Question

A local shoes factory received 1,500 inquiries following its latest advertisement describing its "buy one and get one for 50% less” promotion in the local newspaper. The most recent similar ad in a similar advertising campaign was in the local TV channel. The TV ad generated 500 inquiries. Each ad in the local newspaper costs $500. Each ad in the TV channel costs $125. Inquiries from both publications have the same success rate in turning inquiries into sales.
(a) Assuming that additional ads will generate similar response rates, is the shoes factory running an optimal mix of ads in the local new paper and the local TV channel?
(b) If you claim that the factory is currently not running an optimal mix of ads, clearly explain how it can better manage its ads.

Answer 1

a) The shoes factory is not running an optimal mix of ads in the local newspaper and the local TV channel. In the question it is given that each ad in the local newspaper cost $500 and it generates 1500 enquiries whereas each ad in the TV channel costs $125 and it generates 500 enquiries.

So for every dollar spent for each ad in the local newspaper, we get (1500/500)=3 inquires and for every dollar spent for each ad on local TV channel , we get (500/125) = 4 inquires.

b) From the calculations , we can see that per dollar worth is more for an ad in TV channel than a per dollar worth for an ad in local newspaper. In order to better manage its ads , the shoe company should only advertise in the local TV channel. We can see this by further calculations. We know when 500 dollars were spent for newspaper ad , there were 1500 inquires and now if we spend 500 dollars for  an ad in local TV channel, we can get (500*4) = 2000 inquires. This shows that the shoes factory should use only local TV channel for advertisment as this would be the most optimal advertising strategy for the shoe factory.