Marketing Management and Planning Module 7

HENDERSON BAS

Prepared by: Group D

Robert Walker
Ladan Jalali
Liang Chen
Harinder Kaur Balaji

July 23, 2010

TABLE OF CONTENTS
Table of Contents 2
Problem Statement 3
Situation Analysis 3 Background 3 Objectives and Goals 3 Current Situation 3 Henerson Bas Process 3 SWOT Analysis 4 Market Analysis 5 Segment Analysis 5 Competition Analysis 6 Financial Analysis 6
Case Keys 7 Key success factors 7 Key uncertainties 7
Alternative 7
Alternative Analysis 9
Recommendations 9
Action Plan 10
Contigency Plan 10

Problem Statement:
Louisa Morgan needs to Set a price and service level for advertising campaign for Halpernia Industry regard to maintain client relationship and satisfaction. The management at Henderson Bas needs to set up a pricing model to effectively balance company's profitability against customer satisfaction Situation Analysis
Background
Henderson Bas was founded by Dawna Henderson in 1996 and started as an interactive agency in downtown Toronto. The company developed from a one person operation to a midsized 65 person corporation. The company provided wide range of online services like web design, online advertising, e-mail marketing, database marketing and Technology services. They worked with many large companies including Coca-Cola, eBay, Molson and Nike. Henderson Bas was recognized as a leader in the interactive advertising industry.
Objectives and Goals

Keep its position as a leader in the interactive advertising industry by providing premium service and maintaining well above average relationship with clients also successfully acquire the confidence and ongoing business of the Halpernia account.
Current Situation
Halpernia industry chose Henderson Bas to promote its new product. Henderson Bas assigned an account manager (Morgan) to start project. After several sessions between Morgan, core team and Halpernia’s representative (Dargo) a strategy document developed and immediately was signed off by Dargo. Creative design team presented their proposal of website and media design to Halpernia representatives after two weeks. Although design had been based on the agreed strategic direction, Halpernia representatives rejected the design and requested the whole creative concept redone without bringing any specific reason or incompatibility with strategic document. Since Halpernia Industries is a globally recognized brand that could potentially become Henderson bas’ largest client, Henderson Bas strategy was maintaining a good relationship with them. Now Louisa Morgan needs to concern whether she should charge Halpernia for the time and effort spent in rejected proposals while providing quality service to meet client's satisfaction upon Halpernia’s third request of creative design free of charge.

Henderson Bas Process
Henderson Bas followed step by step process in order to satisfy client’s needs. This process summarized as below:
Need definition: establish preliminary needs (project scope, length and requirement) through meeting sessions between account manager and client`s representatives
Strategic arrangement: account manager and strategy team meet client representatives to set strategy direction and client sign off
Creative proposal: present creative vision and output to client representative for getting feedbacks
Draft presentation: presentation of draft of final deliverables and getting feedback from clients
Final deliverables: present final product to client representative and end of engagement
SWOT Analysis
Strengths
* Company is recognized as a leader and most awarded in interactive advertising industry and has good reputation and great public perception * Straightforward process with focus on strategic vision * Ability to provide wide range of advertising services in one place * Ability to provide financing services for clients * Involvement of clients in different levels of process * Experience of many large global brands * Clear established strategic vision * Engagement of clients by signing off on different stages and providing feedback throughout the process Weakness * Weak pricing system * Poorly communicated costing to the client easily misunderstood (confusing) * Insufficient involvement of clients in design phase * Weak contracts that haven’t well defined in term of rights and restrictions of each parties * Midsized player with limited manpower resources so large resource projects may be difficult * Two failed attempts of creating an appropriate proposal for Halpernia
Opportunities
* Enter to other advertising channels * Expand its business globally * Relatively new industry and new clients frequently in the market

Threats * Change the behaviour of audiences of these media * International competitors * Halpernia account may be a loss leader for Henderson bas * Halpernia may sabotage the good will of Henderson Bas if the current situation goes badly Market Analysis
Product: interactive advertising, using the internet, interactive television and mobile devices
Place: interactive, email, television, and hand held devices, based in Toronto
Price: Henderson bas prices based on standard proposal fees, hours of service consumed, or menu pricing, Price is the competitive key in the industry
Promotion: word of mouth advertising, referrals from existing clients, professional journals
Segment analysis

