The growth was primarily due to specialty brews and the expansion of coffee and coffee accessory chains such as Starbucks Coffee Company of Seattle. Pogue was wary that specialty coffees, growing at about 20 percent annually, continued to grab market share at the expense of supermarket ground coffee sales. In fact, according to the latest figures, Starbucks, other regional cafes, and gourmet whole-bean roasters had obtained nearly one-quarter of the multibillion-dollar coffee market.


Pogue was wondering how to respond to these changes and worried that Blue Mountain might already have missed the tide. It did not seem that the pricecutting and couponing approach of her major competitors in the ground coffee market was the answer. Pogue had been carefully following the development of Starbucks, which was holding on to its premier position in the specialty coffee business despite the increasing level of competition and imitation it encountered. Its business design differed significantly from Blue Mountain’s, in that Starbucks also operated a national mail order program to complement its hundreds of corporate-owned stores and its collaboration with Barnes & Noble bookstores, Nordstrom’s, and fine restaurants. According to a study Pogue came across, consumers of gourmet coffees were college-educated, 25- to 45-year-olds who earned more than $35,000 a year. They drank gourmet coffee for its prestige as well as its taste. Gourmet coffee with price tags 80–100 percent higher than canned coffee was viewed as an affordable luxury. What could be a successful business model for Blue Mountain? Pogue still heard the warning of an industry analyst in her ear: “It’s just like cars. Generation Xers wouldn’t be caught in their fathers’ Oldsmobiles, and they’re not going to drink their parents’ coffee brands.” “The traditional marketers have to come up with new appeals; the same old grind isn’t going to make it.”

Question 1. State precisely what you think the objectives of Blue Mountain’s 1994 advertising plan should have been. Were these Van Tassle’s objectives? Lucinda

Pogue’s? I. Figure’s?

Question 2. Evaluate the results obtained from the 1994 (FY) advertising funds. What do you think the results would have been if the 20 percent increase had been continued for the entire year?

Question 3. What should Van Tassle propose as an advertising budget for 1995? How should he justify this budget to top management?

Question 4. How should Van Tassle deal with the issues of seasonality and copy quality?

Question 5. Comment on the uses and limitations of the ADBUDG model as a decision aid for this case and, more generally, as an advertising budgeting decision aid.