Katharina Wiekeiser is the new intern at Sophos, a beauty care company. She has to allocate the marketing budget for the international shampoo brand Pure IVluenster to useons: Asia, USA, Europe and rest of the world. She still knows from her studies on marketing operations that budget allocations should be influenced by the budget elasticities in theses respective regions. Katharina's boss provides her with an allocation scheme from the last period. Unfortunately these schemes are not complete she only gets information about the allocation of budgets proportional to the absolute profit contribution (PPC;) and the allocation according to the rule of almost oal allocation (AOA;). Furthermore, Katharina knows that the sum of profit contribution (PC,) in all regions is6i on and the sum of weights for the almost optimal budget allocation (G ;) equals

122Ilion

PPE(in million)

AOA(in miI1ion) e

Asia

47

21.7

USA

54.54

125.5

Europe

68.3

125.7

Rest of the World

190.38

87.32

a)

Please calculate the elasticities for all four regions using the information given in the text and table. (8 points)

Katharina's boss is under high time pressure and therefore uses the percentages-of-revenues rule to determine the advertising budget as well as the price for the product Pure Vluenster XL. Katharina knows about the shortfalls of this rule and wants to set aexpce and a new advertising budget

which are optimal in the short run Katharina knows that variablroes 21 per unit sold, but

She does not know about the price and the advertising elasticities of this product. Hence, she decides to use analogies from testmarkets of similar products where prices and advertising spendings have been systematically varied ceteris paribus.

One year later, Katharina looks back and is very pleased that her revenue forecast oil ion has exactly been realized.