Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Stu's Mellow Meter Miser (MMM) recently hired a new CFO who is determined to assess the productivity of marketing budgets. Martha Ray, the marketing manager

image text in transcribed

Stu's Mellow Meter Miser (MMM) recently hired a new CFO who is determined to assess the productivity of marketing budgets. Martha Ray, the marketing manager assembled data on marketing budgets and sales from the last three years. She then used a regression to model seasonality and the effects of marketing to estimate baseline sales for any given month. The next step was to sequentially implement three different promotions and evaluate their relative profitability. In August Martha spent $2,000 on a full-page ad in Illustrious Mechanics. In September she ran a special "back-to-school" price promotion of $32 on all sales instead of the regular selling price of $40 per Meter Miser. Finally, in October, Martha dropped $5.00-off FSI coupons reaching 740,000 households at an average CPM of $4.76. Martha believed that not all redemptions generated incremental sales, as some coupons were redeemed by customers who would have purchased anyway. The Baseline sales estimate for August was 1,100 units. September and October estimated baselines, respectively, were +20% and -10% of the August baseline. Meter Miser contribution margins (before marketing) at regular prices are 42% of sales. What was the October gain/loss in contribution on sales of 1,500 units after considering incremental marketing efforts, including the coupon costs of production and media ($10,000 from Q5), and coupon redemptions (reflected in price reduction and a redemption rate of .1%)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Principles

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Weygandt Kimmel Kieso

10th Edition

0470646462, 978-0470646465

More Books

Students also viewed these Accounting questions

Question

Consider some type of redress for the customer, such as a coupon.

Answered: 1 week ago

Question

Sell the quality of your brand or products.

Answered: 1 week ago