Question
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
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 $1,900 on a full-page ad in Illustrious Mechanics. In September she ran a special "back-to-school" price promotion of $31 on all sales instead of the regular selling price of $36 per Meter Miser. Finally, in October, Martha dropped $5.00-off FSI coupons reaching 930,000 households at an average CPM of $5.91. 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 880 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 44% 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%)?
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