Strategy Two. Expected Sales. Probability. Revenue. 500,000 .10. $ 50,000. 600,000 .25. 150,000. 700,000 .35. 245,000. 8
Exquisite Foods - Expected Value A. Of the three strategies presented, Exquisite Foods Incorporated should select Strategy Two which, based on profitability, will yield $447,500 in contribution from expected sales. Strategy One Contribution from sales (given): $430,000 Strategy Two Expected Sales
Probability
Revenue
500,000 600,000 700,000 800,000 900,000
.10 .25 .35 .20 .10
$ 50,000 150,000 245,000 160,000 90,000
Expected Additional Revenue
$695,000
Expected additional costs: Coupon (1,000,000 x .15 x $.25) Consultant
$ 37,500 5,000
Newspaper Ads
205,000
Total expected additional costs
247,500
Expected contribution from additional sales
$447,500
Strategy Three Expected Sales
Probability
Revenue
400,000 450,000 500,000 550,000 600,000
.10 .30 .35 .20 .05
$ 40,000 135,000 175,000 110,000 30,000
Expected Additional Revenue
$490,000
Expected additional costs: Rebate (500,000 x .10 x $.50) Consultant Printing Total expected additional costs Expected contribution from additional sales
$ 25,000 5,000 35,000 65,000 $425,000
Exquisite Foods - Expected Value B.
Before selecting a promotion alternative criteria, other than profitability, that Exquisite Foods Incorporated should consider include: •
The long-term objective of the promotion, i.e. reach new customers or encourage repeat customers.
•
The effectiveness of each alternative in reaching the targeted market.
•
The effect of the new product on sales of existing products.
•
The actions and possible reactions of competitors.
•
Past success rates of these types of promotional strategies.
