You’ve come up with the idea to created a limited-edition white Lacoste polo shirt with a burnt orange longhorn patch in place of the usual green crocodile. Amazingly, the Lacoste company has agreed to manufacture the shirts for you, as long as you handle the appropriate licensing approvals from UT. You order 1,000 shirts to sell to UT students and alumni, and your total variable costs will be $34.50 per shirt, including production, licensing and shipping fees. You plan to sell the shirts for $89.50 each. Display ads on social media will be your primary form of promotion. There are apx. 2 million social media users with an interest in UT Austin, whom you can reach with your ad at a $7.75 CPM (cost per thousand impressions). You decide to reach 50% (1 million) of this audience 3 times (frequency = 3) with your ad. Consequently, you have committed to spend $23,250 for this campaign. Some people who see your ad will click on it in order to visit your website. Many will “bounce” (leave your site after a quick view of the home page), while others remain and start the ordering process. Hopefully, most of those who start filling in the order form will provide their payment information and complete their purchase!
1. Assume that the ad achieves a 0.25% click-through rate, but that 80% of the site visitors bounce. Among the remaining warm prospects, 50% purchase a t-shirt. How many shirts have you sold?
2. What is the marketing cost per sale for this initial social media advertising campaign? (Enter number only, not $)
3. As a next step, you decide to “retarget” all of the warm prospects, that is everyone who clicked-thru the ad to visit your website. (Reach = 100%, Frequency = 1) This type of advertising has a much higher CPM of $350, and you aren’t able to screen out those who’ve already made a purchase. What is the cost of the retargeting campaign? (Enter number only, not $)
4. This time the ad achieves a much higher click-through rate of 20%, since the target audience had already indicated interest in your product. 60% of these repeat site visitors bounce, but you achieve a 40% purchase rate among the remainder. How many shirts sold as a result of the retargeting campaign?
5. What is the marketing cost per sale for the retargeting campaign? (Round to the nearest cent, do not use $)
6. Finally, due to the clever design of your product, your ad on social media is shared (no cost to you) and reaches an additional 5,000 people. There is a very high click-thru rate of 25% among this audience, but also a high bounce rate of 90%. If you achieve a 8% purchase rate among the remainder, how many additional shirts were sold through organic reach?
7. Combining all of the above marketing expenses and sales together, what is your average marketing cost per sale? (Round to the nearest cent, do not use $)