Path: utzoo!attcan!uunet!aplcen!uakari.primate.wisc.edu!zaphod.mps.ohio-state.edu!uwm.edu!lll-winken!sun-barr!newstop!sun!stpeter!cmcmanis
From: cmcmanis@stpeter.Sun.COM (Chuck McManis)
Newsgroups: comp.sys.amiga
Subject: Re: Advertizing Misconceptions
Message-ID: <132837@sun.Eng.Sun.COM>
Date: 12 Mar 90 18:36:08 GMT
References: <13635@baldrick.udel.EDU>
Sender: news@sun.Eng.Sun.COM
Reply-To: cmcmanis@sun.UUCP (Chuck McManis)
Organization: Sun Microsystems, Mountain View
Lines: 96

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?!"