Question

Decision Making Under Uncertainty

Exquisite Foods Incorporated (EFI) sells premium foods. Three independent strategies are being considered to promote a new product, Soufflés for Microwaves, to dual-career families. Currently the contribution margin ratio on EFI’s foods is 65%, which is expected to apply to the new product. EFI's policy for promoting new products permits only one type of advertising campaign until the product has been established.

Strategy One

The first strategy concentrates on television and magazine advertising. EFI would hire a marketing consultant to prepare a 30-second video commercial and a magazine advertisement. The commercial would air during the evening to address the working market, while the magazine advertisement would be place in magazines read by career-minded individuals. This advertising campaign would provide EFI $230,000 expected contribution from sales.

Strategy Two

The second strategy promotes the product by offering 25% off coupons in the Sunday newspaper supplements, with a projected 15 percent redemption rate on sales revenue. EFI would hire a marketing consultant for $5,000 to design a one-quarter page, two-color coupon advertisement. The coupon would be distributed in the Sunday newspaper supplements at a cost of $195,000. Based on prior experience, EFI expects the following additional sales from this form of advertisement.

Expected sales	Probability
$500,000	10%
600,000	25
700,000	35
800,000	20
900,000	10

Strategy Three

The third strategy offers a $0.50 mail-in rebate coupon attached to each box of Soufflés for Microwaves. EFI would hire a marketing consultant for $5,000 to create a one-sixth page, one-color rebate coupon. Printing and attaching costs for the rebate coupon are $0.07 per package, and EFI is planning to include the rebate offer on 500,000 packages. Although 500,000 packages may be sold, only a 10 percent redemption rate is expected. EFI expects the following additional sales from this type of promotion:

Expected sales	Probability
$400,000	10%
450,000	30
500,000	35
550,000	20
600,000	5
Requirment:

1. What selection criteria, other than profitability, should be considered in arriving at a decision on the choice of promotion alternatives?

Answer 1

Profitability is not only the criteria when it comes to choosing the right media for the marketing of the product. Although initial the profitability that can be earned from the media is seen but there are certain other factors that should be considered when choosing the right media for the advertisement of a new product.

Below are the other factors that should also be seen other than profitability.

1. Long term objective

Equisuite foods should see to it that what are the long term plans, the long term plans may include increasing profit

Market share

Customer share

Loyalty In customers

Hence these above factors should also be seen when chosing the marketing type. The long term objectives can be achieved only when continued benefits are provided to the customers and the product is marketed most of the time instead of any particular time.

1. Effectiveness in reaching the target market.

This is important that the product is marketed via that media that can create a good impression in the minds of the audience that are meant to use the product.

Suppose if an IT product is too marketed, this is important that the product should be able to reach the attention of professional.

So this is important to note that not all type of media can access all type of targeted market.

1. Effect on sale of other products.

This is a well-tested formula that when a company launches a new product, it has a demonstration effect and every consumer will be eager to try the product

In such case this is seen that the new product often reduces the sales of old products.

This is important to note that company make new product to increase its overall sales and not only replace sales of old product by new product.

To rule out this ill effect this must be seen that the media that is used to market the new product should not interfere in that geographical areas where the old product are well settled.

Advertising in the national newspaper will market the product in all areas despite of the fact that it is not required that the product should enter that market.

1. Competitors media of advertisement

Here this is also important to note that, the media that is used by the competitors should be avoided as this will combat the efforts of self and the competitors.

That media should be selected that is not used by the competitor as this will give large chances of capturing the market share.

1. Check the past

Analyzing the past benefits of the different media can also be helpful in selecting the method for advertising the new product.

The past success rate of different media should be seen and that media should be selected that offers high success rate.

So in addition to the profitability above were the criteria that should be considered while selecting the media for advertising the new product.