Jul 072012
The need to justify a firm’s promotional investment, using some of return on investment assessment, is starting to become more common practice. For each of the following decisions, determine whether the promotional expenditure generates a positive return on investment. The first one has been done as an example for you. (Note: Just do simple calculations and do not calculate net present values.)
ACTIVITY/TASK
Brand A  Calculations 

Extra sales = $1m 

Profit on extra sales = $100,000
(That is, 10% margin on extra sales) 

Profit/loss after advertising = $100,000 loss 
Therefore, should not undertake the advertising 
Brand B  Calculations 






Brand C  Calculations 







QUESTIONS
 Start by completing the above two examples.
 How difficult will it be to estimate the likely increase in sales prior to undertaking the promotional campaign? Therefore, how reliable are the estimates of return on investment that you have calculated?
 How would firms typically find/determine the assumptions/information they need to do these calculations?
 Are there any situations where a firm would undertake a promotional campaign that did not appear to be financially justified?
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