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Marketing Analytics: Evaluating Promotional Spending

Marketing Analytics: Evaluating Promotional Spending

Dominique opened a cupcake bakery, Sweet Bites, in her hometown two years ago. Last year, she sold over $6,200$ cupcakes per month and made a $$90,000$ profit which was a $33$ percent increase over her year $1$ performance. Her goal is to continue to grow her business, and therefore she is considering her promotional options. Until this point, Dominique has relied on word of mouth and a limited social media presence to promote her cupcake shop.

Dominique is considering sales promotion, advertising, and public relations as her primary promotional elements. For sales promotion, she decided on a $$0\mathrm{.}50-$off coupon; for advertising, she decided on radio ads; and for public relations, she decided on visiting local talk shows to guest$-$host their baking segments. She knows that each promotional element has its own expense and effectiveness, but she is struggling to decide whether to use one element or a combination of elements to grow her business. Dominique recalled that using a combination of promotional elements through integrated marketing communications sometimes increases an element's effectiveness and therefore creates a spreadsheet to help her make the decision.

The goal of this activity is to evaluate a promotional decision using key integrated marketing communication and profitability metrics.

Recall that the Promotion$-$to$-$sales ratio $=$ Total promotional expenditures$/$Total sales.

Refer to the formula above and the spreadsheet provided to help answer the questions that follow. The spreadsheet fields highlighted in yellow can be changed in order to determine possible outcomes. You can find the initial values in the corresponding blue cells in columns H to K$.$ Start by entering the initial values into columns C to F$.$ Then review the questions below and adjust the values in columns C to F to determine the correct answers.

$1.$ If Dominique's goal is to maximize Sweet Bite's sales, which promotional mix should she adopt?

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$2.$ If Dominique chooses to add public relations to her IMC plan that includes sales promotion and advertising, how many more cupcakes must she sell to break even assuming variable costs of $$1\mathrm{.}30$ per cupcake and a price of $$2\mathrm{.}20?$

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$3.$ Dominique compares the margin for the No Promotion condition to the four Promotion conditions and is upset to see that the margin is lower in each of the four Promotion conditions. How would you explain this result to her?

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$4.$ In the Sales $+$ Advertising condition, Dominique decides that she must adjust her promotional expenses to match industry averages, which she calculates will reduce her average cupcake price to $$2\mathrm{.}20.$ How many cupcakes must she sell to bring her promotion$-$to$-$sales ratio back to the industry average?

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$5.$ Starting with the initial estimates, Dominique determines that she can cut the advertising expense for the Sales Promotion $+$ Advertising $+$ Public Relations condition to $$2000$ without negatively affecting sales. What is the impact to profit and margin in this condition?

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