Creative Communications Inc. (CCI) is an Atlanta-based manufacturer of consumer electronic
devices, most notably digital audio players, In recent years, these devices have exploded in popularity with their increase in memory capacity and as prices declined to affordable levels, A key element in the CCI success story is the growth of major retailers such as Wal-Mart, Target, and Best Buy, CCI uses major account teams to serve these and other major retailers, which account for 60 percent of CCl's sales, The remaining sales come from smaller retailer accounts who have traditionally purchased from independent reps with whom CCI has a contract for a commission of 4 percent of sales, In an effort to reduce costs, last year CCI established a Web site as an alternative channel for small retailers, Cost of sales on the Web site was a modest 2 percent of sales, Sales volume on the Web site amounted to 3 percent of CC!' s sales last year, but it is forecasted to increase to 7 percent this year, and perhaps as much as 15 percent the following year, Many of the salespeople selling to smaller accounts are upset by the move to Web sales since they receive no commission on these sales, Although not all of CCl's product line is offered over the Web, this did not appease the salespeople, Some of the stronger salespeople are threatening to go to a competitor who is offering compensation on Web sales, As national sales manager for CCI, you have been asked to keep sales costs at 5 percent of sales, Sales force costs are running at 7 percent for the major account sales teams, and 90 percent of the cost is compensation related-salary plus incentive pay, How would you assess CCl's alternative sales channel over the Web? What changes would you recommend to minimize conflict with the independent reps and still stay within your budget? Last year had been a very good year. Sales had increased by 10 percent to $134 million, due mostly to increased sales to existing customers. Tom Thornton, president and CEO, is even more excited about the coming year because of an exciting new product development and plans for a geographic expansion beyond last year's Southeast Atlantic Coast sales area. He is meeting with you, the vice president of sales and marketing, to discuss next year's budget. "I'd like to thank you for such a great year in pushing our sales over $130 million," greeted Tom. "As you know, I've been working on our budget for next year and feel that we have an opportunity to become one of the real players in this industry. With our earnings from last year, we are finally in a position to expand beyond our present eight-state geographic sales area by adding on New York, Pennsylvania, and West Virginia in the North and Louisiana and Arkansas in the South. On top of that," he continued, "I believe that at least 10 percent of our sales will be in the new packaging technology. What I really like about the new product is that it is best suited for the high end of the market-expensive products that are easily broken if not handled correctly. We've needed a product of this kind for some time and it shouldn't cannibalize our existing products, which are really appropriate for the middle of the market." "Now we just have to aggressively execute our plan," added Tom. "I've forecasted sales next year for $174 million, which is right at a 30-percent increase over this year's projected sales. We've got to maintain our bottom line to help finance our growth plans, so I'm setting a sales and marketing budget of $19 million, Which is the same as this year's projected 10.9 percent of revenue. TlJjs is nearly a $5 million increase in your budget, which should be enough to reach our target of $174 million." As vice president of sales and marketing, what would be your reaction to Tom's budget? How would you begin to analyze this budget? What are the possible budget implications of the expanded geographic selling area? What about the new product introduction?
