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 $1,800 on a full-page ad in Illustrious Mechanics. In September she ran a special "back-to-school" price promotion of $30 instead of the regular selling price of $39 per Meter Miser. Finally, in October, Martha dropped $5.00-off FSI coupons reaching 760,000 households at an average cost per thousand (CPM) of $3.05. Baseline sales estimate for August were 960 units. September and October baselines, respectively, were +20% and -10% of the August baseline. Meter Miser contribution margins (before marketing) at regular prices are 36% of sales.
a) If actual August sales are 1,300 units, what is the % sales lift achieved with the ad?
b) What is the Return on Marketing Investment for the August advertisement?
c) Assuming additional artwork and production cost of $10,000, what are the total coupon drop costs including media distribution expenses?
Drop costs = total costs to print and distribute coupons not including redemption issues. Be sure to divide # of coupons by 1000 before applying CPM rate
d) If all coupons were redeemed in October, redemption rates were .1% and total sales in that month were 1,500 units, what were incremental sales?
Incremental sales = Total Sales - Baseline Sales. Remember to adjust baseline sales for October seasonality effects.
e) What was October gain/loss in contribution 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%)?
Note: Calculate contribution from incremental sales, subtract cost of distributing coupons, cost of redemptions, and cost of artwork.