Supplement to Alfonsos Department Store Harvard Case Solution & Analysis

1). How effective is Alfonso's newspaper advertising?

The newspaper advertising for Alfonso’s Departmental Stores is being placed regularly in order to boost the sales for the business. These advertisements focused on offering the customers discounts; the customer could purchase merchandise at discounted prices. The department heads were satisfied with these newspaper advertisements because it resulted in immediate sales. This was also a reason that the department heads carried out further advertising for their stores to increase sales revenue. They were motivated to advertise through newspapers because they believed that the advertising actually increased the sales for their stores which in turn increased their respective bonuses and commission. However, the new general manager of Alfonso’s Department Store, Mary Kazinczi, raised a new point that the sales of the department stores does not increased in real. The increase in sales was due to transfer of sales from one point in time to another and from one department to another. This fact is also proved by the results of regression analysis performed in the excel sheet. The correlation (Multiple R) is too small positive value. This shows that advertising is not the factor which is actually causing the sales of the business to increase which means that there would be other reasons for the increase in sales. The discounts offered to the customers are a motivating factor for them, to spend now on an item purchase which they probably would have purchased the next month.

 

2). Does it actually increase Sales or does it simply borrow forward?

The newspaper advertising for the department stores does not increase the sales of the stores in actual, but it simply borrows forward. It attracts the customers to purchase items by offering discounts. The increase in sales is achieved by the transfer of sales from one department to another department and the increases were achieved due to the differences of point in time of sales. If we analyze the regression output, it can be seen that the probability of the relationship between the advertising and sales is not significant, as the P-value is greater than the 0.05 threshold. Also the correlation between advertising and sales in a weak positive correlation, which suggests that newspaper advertising, is not the actual reason behind the increase in the sales of the department stores. The sales of the department stores do not increase in a linear fashion with the expenditure incurred on newspaper advertising. Apart from this, it can also be seen from the regression output between Alfonso’s sales and all other department sales that the relationship between the sales of all other stores and Alfonso’s stores is highly positively correlated. As the sales of all other stores increase, the sales of Alfonso’s departmental stores also increase.

 

3). What do you recommend and why?

The sales of Alfonso Department Stores are not increasing in real. The regression analysis performed for Alfonso and other department stores reveal that the newspaper advertising has no significant impact on the increase of sales. Other factors would be present there which are responsible for the increase in sales. Therefore, the new general manager of Alfonso needs to raise this issue further and prove this to the management through quantitative analysis as performed in the excel sheet. After the management becomes aware of these issues, they are recommended to focus on their marketing strategies. First of all, they should look for other means of advertising such as the internet and through social media. Another, important thing noted is that Alfonso’s management and department store heads are investing heavily on newspaper advertising. Advertising as a percentage of sales for Alfonso is around 0.72% approximately when compared to only 0.08% of other company’s advertisements and there is no significant difference in the average sales of Alfonso and all other department stores as shown by the output of independent sample t-test . Therefore, the advertising expense should be reduced and then again the relationship of sales with newspaper advertising should be analyzed. Also, advertising through newspapers, should not be carried out frequently. The company should also analyze its discount policy because it is also leading towards the cannibalization of products. If the company gives discounts on refrigerators than the customers are more attracted to buy and move away from the department store’s other items. Therefore, management needs to monitor this thing and focus on other marketing tactics to increase its sales and market share......................

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Alfonso Department Store (Ivey, 9A99E002) represents 26 weeks of sales data for the dollar and the dollar Alfonso advertising, along with the sales and advertising of competing stores. In addition, the consultant presents the results of its analysis of the data. Students are asked to critique this analysis and the study of its effects. "Hide
by Phillip E. Pfeifer Source: Darden School of Business 4 pages. Publication Date: February 10, 2004. Prod. #: UV6239-PDF-ENG

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