Question

Marketing Strategy

Promotion of your product in NewShoes can target consumers, or it can target dealers. Consumer promotion is designed to “pull” customers into stores to purchase your product. Promotion decisions are entered for each region in which you are marketing your shoes.

Advertising attempts to make consumers aware of your product so they know to look for it when they are shopping for shoes. Your decision simply sets the budget for advertising; the media and message are chosen for you to best fit the region. You can enter a budget from $0 to $9,999,999, but expenditures over $2 million in a market will have little effect on sales.

Consumer sales promotion attempts to motivate customers to buy a product using rebates, contests, and premiums (i.e., “prizes”). You enter a budget for consumer sales promotion in each market, and the money will be spent on activities that are most appropriate for the region. Allowable inputs are from $0 to $9,999,999, but amounts over $1 million in a market do little to generate additional sales.

Each NewShoes market responds differently to consumer promotion. Review the market descriptions, and answer the following questions:

1. Which market responds best to advertising?

2. Where are you most likely to emphasize consumer sales promotions?

3. Which market does not respond to consumer promotion very well?

4. What happens if you spend $4 million on advertising in a region? $1.5 million on consumer promotion?

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Student or Team Name:

5. A firm thinks its consumer promotion expenditures are too high and wants to cut $500,000 from the budget. Management estimates it will lose 10,000 units in sales if it does. If gross margin is $40 per unit, does cutting the promotion budget make sense?

Answer 1

1. Which market responds best to advertising?

Ans. Domestic market because they are looking for deals, promotions, and are easily swayed. In domestic markets also the type of promotion matters like in our case advertisement attracts more customer than consumer sales promotion. Reason is that advertisement has larger reach than consumer sales promotion. Attractive advertisements do there work effectively and if product is of good quality than company has scope for expansion in future.

2. Where are you most likely to emphasize consumer sales promotions?

Ans. Consumer sales promotion attempts to motivate customers to buy a product using rebates, contests, and premiums (i.e., “prizes”). Consumer sales promotion is to used in each market but budget will depend on attractiveness of market (i.e., number of consumer and buying power of consumer). Company need to spend very judiciously on promotion because above certain limits returns will be negative. Consumer sales promotions is most likely to be used in shoes stores where consumers come on regular basis to buy the shoes. This will help company to boost it's sales.

3. Which market does not respond to consumer promotion very well?

Ans. Foreign market do not respond to consumer promotion very well. They do not care about price and promotions. Besides local markets also do not respond very much if too much amount is spent on consumer promotion because the cost of promotion will exceed the benefits earned by company in terms of profits.  

4. What happens if you spend $4 million on advertising in a region? $1.5 million on consumer promotion?

Ans. If you spend $4 million on advertising in a region & $1.5 million on consumer promotion then impact on profits is going to be negative. Advertising expenditures over $2 million in a market will have little effect on sales. Same way consumer promotion over $1 million in a market do little to generate additional sales. This means that amount of $ 2 million spent on advertising and $ 0.5 million spent on consumer promotion is going in vain. That means that this amount would increase company's losses instead of giving profits.

5. A firm thinks its consumer promotion expenditures are too high and wants to cut $500,000 from the budget. Management estimates it will lose 10,000 units in sales if it does. If gross margin is $40 per unit, does cutting the promotion budget make sense?

Ans. Based on management estimates it is worth wile to cut amount spent on consumer promotion expenditures of $ 500,000. As gross margin will be only $ 400,000 (10000 * 40 p.u.) where as expenditure on promotion is $ 500,000. It will increase the company losses by $ 100,000. So, cutting the promotion budget makes sense.