Evaluate
whether Dominos should have reduced its marketing budget in the 2008 recession.
[20]
Always start
with a definition.
YES:
Dominos
would have quickly realised that sales were holding up or increasing during the
2008 recession.
Dominos was
popular because they offered a cheaper alternative to eating out or other types
of takeaway. Customers were happy to buy Dominos because they still wanted an occasional
treat but wanted to save money at the same time.
By reducing
marketing spending this would push total costs down. As profit is calculated by
taking total costs away from total revenue the profits will be higher than it
otherwise would be. The key is what Dominos does with these increased profits.
It states that 52 new stores were opened during 2008. If some of the increased profit
was invested in site selection for new stores, excellent franchisee training
and sourcing the finest ingredients then the future for existing and new stores
should be bright. I do not feel distributing increased profits to shareholders
through increased dividends would be an appropriate long term strategy and
marketing spending should not be reduced for this reason.
NO:
On the other
hand, it is vital that Dominos maintains its current marketing spend. The
takeaway sector, particularly in urban areas, is very competitive and if the
marketing budget is cut there is every possibility that competitors such as
Pizza Hut will step in with offers and promotions to take Dominos customers
away. A consequence of reduced marketing spending will be ‘tired’ offers,
unchanged menu leaflets and an aging website which the typical ‘millennial’
customer will not engage with. As most Pizza takeaway orders are now placed
online, the fall in demand could be dramatic. A possible consequence of this
could be the cash flow problems that are associated with overtrading. The
percentage change in demand is likely to be higher than the percentage change
in advertising expenditure and this could be disastrous for the company and
potentially threaten its long term future.
On balance I
feel that Dominos should maintain the level of its marketing spend. Indeed, it
is probably the marketing budget that has produced innovative offers such as ‘2
for Tuesday’ or funded sponsorship of ‘The X Factor’ which has brought the
brand into the living room of most UK households at prime pizza ordering time.
Before taking such a decision about its marketing budget the company should
carefully consider the market it is in, the likely actions of competitors and
its future strategic plans.
