Case Problem

The Lambada Grill is an upscale restaurant located in Dallas, Texas. To help plan an advertising campaign for the coming season, Lambada's management team hired the advertising firm of Brown & Johnson (BJ). The management team requested BJ's recommendation concerning how the advertising budget should be distributed across television, radio, and online. The budget has been set at $300,000.

In a meeting with Lambada's management team, BJ consultants provided the following information about the industry exposure effectiveness rating per ad, their estimate of the number of potential new customers reached per ad, and the cost for each ad:

Advertising MediaExposure New CustomersCost

Rating per Adper Ad per Ad

Television904000$10,000

Radio252000$3,000

Online101000$1,000

The exposure rating is viewed as a measure of the value of the ad to both existing customers and potential new customers. It is a function of such things as image, message recall, visual and audio appeal, and so on. As expected, the more expensive television advertisement has the highest exposure effectiveness rating along with the greatest potential for reaching new customers.

At this point, the BJ consultants pointed out that the data concerning exposure and reach were only applicable to the first few ads in each medium. For television, BJ stated that the exposure rating of 90 and the 4000 new customers reached per ad were reliable for the first 10 television ads. After 10 ads, the benefit is expected to decline. For planning purposes, BJ recommended reducing the exposure rating to 60 and the estimate of the potential new customers reached to 1500 for any television ads beyond 10. For radio ads, the preceding data are reliable up to a maximum of 15 ads. Beyond 15 ads, the exposure rating declines to 22 and the number of new customers reached declines to 1200 per ad. Similarly, for online ads, the preceding data are reliable up to a maximum of 20; the exposure rating declines to 8 and the potential number of new customers reached declines to 800 for additional ads.

Lambada's management team accepted maximizing the total exposure rating across all media as the objective of the advertising campaign. Because of management's concern with attracting new customers, management stated that the advertising campaign must reach at least 100,000 new customers. To balance the advertising campaign and make use of all advertising media, Lambada's management team also adopted the following guidelines:

Use at least twice as many radio advertisements as television advertisements.

Use no more than 20 television advertisements.

The television budget should be at least $140,000.

The radio advertising budget is restricted to a maximum of $99,000.

The online advertising budget is to be at least $30,000.

BJ agreed to work with these guidelines and provide a recommendation as to how the $300,000 advertising budget should be allocated among television, radio, and online advertising.

Managerial Report

1.Develop a model that can be used to determine the advertising budget allocation for the Lambada Grill.

2. Determine

a) an optimal schedule showing the recommended number of television, radio, and online advertisements and the budget allocation for each medium;

b) the total exposure;

c) the total number of potential new customers reached.

3. Explain how the total exposure would change if an additional $10,000 were added to the advertising budget.

4.

a) How will the solution change when, after 10 TV ads, the exposure rating per add in television increases from 60 to 70?

b) How will the solution change when, after 20 online ads, the exposure rating per add online increases from 8 to 20?

5. Assume that the objective of the advertising campaign was changed from maximizing the total exposure rating to minimizing the total cost of advertising while keeping all the constraints unchanged. Determine

a) a new optimal media schedule;

b) the resulting total exposure rating;

c) the total new customers reached;

d) the total cost of advertising.

6. Compare the two media schedules resulting from Questions 2 and 5, respectively. What is your recommendation for the Lambada Grill's advertising campaign?