The Foundry is the product design subsidiary of the UAE-based design studio Tinkah. The Foundry designs and manufactures Khaleeji-inspired coffee sets and briefcases using natural materials and colors. Assume it is considering an advertising campaign in the UAE to promote its range of pottery and ceramics. The brand is considering spending $5,000 on advertising to support a product premium offer. They will offer a stackable bowl set (worth $80) free for every $1,000 customers spend on other products from the range. The focus of the advertising will be social media and leaflets in shopping malls.

The Foundry ran the promotion and sold 15 bundles during the promotional period. Assuming the $5,000 spent on advertising is the only marketing cost associated with this promotion, calculate the net marketing contribution of the promotion. Was the promotion successful? Refer to Net Marketing Contribution in Appendix 2: Marketing by the Numbers to learn how to do this analysis.

Data from Appendix 2

Net marketing contribution (NMC), along with other marketing metrics derived from it, measures marketing profitability. It includes only components of profitability that are controlled by marketing. Whereas the previous calculation of net profit before taxes from the profit-and-loss statement includes operating expenses not under marketing’s control, NMC does not. Referring back to Wise Domotics’s profit-and-loss statement given in Table A2.2, we can calculate net marketing contribution for the product as: 

The marketing expenses include sales expenses ($21 million), promotion expenses ($19.5 million), freight expenses ($15 million), and the managerial salaries and expenses of the marketing function ($2 million), which total $57.5 million. Thus, the product contributed $10 million to Wise Domotics’s profits. It was the $4 million of indirect overhead allocated to this product that lowered the profit. If Wise Domotics drops the product, the $4 million in fixed overhead expense will not disappear—it will simply have to be allocated elsewhere. However, the $10 million in net marketing contribution will disappear.

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NMC = net sales cost of goods sold marketing expenses = $150 million - $82.5 million - $57.5 million = $10 million