Dominique opened a cupcake bakery, Sweet Bites, in her hometown two years ago. Last year, she sold over 6,200 cupcakes per month and made a $90,000 profit which was a 33 percent increase over her year 1 performance. Her goal is to continue to grow her business, and therefore she is considering her promotional options. Until this point, Dominique has relied on word of mouth and a limited social media presence to promote her cupcake shop.

Dominique is considering sales promotion, advertising, and public relations as her primary promotional elements. For sales promotion, she decided on a $0.50-off coupon; for advertising, she decided on radio ads; and for public relations, she decided on visiting local talk shows to guest-host their baking segments. She knows that each promotional element has its own expense and effectiveness, but she is struggling to decide whether to use one element or a combination of elements to grow her business. Dominique recalled that using a combination of promotional elements through integrated marketing communications sometimes increases an element's effectiveness and therefore creates a spreadsheet to help her make the decision.

The goal of this activity is to evaluate a promotional decision using key integrated marketing communication and profitability metrics.

Recall that the Promotion-to-sales ratio = Total promotional expenditures/Total sales.

Refer to the formula above and the spreadsheet provided to help answer the questions that follow. The spreadsheet fields highlighted in yellow can be changed in order to determine possible outcomes. You can find the initial values in the corresponding blue cells in columns H to K. Start by entering the initial values into columns C to F. Then review the questions below and adjust the values in columns C to F to determine the correct answers.

1. If Dominique's goal is to maximize Sweet Bite's sales, which promotional mix should she adopt?

a- No promotion

b- The combination of sales promotion, advertising, and public relations

c- Advertising only

d- Sales promotion only

e-The combination of sales promotion and advertising

2. If Dominique chooses to add public relations to her IMC plan that includes sales promotion and advertising, how many more cupcakes must she sell to break even assuming variable costs of $1.30 per cupcake and a price of $2.20?

a- 341 cupcakes

b- 741 cupcakes

c- 534 cupcakes

d- 651 cupcakes

e- 834 cupcakes

3. Dominique compares the margin for the No Promotion condition to the four Promotion conditions and is upset to see that the margin is lower in each of the four Promotion conditions. How would you explain this result to her?

a- Promotional spending should increase the margin, holding all other expenses constant.

b- Greater annual sales will result in reduced margins.

c- In all of the Promotional conditions, the lower price per cupcake reduces the margin.

d- Greater promotional spending reduces the margin, in line with industry averages.

e- The reduced profit in each of the Promotional conditions results in a reduced margin.

4. In the Sales + Advertising condition, Dominique decides that she must adjust her promotional expenses to match industry averages, which she calculates will reduce her average cupcake price to $2.20. How many cupcakes must she sell to bring her promotion-to-sales ratio back to the industry average?

a- 113,700

b- 92,400

c- 109,000

d- 104,000

e- 94,300

5. Starting with the initial estimates, Dominique determines that she can cut the advertising expense for the Sales Promotion + Advertising + Public Relations condition to $2000 without negatively affecting sales. What is the impact to profit and margin in this condition?

a- Profit remains flat, but the margin increases.

b- Profit increases by $2500, but margin still does not reach the industry average level.

c- Neither profit nor margin is affected by the reduction in advertising expense.

d- Profit decreases by $2500, but margin increases.

e- Profit is lower than in the Sales Promotion + Advertising condition, but the margin is the highest of the promotional conditions.
 

Transcribed Image Text:

1 2 3 4 5 6 7 8 13 14 A Cupcakes sold Annual sales 18. Expenses (less promotion) Sales promotion expense Advertising expense 9 Profit 10 Margin 11 12 Public relations expense Total promotion expense Promotion-to- sales ratio Sales increase over no promotion 17 Percent of customers using coupon $ Incremental sales from new customers $ $ $ 15 16 Average cupcake $ sales price S $ $ B Without Promotion 75,000 187,500 97,500 $ 0 0 $ 0 0 90,000 48.0% 0.00% 2.50 Sales Promotion Only 0.00% C $ 106,400 $ 0 Advertising Only 10.00% $ 0 S D $ 101,100 $ 0 0 $ 2.50 Sales Promotion + Advertising 0.00% E 0 15.00% F Sales Promotion + Advertising + Public Relations 111,700 S 115,284 $ $ $ 17.00% Initial Value: Industry Average Sales Promotion Only $ $ 750 $ $ G $ 96,000 240,000 $ 121,000 $ 3,500 4,000 $ 0 S $ 7,500 $ 3.13% 111,500 $ 46.5% $ H $ 87,000 200,100 $ 106,400 S 2,000 $ 0 $ 0 Initial Value: Advertising Only 2,000 $ 1.00% 91,700 $ 45.8% 7% $ 10.00% 2.30 $ I 10,005 $ 77,800 194,500 $ 101,100 0 $ 4,500 $ Initial Value: Sales Promotion + Advertising 0 $ $ 4,500 $ 2.31% 88.900 $ 45.7% 4% 0.00% 2.50 $ 2,918 J $ 97,500 219,375 $ 111,700 S 2,000 $ 4,500 $ 0 $ 6,500 Initial Value: Sales Promotion +Advertising + Public Relations 2.96% 101,175 $ 46.1% 17% 2.25 15.00% $ $ K 15,356 $ 100,700 221,540 115,284 2,000 4,500 750 7,250 99,006 44.7% 3.27% 18% 2.20 17.00% 17,723 1 2 3 4 5 6 7 8 13 14 A Cupcakes sold Annual sales 18. Expenses (less promotion) Sales promotion expense Advertising expense 9 Profit 10 Margin 11 12 Public relations expense Total promotion expense Promotion-to- sales ratio Sales increase over no promotion 17 Percent of customers using coupon $ Incremental sales from new customers $ $ $ 15 16 Average cupcake $ sales price S $ $ B Without Promotion 75,000 187,500 97,500 $ 0 0 $ 0 0 90,000 48.0% 0.00% 2.50 Sales Promotion Only 0.00% C $ 106,400 $ 0 Advertising Only 10.00% $ 0 S D $ 101,100 $ 0 0 $ 2.50 Sales Promotion + Advertising 0.00% E 0 15.00% F Sales Promotion + Advertising + Public Relations 111,700 S 115,284 $ $ $ 17.00% Initial Value: Industry Average Sales Promotion Only $ $ 750 $ $ G $ 96,000 240,000 $ 121,000 $ 3,500 4,000 $ 0 S $ 7,500 $ 3.13% 111,500 $ 46.5% $ H $ 87,000 200,100 $ 106,400 S 2,000 $ 0 $ 0 Initial Value: Advertising Only 2,000 $ 1.00% 91,700 $ 45.8% 7% $ 10.00% 2.30 $ I 10,005 $ 77,800 194,500 $ 101,100 0 $ 4,500 $ Initial Value: Sales Promotion + Advertising 0 $ $ 4,500 $ 2.31% 88.900 $ 45.7% 4% 0.00% 2.50 $ 2,918 J $ 97,500 219,375 $ 111,700 S 2,000 $ 4,500 $ 0 $ 6,500 Initial Value: Sales Promotion +Advertising + Public Relations 2.96% 101,175 $ 46.1% 17% 2.25 15.00% $ $ K 15,356 $ 100,700 221,540 115,284 2,000 4,500 750 7,250 99,006 44.7% 3.27% 18% 2.20 17.00% 17,723

Answer rating: 100% (QA)

1 What is the initial promotiontosales ratio if Dominique uses only a sales promotion element The initial promotiontosales ratio if Dominique uses only a sales promotion element is 067 This is calcula... View the full answer