ADV330 MSU Gotcha Advertising Services Manager Case Analysis

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adv330

Michigan State University

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Case # 6:“GOTCHA!”

Doug Terry, one of the two account supervisors in your group, walks into your office one fine morning and proceeds to tell you that the Marketing Director for High West Financial Services, one of the clients in your account group, is questioning the agency’s billing practices. Specifically, the client is questioning the hourly charge out rates for employees working on the account under the agreed contract/services agreement.

As the Group Account Director on the High West business, you - along with the agency’s CFO - handled the contract negotiations with High West that resulted in the approved contract/services agreement that contains an Agency Fee Addendum. Per the contract, the client has agreed that the agency will charge time-time of staff on the High West account using “multiplier” of 2.50 on employee direct salaries to cover direct salaries, benefits, overhead and mark-up of 25% (on direct employee costs). The formula for the contractually agreed fully allocated cost charge out rate on High West is below:

Direct Salary + Benefits (20%) + Overhead (Direct Salary x 1.0)+25% (direct costs)=Employee Hourly

1800 Annual HoursCharge Out Rate

Doug proceeds to tell you that the agency Account Supervisor (AS) on the High West account regularly plays golf with High West’s Advertising Services Manager, and at some point, inadvertently told her that she makes $62,000 working at the agency.And while this all seems very innocent at the time, the client files this information away and quietly goes to work. What could possibly go wrong?

Using the salary information provided, the Advertising Services Manager computes that if the AS works 40 hours per week, that the AS’s time on the High West Financial account would total 2,080 hours per year. Doing the math using the $62,000 salary information she obtained purely through happenstance from the AS, the High West Advertising Services Manager computes that the ASs charge out rate is $29.80/hour. The Advertising Services Manager goes back and checks the “math” against the charge out rate of $86.11 as outlined in the Agency Fee Addendum to the contract, and determines the agency is overcharging High West $56.31/hour for the AS’s time on the account.

The Advertising Services Manager goes to the Marketing Director with this information, and the Marketing Director immediately calls Doug to set up a meeting the following morning at 9:00 a.m. and wants a “full and transparent review” of the agency’s billing practices and charge out rates for employees on the High West account. How do you respond?

THE BIG QUESTION

Is the Advertising Service Manager’s assertion regarding the agency’s “over charge” correct?

THE BIG QUESTION

Is the Advertising Service Manager’s assertion regarding the agency’s “over charge” correct?

YES _____

NO _____

The rationale behind your answer:

