Assume that you are the product manager for “Snickers” chocolate bars. You sell these to retailers for $ 0.50 each. Retailers sell these bars to consumers for $ 1.00 each. Each Snickers bar package contains a $ 0.10 coupon that consumers can redeem by returning it to the manufacturer (i.e., you). Based on historical data, you expect 10% of the consumers to redeem their coupons. It costs you $ 0.09 to manufacture each bar. In a normal year, you sell 30 million bars, and spend $ 10 million on marketing campaigns.
a. In order to boost sales in 2019, you are planning to launch an additional campaign involving TV advertising and in-store displays. This additional campaign will cost you $ 2 million. How many additional Snickers bars will you need to sell to break-even on the additional marketing spending/investment of $ 2 million?
b. If you eventually end up selling a total of 40 million bars during the year, what would be your ROMI (return on the additional marketing spending/investment of $ 2 million)?
c. Trend research indicates that more and more consumers care about health and wellness. Accordingly, in 2019 Snickers is looking into launching a low-calorie version made with the natural sweetener, Stevia. The new bar will be called “Snickers Lite,” and will be available for sale to consumers at the same $1.00 price point as regular Snickers. Retailers have agreed to work on the same margins as the regular Snickers bars. However, it will cost the company $0.14 to manufacture each bar of “Snickers Lite” due to the more costly natural ingredients. The company will offer a $.10 coupon on the “Lite” bars, similar to that offered with regular Snickers bars and expects similar redemption rates. Preliminary forecasts indicate that the “Snickers Lite” bar will generate annual sales of 4 million bars, but that 40% of those sales will come directly from the regular Snickers brand. Incremental advertising to drive awareness and purchase of “Snickers Lite” is expected to be $1.5 million over the normal annual $10 million spending. Based purely on the
economics
, would you advise management to launch the new “Snickers Lite” bar? Please show your step-by-step calculations clearly.
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