Question

As a marketing manager for one of the world’s largest automakers, you are responsible for the advertising campaign for a new energy-efficient sports utility vehicle. Your support team has prepared the following table, which summarizes the (year-end) profitability, estimated number of vehicles sold, and average estimated selling price for alternative levels of advertising. The accounting department projects that the best alternative use for the funds used in the advertising campaign is an investment returning 9 percent. In light of the staggering cost of advertising (which accounts for the lower projected profits in years 1 and 2 for the high and moderate advertising intensities), the team leader recommends a low advertising intensity in order to maximize the value of the firm.

a) Evaluate the impact of advertising intensity on profitability
b) Discuss the trade-off between advertising and investment returns
c) Analyze the team leader's recommendation and its rationale
d) Identify factors influencing the success of an advertising campaign

Answer 1

Advertising intensity can impact profitability. The trade-off between advertising and investment returns must be considered. Factors like target audience and message effectiveness influence the success of an advertising campaign.

Step-by-step explanation:

Advertising intensity can have a significant impact on profitability. Generally, a higher advertising intensity leads to increased sales, which in turn can drive higher profits. However, it's important to note that the costs associated with advertising can also eat into profits, especially in the short term. The table provided in the question shows that higher levels of advertising intensity result in lower profits in the early years due to the higher advertising costs.

The trade-off between advertising and investment returns is a crucial consideration for marketing managers. In this case, the accounting department suggests that the best alternative use for the funds used in advertising is an investment returning 9 percent. This suggests that if the returns from advertising are not significantly higher than 9 percent, then the company may be better off investing the funds instead. Marketing managers must carefully assess the potential returns from advertising and compare them to alternative investment opportunities.

The team leader's recommendation to opt for a low advertising intensity is based on the rationale of maximizing the value of the firm. This implies that the potential returns from advertising at higher intensity levels may not outweigh the costs associated with it, especially in the earlier years of the campaign. By choosing a lower advertising intensity, the firm can minimize costs and potentially achieve a satisfactory level of profitability.

Several factors influence the success of an advertising campaign. These include the target audience, message effectiveness, channel selection, and campaign duration. Understanding the target audience and tailoring the message to resonate with their needs and preferences is crucial. Selecting the right channels to reach the target audience effectively, and maintaining a consistent and engaging campaign over time, are also vital for success.