BARRETT@owl.ecil.iastate.edu (Marc Barrett) (03/12/90)
My last message about advertizing may have a little harsh, and a little unclear. I will attempt to clarify some of what I said. Commodore apparently does not treat the costs of advertizing in the correct way. Most of the people on this list are also guilty of this. Most people takes the costs of advertizing out of the total profits. This is NOT how these costs should be treated. The costs of advertizing should be taken out of the total revenues, not the total profits. When Commodore makes a motherboard for a computer system, for instance, the costs of making the motherboard are not taken out of the total profits, but out of the total revenues. Any good business person will tell you that the costs of advertizing should be treated in exactly the same way as the costs of producing a part for a computer. Since Commodore does not put the costs of advertizing in the right perpective, they are guilty of not spending enough on advertizing. It is my sincere hope that the people in charge of advertizing at Commodore will realize all of this, and allocate more money for advertizing. As a percentage of total revenues, Commodore spends less than 2% of these revenues on advertizing. Commodore can and should raise this to around 9%-11%, in line with how much most successful companies spend on advertizing.
cmcmanis@stpeter.Sun.COM (Chuck McManis) (03/13/90)
In article <13635@baldrick.udel.EDU> (Marc Barrett) writes: > Commodore apparently does not treat the costs of advertizing in >the correct way. A pretty interesting statement Mr. Barrett, how would you go about verifying this statement? Are you an employee of Commodore in one of the finance divisions? Or was this tidbit somewhere in the Annual report and I just missed it? > Most of the people on this list are also guilty of this. Most people > takes the costs of advertizing out of the total profits. This is NOT > how these costs should be treated. The costs of advertizing should be > taken out of the total revenues, not the total profits. So, let me understand you correctly. Do you agree that : Profit = Revenue - Expenses And if you agree are you suggesting that Expenses are some how calculated in a two step process, sort of like : 1) Profit(a) = Revenue - Most Expenses 2) Profit(b) = Profit(a) - Advertising Expense How is this any different than the simple substitution which gives : Profit = Revenue - (Most Expenses + Advertising Expense) > When Commodore makes a motherboard for a computer system, for > instance, the costs of making the motherboard are not taken out > of the total profits, but out of the total revenues. Now you have me really confused, what is the difference between subtracting the costs from the revenue and subtracting them from the profit? In both cases you get exactly the same number on the bottom line. > Any good business person will tell you that the costs of advertizing >should be treated in exactly the same way as the costs of producing >a part for a computer. So are you suggesting that Commodore raise the price of their computers to pay for more advertising ? (I suppose the loyal Amiga fans won't mind since they already have their computers.) When Commodore puts a $1 part into the motherboard that usually translates into a $3 price difference to you and me because they sell that part to a distributor who marks it up and sells it to a dealer who marks it up and sells it to you. So if we add "advertising" as this mythical $40 part to the motherboard, by the time you see the computer on your dealer's shelves you will be paying $120 for it. Is this what you want? Doesn't it make more sense for Commodore to *not* treat it as a part of the motherboard, and hence generate $80 in revenue for the distributor and dealer, and just spend their $40 on an advertisement and take it out of revenues directly ? > Since Commodore does not put the costs of advertizing in the >right perpective, they are guilty of not spending enough on >advertizing. It is my sincere hope that the people in charge of >advertizing at Commodore will realize all of this, and allocate >more money for advertizing. As a percentage of total revenues, >Commodore spends less than 2% of these revenues on advertizing. >Commodore can and should raise this to around 9%-11%, in line >with how much most successful companies spend on advertizing. Well, no matter how you slice it, the cost of advertising comes out of the bottom line profits. If those profits are weak or insufficient then the stock holders and the bankers tend to get disgruntled with management and throw them out on there ear. There are a lot of concepts you are a bit fuzzy on but those will become clearer with time. If you are really interested in this stuff you should take a couple of business classes on "Hi-Tech". You will find that Commodore's current weakness is their "gross margins". That means that they don't charge enough for there computers and thus the margin of profit on each one is relatively small. A company that does this very well is Apple Computer. Here is a company that makes a computer (a Mac SE) for an estimated $280 in parts and sells it for $3,000 retail. They can do this because the market percieves them to be of high value. [recent trends have hampered this but they only had to cut the price by a couple hundred dollars.] Apple uses the extra money they receive to pay for advertising, a large R&D organization a Cray computer, etc. Commodore on the other hand has smaller margins, a small R&D organization, and attempts to compete in the market on price, not on head to head quality comparisons. Some of that model is changing, I remember when the Commodore 64 was introduced at $699 and then plunged down to $399, and then $299 in a battle against the Atari 800. The Amiga 500 has kept a fairly stable price point (although it did drop down in price just enough to be the same price as the 1040ST, Atari didn't take the bait) Anyway, with all that said and done, keep plugging at them. I suggest you buy stock and give your opinions the added weight of "a stockholder." [Which, believe it or not, helps.] Maybe Commodore will up the margins on their high end machines as they are introduced. That will certainly help fund any UNIX development that they may need to do. --Chuck McManis uucp: {anywhere}!sun!cmcmanis BIX: cmcmanis Internet: cmcmanis@Eng.Sun.COM These opinions are my own and no one elses, but you knew that didn't you. "If it didn't have bones in it, it wouldn't be crunchy now would it?!"