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Case # 6: “GOTCHA!” Doug Terry, one of the two account supervisors in your group, walks into your office one fine morning and proceeds to tell you that the Marketing Director for High West Financial Services, one of the clients in your account group, is questioning the agency’s billing practices. Specifically, the client is questioning the hourly charge out rates for employees working on the account under the agreed contract/services agreement. As the Group Account Director on the High West business, you - along with the agency’s CFO - handled the contract negotiations with High West that resulted in the approved contract/services agreement that contains an Agency Fee Addendum. Per the contract, the client has agreed that the agency will charge time-time of staff on the High West account using “multiplier” of 2.50 on employee direct salaries to cover direct salaries, benefits, overhead and mark-up of 25% (on direct employee costs). The formula for the contractually agreed fully allocated cost charge out rate on High West is below: Direct Salary + Benefits (20%) + Overhead (Direct Salary x 1.0) +25% (direct costs) = Employee Hourly 1800 Annual Hours Charge Out Rate Doug proceeds to tell you that the agency Account Supervisor (AS) on the High West account regularly plays golf with High West’s Advertising Services Manager, and at some point, inadvertently told her that she makes $62,000 working at the agency. And while this all seems very innocent at the time, the client files this information away and quietly goes to work. What could possibly go wrong? Using the salary information provided, the Advertising Services Manager computes that if the AS works 40 hours per week, that the AS’s time on the High West Financial account would total 2,080 hours per year. Doing the math using the $62,000 salary information she obtained purely through happenstance from the AS, the High West Advertising Services Manager computes that the ASs charge out rate is $29.80/hour. The Advertising Services Manager goes back and checks the “math” against the charge out rate of $86.11 as outlined in the Agency Fee Addendum to the contract, and determines the agency is overcharging High West $56.31/hour for the AS’s time on the account. The Advertising Services Manager goes to the Marketing Director with this information, and the Marketing Director immediately calls Doug to set up a meeting the following morning at 9:00 a.m. and wants a “full and transparent review” of the agency’s billing practices and charge out rates for employees on the High West account. How do you respond? THE BIG QUESTION Is the Advertising Service Manager’s assertion regarding the agency’s “over charge” correct? THE BIG QUESTION Is the Advertising Service Manager’s assertion regarding the agency’s “over charge” correct? YES _____ NO _____ The rationale behind your answer: ● Our case submissions are to be no longer than four (4) double-spaced, typewritten pages. And please use a sans-serif font (e.g. Helvetica, Tahoma,etc.) at a size no smaller than 10.5 points. ● Case Analysis Outline ○ Using the following outline: ■ Purpose: Statement of the problem or key issue ■ Background/Situation Analysis ■ Discussion of Alternatives ■ Recommendation/Rationale ■ Action Plan/Next Steps ■ Contingency Plan limit your analysis to five (3) double-spaced, typewritten pages. ● Purpose: Statement of the problem or key issue Some examples: The purpose of this correspondence is to outline the recommended approach, budget and next steps for implementing a 49/59/69 value menu pricing test in paired HB and LB index markets during Q3. The purpose of this memo is to provide the results of the Q3 49/59/69 value menu pricing test in the paired HB and LB markets and outline the impact and implications of the results for the upcoming FY planning and budget. Using Q2 competitive advertising spend data, the purpose of this memo is to provide an analysis and recommended funding levels required to match competitive SOV in “heartland” markets. The key to the purpose is to clearly articulate why you are providing this analysis and what will be the outcome(s). Be succinct in your approach and use words that paint a very clear picture of the issue at hand. ● Background/Situation Analysis This is where you paint the picture of why there is a problem or an issue in the first place. Again, you need to succinctly and clearly state the facts, as well as address “why we are where we are”. The latter can be driven internally (people, product, process, legal, financial, etc.); by a client and/or competitor; etc. In writing the situation analysis it is imperative that you pay as much attention to the “facts” as presented in the case as to the “facts” that either seem to be missing or are somewhat conspicuous by their absence. Is there an underlying issue or concern that is at the heart of the issue that has not surfaced or being considered? This is a foundational element of your analysis, but remember, you are not writing Tolstoy here. BE BRIEF; BE FOCUSED; DO NOT RECOUNT THE CASE; GET TO THE POINT / KEY ISSUE(S) OF THE CASE QUICKLY. ● Discussion of Alternatives By delineating for two or three alternatives in clear and concise declarative sentences, you make it extremely clear for management to understand the courses of action you have researched/developed and are available to them for consideration. Depending on the complexity and variables associated with the alternatives, it may be worthwhile to develop an outline of the “pros” and “cons” so that management can easily see the risks and rewards associated for each alternative, and the potential impact/implication each has on the business as a result. You will need to consider whether or not this level of detail is required literally on a case-by-case basis. ● Recommendation/Rationale Once you have analyzed and put forth alternative solution scenarios, you are now ready to make your recommendation. It is now time for you to step up, stand up and to put it on the line. This is the point in the process where you make a strong, persuasive and well-articulated argument supporting your recommended course of action derived from the list of alternatives you have developed. This is not the time to be wishy-washy. If you do not deliver a strong and impassioned argument, you will not sell management on your recommendation. Now this does not mean you can concoct any impassioned argument and win – you need to support you recommendation with facts, observations and anticipated outcomes. Your recommendation should be a straightforward statement followed by bulletpointed rationale points. ● Action Plan/Next Steps Once you have made a decision, now you have to activate the support plan. This is the next step in your case study write-up. The key items for management will be a clear outline of the timeframe and the funding involved in implementing the recommendation as stated. These are crucial items for management alignment and approval. For example, going back to the “…match competitive SOV in the ‘heartland’ markets.” scenario from the Purpose section, the Action Plan/Next Steps section might look something like this: To implement the match competitive SOV levels in “heartland markets requires the following next steps: 1. For the “heartland” markets, authorize incremental spot TV spending of $9.25 million and increase T&R spend from $65K to $81.7K for the balance of the year by 6/1; 2. Develop and approve media plan that details the incremental spend by 6/15; 3. Develop and approve updated creative rotation in “heartland” markets for balance of the year by 6/15; 4. Update and finalize T&R budget for balance of year by 6/15; 5. Upon approval of SOV match plans, activate & air by 6/30; 6. Measure impact of SOV match plan in “heartland” markets during Q1. In addition, given that we are doing business in the “age of accountability” you will most likely need to put in some performance metrics and/or milestones against which you can gage the progress, traction and success you are making. Be realistic …be honest…be confident. And remember, nothing in this business happens all that quickly, so set realistic expectations for implementation and measurement. ● Contingency Plan While you recommendation has been well thought out, based on the facts at hand, and vetted at various management levels within the “organization”, there are unforeseen twists and turns in the economy, competitive landscape and the consumer. And while you cannot predict the future, you do need to have a “Plan B” --- what you would do “if”. Your contingency plan need not be long. Just simple statement along the lines of: if this happens (or does not happen), we will do this. Again, you need to give management some reasonable assurance that you have the backdoor covered. ● In Closing… The case analysis process is designed to give you the opportunity to take a crack at solving real world problems. And as you move forward into the world of advertising you will find that your day-to-day activities will really be nothing more than a series of “mini” case studies. However, the case studies in the real world will not arrive all neat and tidy in a pdf format. Enjoy. ★ Case #1: Congratulations, You’ve Been Selected 1. Advertising Management Today 2. Managing People In An IMC Wo ★ Case #2: New Business Knows No Clock Managing People ★ Case #3: What Am I Going to Do With This Guy? 1. Managing People 2. Performance Management ★ 1. 2. 3. Case #4: Help Me Get There From Here Advertising Planning 1.0 Advertising Planning 2.0“ Client-Agency Relationships” (ADV 330 Reference folder) ★ Case #5: Stick To The Core or Go For More 1. •Agency P&L 2. Your general business sense & perspective – “What would you do, and why” ★ Case #6: Gotcha! 1. Agency Compensation Note: there is a “right” and “wrong” answer for Case #6 so tie the lecture to the fact pattern of the case ★ Case #7: Play or Stay? 1. Agency P&L 2. Agency Compensation •Your general business sense & perspective – “What would you do, and why”
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Explanation & Answer

