Question

Digby's Elite product Don has an awareness of 72%. Digby's Don product manager for the Elite segment is determined to have more awareness for Don than Andrews' Elite product Axe. She knows that the first $1M in promotion generates 22% new awareness, the second million adds 23% more and the third million adds another 5%. She also knows one-third of Don's existing awareness is lost every year. Assuming that Axe's awareness stays the same next year (77%), out of the promotion budgets below, what is the minimum Digby's Elite product manager should spend in promotion to earn more awareness than Andrews' Axe product?

Answer 1

Answer:

$2,000,000

Explanation:

current awareness of Digby's Don = 72%

next year it will decrease to 72% - 1/3 = 48% if the firm does nothing

• first $1,000,000 adds 22% awareness ⇒ total awareness = 48% + 22% = 70%
• second $1,000,000 adds 23% awareness ⇒ total awareness = 70% + 23% = 93%
• third $1,000,000 adds 5% awareness ⇒ total awareness = 93% + 5% = 98%

Don's competition, Axe, has an awareness level of 77% and it should remain the same next year. So, Digby as to spend at least $2,000,000 to earn more awareness than Axe. Don's awareness level will be 93%.