Promotion methods — practice questions

The goal is to build local awareness and drive initial sales on a small budget. A Below-the-Line (BTL) and digital-focused mix is appropriate.

Step 1: Allocate the Budget A possible allocation could be:

• Social Media Ads: $1,500
• Event Sampling: $1,300
• Influencer Collaboration: $700
• Email Marketing Setup: $450
• Total Allocated: $3,950
• Contingency: $1,050

Step 2: Justify Each Component

• Social Media Ads ($1,500): Use Instagram and Facebook to target users by location (10km radius), age (25-45), and interests ('organic food', 'local business'). This is highly cost-effective for reaching the precise demographic.
• Event Sampling ($1,300): Rent a stall at a local farmers' market (e.g., 8 days at $100/day = $800) and provide free samples (cost of goods ≈ $500). This sales promotion tactic allows customers to try the product, reducing purchase barriers and generating immediate feedback.
• Influencer Collaboration ($700): Partner with local food bloggers or micro-influencers. For this fee, one could secure several posts/stories, providing credible third-party endorsement (PR) to their followers, who are part of the target audience.
• Email Marketing ($450): Set up a simple email list (e.g., using Mailchimp, approx. $150 for 3 months) to capture customer details at the market stall. This direct marketing channel builds a long-term asset for promoting special offers and new products, fostering loyalty.

Conclusion: This mix is cost-effective, highly targeted, and integrates different BTL methods to achieve the objectives within the $5,000 budget. It avoids the high cost and wastage of mass media (ATL) like TV or national newspapers.

To determine the best option, we will calculate the total contribution and the Return on Investment (ROI) for each campaign. The ROI formula is: $ROI = \frac{\text{Net Return (Total Contribution - Cost)}}{\text{Cost of Investment}} \times 100\%$

Step 1: Calculate ROI for Option A (Newspaper Ad)

• Total Contribution: 250 sales × $80 contribution per unit = $20,000
• Net Return: $20,000 (Total Contribution) - $5,000 (Cost) = $15,000
• ROI Calculation: $ROI_A = \frac{\text{\textdollar}15,000}{\text{\textdollar}5,000} \times 100\% = 3 \times 100\% = 300\%$

Step 2: Calculate ROI for Option B (Social Media Campaign)

• Total Contribution: 100 sales × $80 contribution per unit = $8,000
• Net Return: $8,000 (Total Contribution) - $3,000 (Cost) = $5,000
• ROI Calculation: $ROI_B = \frac{\text{\textdollar}5,000}{\text{\textdollar}3,000} \times 100\% \approx 1.67 \times 100\% = 167\%$

Step 3: Compare and Recommend

• Option A (Newspaper): Net Return = $15,000; ROI = 300%
• Option B (Social Media): Net Return = $5,000; ROI = 167%

Recommendation: Based purely on the financial returns for this specific campaign, Option A (Newspaper Ad) is the superior choice. It generates a significantly higher absolute net return ($15,000 vs $5,000) and a much higher Return on Investment (300% vs 167%). For every dollar spent on the newspaper ad, the business gets $3 back in net contribution, compared to only $1.67 for the social media campaign. While the social media campaign is cheaper, its effectiveness in generating sales is not enough to justify choosing it over the newspaper ad in this scenario.