In an attempt to improve store revenues during the holiday shopping season, an upscale clothing boutique developed and launched a promotion whereby customers making a purchase at the store during the first Saturday of December 2011 were entered into a drawing for a chance to win a $20,000 in-store shopping spree. The marketing costs to promote the event were only $500, as the store’s exclusive email list and social media were utilized to make past and potential customers aware of the promotion. According to management, the promotion was a success. A total of 420 transactions were recorded in the store that day, a figure that represents a 25% increase in the number of sales transactions when compared to the same day in 2010. As is typical for the store, the average customer transaction during the promotional day was about $230, with the variable costs per purchase averaging $130.
Management is considering running a similar promotion in 2012. Assuming the promotion delivers the same outcomes (and has the same cost structure), would you recommend that they do so? Why or why not?