Topics
return on investment (ROMI), advertising, profit analysis, campaign evaluation
Review the activity below or download the PDF student worksheet
Student Discussion Task
The need to justify a firm’s promotional investment, using some form of return on investment assessment, is now a common marketing practice.
For each of the following decisions, determine whether the promotional expenditure generates a positive return on investment (also known as marketing return on investment = ROMI). The first calculation has been completed as an example for you.
And please note: just do simple calculations and do not calculate net present values.
| Brand A | Calculations |
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Extra sales = $1m |
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Profit on extra sales = $100,000
(That is, 10% margin on extra sales) |
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Profit/loss after advertising = $100,000 loss |
Therefore, Brand A should not undertake the advertising
| Brand B | Calculations |
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| Brand C | Calculations |
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Student Discussion 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?
Related Activities
Pringles Chips WTF (Sales Promotion Campaign)
Will the Retailer Support the Sales Promotion?
External Information
What is Marketing ROI and How Do You Calculate It?
