Credibility is often the most effective feature of an advertising campaign. Suppose that, for a particular advertisement,
Question:
Credibility is often the most effective feature of an advertising campaign. Suppose that, for a particular advertisement, 32% of people surveyed currently believe what the ad claims. A marketing manager believes that for each 1-point increase in that percentage, annual sales will increase by $1 million. For each 1-point decrease, annual sales will decrease by $1 million. The manager believes that a change in the advertising approach can influence the ad’s credibility. The probability distribution of the potential percentage changes is listed here.
Percentage .................................................... Change Probability
−2........................................................................ .1
−1........................................................................ .1
0.......................................................................... .2
+1........................................................................ .3
+2........................................................................ .3
If for each dollar of sales the profit contribution is 10 cents and the overall cost of changing the ad is $58,000, should the ad be changed?
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