plouff@kali.enet.dec.com (03/13/90)
In article <132837@sun.Eng.Sun.COM>, cmcmanis@stpeter.Sun.COM (Chuck McManis) writes... >In article <13635@baldrick.udel.EDU> (Marc Barrett) writes: >[lots of stuff about advertising expense and various manufacturers' > pricing policies] Without getting drawn into the debate, I'd like to make three comments: Zenith was (until they sold the divison) quite successful in some parts of the personal computer market against IBM. Did they spend proportionally as much of revenues on advertising as IBM? Probably not. But, (and a big caveat) they really went after some niche markets such as the U.S. government where advertising wasn't very important. So advertising has to be considered as just one component of sales and marketing. As a rule of thumb, electronic equipment sells for about five times the cost of its raw components. One common misconception in this newsgroup is that the multiple should be a lot lower. But time and again this little rule is right on the money. Some exceptions... consumer electronics such as television sets sell for up to 10x parts cost. DRAMs are such a commodity that manufacturers have a hard time charging the standard markup. Thus, populated RAM cards often have a lower multiple, or manufacturers sell cards without memory to preserve their margins. Finished modules such as power supplies and disk drives are also not marked up as much by manufacturers. The high cost of Mac computers puzzled me until I read an article in _Electronic Business_. Macs are priced as much like software as they are priced like other hardware. This has been true ever since the original model, according to a manufacturing engineering analysis I saw. Think about the design philosophy of the Macintosh family -- tightly coded firmware does many things other machines do in hardware, and this makes sense. All the above is no great store of wisdom -- it's all stolen from business-oriented electronics magazines over the last couple of years. IMO, the real basis for business decisions is more complicated than just what Marc, Chuck or myself has mentioned. We now return you to your regularly scheduled opinions... ;-) Wes -- Wes Plouff, Digital Equipment Corp, Maynard, Mass. plouff%kali.enet.dec@decwrl.dec.com "Who came out with that term, 'MULTIMEDIA', btw??? I prefer amiga's old slang: DEMO." -Viet Ho in comp.sys.amiga
mjsagar@sandia.gov (9123 SAGARTZ, MATHIAS J.) (03/27/90)
The advertizing (or lack of it) that CBM is doing has claimed a lot of bandwidth. Rather than help the situation I'm going to contribute my two cents worth to the confusion. I've been watching CBM as a shareholder and amiga owner for over three years. My guess is that CBM has not been more agressive in advertizing because they are not confident that they have their act together. As the slogan says, "You never get a second chance to make a first impression" so CBM needs to be very sure it is ready to come out of the closet. The new guys in charge are not hicks. I believe they want to get things worked around to their satisfaction before they "go for it." To give you some prespective, you should be aware that a few years back CBM was in default of certain loan agreements with its creditors. They could have pulled the plug at any time and CBM would have been forced to declare bankruptcy. The creditors decided it was in their best interests to cut CBM some slack and this proved to be a wise decision. The company survived by cutting expenses to the bone. That's why you heard so much about the lack of support. There was nobody left to provide it. As things improved the powers at CBM (Irving Gould, Henri Rubin, etc.) were very cautious about spending. Essentially they made the least of a bad situation. Fundamental development of software and of the dealer network was neglected. Gould hired the firm of Dillon Reed as a mangement consultant to tell him what to do. Eventually this lead to hiring a Dillon Reed guy, Medhi Ali (spelling probably way off) to run the show. He convinced Irving that he had to spend some money and hire some fast track executive types to turn things around. Europe as well as the U.S. got a bunch of new talent. So that's where we stand now. What follows is my guess as to how things stand. The dealer network was never developed properly and has not recovered from the damage done by Jack Tramiel when he went to mass marketing with the C64 and left the dealers hanging. I know from experience that the last thing you want to do in Albuquerque is to send somebody interested in an Amiga to our one local dealer (Actually just recently things have taken a turn for the better, but this was the case for many years.) Trying to read between the lines, I think the big Christmas ad campaign was pretty much of a bust. This showed CBM that, among other things, that the dealer network was not ready to deliver. The Wall Street Journal carried a column on CBM a few months back that shed a little light on things. Harry Copperman said that the Amiga at that time was not positioned to be sold as a general purpose computer. He said that the "breadth" of applications software needed is not there. I believe that the development process is going on now. Look for the education segment of the market to get some heavy early emphasis (once an apple man always an apple man?) I think that in part the very low prices on the educational discount plan are to rapidly increase the installed base to help encourage developers. It's really a bootstrapping process. When Harry thinks he's ready you should see the kind of advertizing you're looking for. But with Commodore you never know. There's no guarangee that Irving won't pull another George Steinbrenner and go through the headquarters screaming "off with thier heads."