Question

Mazzio's Italian Eatery is a network of fast-casual Italian food restaurants offering award-winning pizzas, made-to-order pastas, hot toasted sandwiches, fresh specialty salads, appetizers, and desserts. With 165 restaurants in nine states, Mazzio's is rapidly growing and gaining popularity. Jackson Blakey has recently been promoted to Marketing Manager, and one of his first tasks is to evaluate the success of Mazzio's existing coupon promotions. Jackson has a directive from his Vice President, who is not sure of the value of coupons, to provide a detailed calculation of the cost per coupon redeemed. Couponing program expenses include the face value of the coupon redeemed plus costs for production, distribution, and handling of the coupons. Former Procter & Gamble chairman Ruck Jager who led efforts to rein in the company's use of coupons in the late 90s, has argued that they are extremely inefficient. He contends that it may cost as much as $50 to move a case of goods with coupons that may generate only $10 to $12 in gross profit. Marketers should track coupon costs very carefully to ensure their use is economically feasible. Read the report below, which provides a summary of Mazzie's current coupon strategy. and answer the questions that follow. Couponing program expenses include the face value of the coupon redeemed plus costs for production, distribution, and handling of the coupons. Jackson observes that Mazzie's is currently running about 12 million coupons per month using an FSI (freestanding insert) in the Sunday newspapers where their stores operate offering a coupon with a face value of $1.00 off on any pizza or pasta order. Jackson analyzes data from recent couponing efforts, and discovers that the redemption rate for the coupons is 2%. The average distribution cost per month is $75,000. Mazzio's currently pays an outside promotional firm $2,000 to design and create the coupons that appear in the newspapers each month. Mazzio's also pays each of their 165 franchises a $.05 processing fee for each coupon redemption at that store. For the most recent month Jackson examined, the actual number of coupon redemptions at Mazzio's restaurants was 200,000. Several store owners have also mentioned to Jackson their concern over misredemption issues, where the $1 discount is given without the coupon for example, which is projected to be 10% of all total redemptions. Jackson's assignment is to integrate all of this data and offer a clear picture of the cost per coupon redeemed.

What is the total monthly redemption cost for Mazzio's coupons for the most recent month?

Answer 1

The total monthly redemption cost for Mazzio's in the most recent month is $307,000, which includes the face value of the coupons redeemed, production, distribution, handling fees, and costs associated with misredemptions.

Step-by-step explanation:

The total monthly redemption cost for Mazzio's coupons for the most recent month can be calculated by summing up several expenses: the face value of the coupons redeemed, production costs, distribution costs, handling fees, and misredemption costs. Since the redemption rate is 2% for 12 million coupons, we have 240,000 coupons that Jackson predicts would be redeemed. However, actual redemptions are at 200,000. Taking into account the 10% misredemption rate, an additional 20,000 (10% of 200,000) must be considered as cost without physical coupon redemption. Therefore, we perform the following calculations:

• Face value redemption cost (including misredemptions): (200,000 + 20,000) × $1.00 = $220,000
• Production cost: $2,000
• Distribution cost: $75,000
• Handling/processing fee: 200,000 × $0.05 = $10,000

Adding these together gives us the total costs:

220,000 + 2,000 + 75,000 + 10,000 = $307,000

This figure represents the total cost associated with the coupon redemptions for that month.