Who | Printing and publishing | Interactive, online services | Media services | What | Books, Newsletters, Magazines | Interactive services, online advertising, promotions, email marketing, database marketing and technology services | Commercials on TV and radio stations | When | All year around | All year around | All year around | Where | Book stores, retailers | Web sites | TV and radio | Why | Promote books, Magazines | Promote companies products, missions…etc | Promote producs, |

Competition Analysis
Interactive advertising relied on Internet, interactive television, mobile services as the primary advertising platform. These are effective advertising tools because of its ability to affect consumers buying decisions. This market is very competitive; various size competitors compete with industry leaders for projects. The large players of interactive advertising industry included Leo Burnett, Avenue A Razorfish, Agency.com and Cossette Communication which had previous experiences in multi channel advertising services and then expanded their business into interactive industry but Henderson Bas was in online and interactive advertising industry from beginning. In this market firms that have ability to well define strategy for interactive projects are more successful than companies relied on their technical capabilities. Since it is difficult to quantify the quality of strategies, purchasers select service providers based on their reputation, price and relationship so firms compete in these three areas hard. The interactive advertising industry is highly competitive, fragmented with many players of different size with little differentiation
Financial Analysis
This case is mainly for the purpose of gain an idea of the price structure of the business, we are required to examine the consolidated statements of the parent firm MDC partner Inc, Use the total number of employees at MDC Partners to establish a ratio for fixed expenses that can be calculated for Henderson Bas based on the number of employees. Gross Margin ratios can also be obtained from the consolidated statements.
Gross margin ratios: =(584,648-392,145)/584,648=32.93%
Fixed Expenses (MDC)=137,755K+34,404K=172,159K
Fixed expenses ratio (MDC)=172,159K/5785=29,760K

Fixed Expenses (Henderson) = 172,159K*65/5,785=1,934K per yr= 1934K/52*40=$930 per hour (based on Henderson’s total employee head count)

Gross margin (MDC) =(20344+34404+137755)/584648=32.93% (yr2008)
Gross margin (MDC) =(23377+138234+28975)/533883=35.70% (yr 2007)

Based on the gross margin of 32.93% , Henderson Bas need an annual sales of 5,861K to cover the fixed expenses and break even.

Budgeted project total hours =2640 hours (per case page 3)
Designer 50K per year salary=24.04/hour
Count in employer benefits=29.81/hour (designer)

Variable cost per project based on budgeted hours=(224*29.81/hr)+(2640-224)*45/hr=117,813
(Assuming the mangers and leaders hourly rate at 45/hr)

Additional creative hours=300 hours *2=600 hours (for proposal 2 and 3)=600*29.81=17,886

Total estimated variable cost for Halpernia project=118K+18K=136K, if the invoice over this threshold, Henderson can consider to carry forward the project, assuming the Henderson has idle production capability.

Case Keys Key Success Factors * Many clients liked Henderson Bas work style and payment method (possibility to pay in instalment) * Henderson Bas had built a strong market niche * Pleasing Halpernia and retaining them as a client * Recover the cost of services incurred to Halpernia , and maximize the profit * Enhance Henderson bas reputation within the industry Key Uncertainties * What is the exact expectation of Halpernia representative * Halpernia’s reaction to the alternative that is put to them from Henderson Bas * Client decision to continue project or terminate it * Impact on the client relationships

Alternatives:
#1 Perform new creative proposal for free
Pros
* Strength the firm`s relationship with Halpernia * Create good will with Halpenia * Maintain firm’s reputation for their excellent customer service * Potential of increased business with this large global account

Cons * Significant cost absorbed by Henderson Bas * Financial loss * The proposal may still not be successful * Burnout of creative staff

#2 Perform new creative proposal for a fee
Pros
* Other clients wouldn’t request free services * Recover cost of service to date , will not lose money
Cons
* Client dissatisfaction * Negative reputation * The 3rd attempt may still fail * May lose the valuable client

#3 Implement new pricing strategy
Value model instead of menu pricing
Pros
* Clients would not involve with menu pricing * Firm can focus on just customer need rather than payments * Client fully understands the pricing strategy * Provide a better balance between customer satisfaction and company profits

Cons * Inconsistency in time and resources obligation for different clients ( value model)
Offer limited free design (Offer 3 designs include the price) Pros * Customer informed that if they want further changes it would be a cost to them * They have 3 design choice to choose * This arrangement will motivate the customers to explain their requirements in early stages of the project so that they get desired results within the three offers
Cons
* This arrangement shifts the cost from customers who like the first offer to the customers who may not like the first offer.

