Question

In: Finance

A company typically sells 100,000 units at $10 per unit. It runs a promotion that discounts each unit by $4 per unit.


Test Your Understanding: : A company typically sells 100,000 units at $10 per unit. It runs a promotion that discounts each unit by $4 per unit. To promote the discount, the company pays a flat fee of $25,000. The company sells 75,000 additional units in incremental sales. The company tells its marketing team to kill any promotion that has<10% MROI.

    1. Should the company proceed with this promotion and discount?

    2. Why or why not?

Solutions

Expert Solution

Formula
no of units sold in general 1,00,000
Price per unit 10
Sales 10,00,000 100,000 *10
Promotion
Discount 4
Discounted price 6 10-4
Promotion cost 25,000
Additional units sold 75,000
Total sales 10,50,000 (10000+75000)*6
Incremental sales value gained 50,000 1050000-1000000
MROI 100% (Incremental sales - promotion cost)/promotion cost

Since the MROI is >10%, the company should prceed with the promotion and discount.

jeff jeffy answered 3 years ago
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