The CFO of a retail store wants to review the last three promotional campaigns run for a product by the brand manager of this firm in a particular market (as an example, if it helps, think of a store like Target running three different promotions for pants in the Tampa market).

The CFO wants to assess the effectiveness of these campaigns. The brand manager had run an ad in a popular local magazine (let us call it Tampa Bay Lifestyles) in July, a back-to-school price promotion in August, and a coupon drop through free standing inserts in September. The ad cost the firm $1,500 for a full-page ad in the magazine. In August, the back-to-school promotion price was $30 on all sales in August instead of the regular price of $40. The FSI coupons were $5 off coupons that reached 1,000,000 households at an average CPM of $5.00. The brand manager knew that all coupons would not generate incremental sales as some sales were to customers who would have purchased the brand anyway. The baseline sales estimate for July was 1,200 units, while the baseline estimates for August was 25% above the July estimate, and for September it was 10% below the July estimate. The contribution margin (before marketing expenses) for the firm for this product at regular prices was 40% of sales.

The brand manager pointed out to the CFO that the brand team was excited about the “back-to-school” price promotion and they expected it to yield a 25% increase in sales. The CFO looked at the numbers and asked the brand manager to tell her, the CFO, by what percentage would unit contribution margins decrease in August due to the price-off promotion? (10 points)

~The CFO feels that the price-off promotion is giving away too much and says that if the brand manager wants to offer that much discount in a price-off promotion, then the total contribution margin for August should increase by another $10,000. What incremental sales level (in units) would the price-off promotion have to achieve in August to increase total contribution by $10,000? [Note that incremental sales are referring to sales above what had been estimated for August.]

~If the cost of artwork and production costs for the coupons was $10,000, what is the total coupon drop costs including media distribution costs?

~What is the gain/loss in contribution margin in the month of September after considering incremental marketing efforts including costs of coupon drop ($10,000 from previous question). Assume 0.1% coupon redemption rate. Further assume all coupon redemption happened in September.

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