Analysis of Alternatives
The first alternative can strengthen the firm’s relationship with Halpenia that is extremely valuable in this industry; also it can enhance the reputation of Henderson Bas in terms of customer satisfaction. On the other hand it can impose a significant cost to Halpenia that is not clearly defined or understood. Finally the client may or may not be satisfied as they are unable to communicate what they exactly want.
The second alternative would compensate the service cost. Halpenia may be satisfied from the result however if not satisfied a valuable relationship may be lost and result in the termination of the contract and loss to a competitor for the project.
The third alternative is changing the pricing strategy. There are two substances: first one is from client menu pricing to value model that means instead of involving the client in detail pricing, the firm charges a single higher price for the whole project with this high price company can provide different requested revisions. The client won’t suffer from price changes, and Henderson can simply focus on performing client’s requirements regardless of price. One problem of the value model pricing is inconsistency. Time and resources may vary for different clients. The second substance is setting up a base quote that would include offering the customer with up to 3 designs and if the customer is not satisfied with any of these three offered designs, any further changes would be billable to them for time and effort spent on redesigning. This arrangement can be explained to the customer at the start of the services. And customer feedback can be taken at each development step in the process so that time and effort is not wasted
Recommendations:
Our group recommendation is the First one. It would be better account manager, strategy team and client representatives set a meeting to re-evaluate the strategy, and objectives. Reaffirm their strategy, and direction and improvements. In order to understand a client’s expectation Henderson Bas can involve client representatives more in brainstorming sessions and also divide design phase to smaller pieces and take client’s approval for each part.
By changing pricing strategy to a value model Henderson Bas can charge the client with one payment and cover all costs instead of menu price that involve the customer with detail costs. Also Henderson Bas can charge the client on completed project work in stages on a regular basis. Advantages of this arrangement would be that client can provide feedback on the partly completed work and will be able to tell in the early stages of the project if they are satisfied with the progress. If the customer is satisfied with the progress of work, they can be billed for time and effort spent up to that stage. This arrangement will also avoid the situation of wasting entire time and effort of the designing team and finding out later on at the end that the results were not satisfactory’ This combination can protect Henderson Bas from customer dissatisfaction, extra cost and will maintain good relationship with client. Action Plan:
Short term * Re- evaluate Halpernia’s project strategy * More involvement of client in brainstorming session and design process * In order to solve communication problem Henderson Bas request an expert representative from client’s side who has ability to communicate from technical aspect * Mobilize a new creative team with new point of view * Offer a facilitated session to assist Halpernia in clearly communicate their objectives and requirements * Forecast the value of future revenue from Halpernia, and calculate the loss of current project; such information will be useful in pricing policy change in the long term.

Long term * Change pricing strategy and use flexible price policy * Change working process in order to involve clients properly as it seems clients need more involvement in various parts of project * Divide controversial phases of projects like ( design, final deliverables ) to small pieces and take approval for each part Contingency:
If Halpernia rejects the recommendation, Henderson Bas can consider the second part of alternative 3 and offer just 3 designs include the price and create the third proposal as last free design so client try to convey its requirements properly since they know its last free work, the relationship as the most important factor remain unharmed also this generous offer can enhance company’s reputation in term of customer satisfaction.
References
1. Henderson Bas , Nicole Shomair, Ari Shomair, Nov.2008 2. Perreault, McCarthy, Meredith, Ricker, Basic Marketing, 12th Canadian edition 3. http://www.mdccorp.com/news/detail/365_MDC+Partners+Inc.+Reports+Results+For+The+Three+Months+And+Year+Ended+December+31%2C+2008.html