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MGSC05H3 Study Guide - Midterm Guide: Tobacco Advertising

2 pages40 viewsFall 2017

Department
Management
Course Code
MGSC05H3
Professor
Andrew
Study Guide
Midterm

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Industry Overview:
Advertising Industry:
- 400 agencies in Canada with revenues of $2 billion in 1985
- Top 10 make up 1/5th of the industry
- Multinational companies started to advertise with agencies based in the U.S.
- Pressure to provide comprehensive services at lower costs
- Aggressive solicitation of businesses due to competition
Cigarette Industry
- Tobacco industry sales at $3 billion in 1984
- $6 billion spent on smoking-related health care
- 33% of Canadians regularly smoked in 1985, down from 50% in 1965
- Highest in teenage girls
- 8% drop in sales led to major promotional efforts in 1985
- 30,000 deaths per year in Canada
Analysis:
Opportunity Costs and Resource Allocation:
This deal requires a lot of resources, which would limit their capacity to take on more.
Since this is a large account, it requires as many as 8 employees and would use up the firm’s best
resources. Hence, it renders them unable to take on any other large accounts that come their way
in the near future. It could also take away key clients such as the government and companies that
do not support smoking.
Long Term Relationships:
If J&B completes this job well, there is potential for more business form Regal.
If Kelly likes the work J&B puts out, there is a strong possibility of Regal handing over more
business to them. This could bring in more revenue in the long term, which will put J&B in a very
competitive position in the market.
Declining Industry:
The number of Canadians that smoke has seen a decrease over the past 2-3 decades.
Due to this decrease, sales have taken a hit. This caused manufacturers to engage in price
competition and heavy marketing. Some of them even sold at or below cost. Hence, it may not be
worth for J&B to engage in an industry that has a bleak future given the internal and external risks
they would be undertaking.
Trade Exposure and Improved Positioning:
J&B will receive a great deal of exposure and publication from this deal.
If this deal goes through, this account will be the biggest to change advertising agencies this year.
That will attract a lot of attention and put the agency on the grid, which will give them a good
momentum. Also, it will enable them to compete with bigger players and stay competitive with
international agencies.
Prevent confusion regarding their policy:
J&B has a sizeable presence in other controversial industries such as alcohol.
J&B’s business in the alcohol industry was worth up to $6 million last year. They also advertise
sports cars that put four out of five buyers at danger when they get behind the wheel. If they try to
make a moral statement with this deal, it may bring into question their stance on those issues.
Values and Employees
J&B was recently made a non-smoking office after an internal struggle.
There are people in the office that feel very strongly about smoking and have refused to work on
tobacco advertising. These include key creative people that are essential to the project. The
acceptance of this proposal could lead to multiple resignations and an overall impact on the
morale of employees as many would see this being against company values.
Increased compensation for Employees
It would increase payout to management and employees through profit-sharing.
J&B’s plan requires 40% of earnings to be shared amongst 52 plan members based on their
salaries. This contract would increase that, which would help motivate employees. It would also
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