Attached.

Running head: “GOTCHA” CASE ANALYSIS

“Gotcha” Case Analysis
Name
Intuitional Affiliation

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“GOTCHA” CASE ANALYSIS

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“Gotcha” Case Analysis

Big Question: The Accuracy of the Advertising Company Manager’s Assertion
Cases of financial malpractices are a common incidence in many business transactions. This
not only pertains to individual employees but also in company-company relations, especially in
sub-contract arrangements. The occurrence or suspicion of such a misdemeanour can spoil
working conditions and give rise to costly affairs such as compensation suits. In this view, the
formulation of billing terms should be openly done, and their operation explained to relevant
personnel in the concerned firms to avoid future misunderstandings.
In this case, the advertising services manager of High West Financial Services is
accusing the Agency of overbilling their account regarding the services of the account
supervisor. This is based on salary information obtained unofficially as well as the personal
computations of the advertising services manager. However, there is an obvious error in the
manager's math by using 2080 annual working hours instead of the 1800 hours stipulated in
the contractually agreed formula. 1800 hours is the standard period in the billing agreement,
and any number of hours above this should be treated as benefits acquired through overtime.
In this view, the advertising services manager’s computation is bound to produce a
lower charge-out rate due to the higher denominator provided by the extra hours. The failure to
notice the 280-hour differen...


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