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| Management EGM 530 Case Study – Planning an cost for each ad. Advertising Media Exposure Rating per Ad Television 90 4000 Radio 25 2000 Newspaper 10 1000 customers. |
Science
Sensitivity Analysis
Advertising Campaign
The Flamingo Grill is an upscale restaurant located in St.
Petersburg, Florida. To help plan an advertising campaign for
the coming season, Flamingo’s management team hired the
advertising firm of Haskell & Johnson (HJ). The management
team requested HJ’s recommendation concerning how the
advertising budget should be distributed across television, radio,
and newspaper advertisements. The budget has been set at
$279,000. In a meeting with Flamingo’s management team, HJ
consultants provided the following information about the
industry exposure effectiveness rating per ad, their estimate of
the number of potential new customers reached per ad, and the
New Customers per Ad Cost per Ad
$10,000
$ 3,000
$ 1,000
The exposure rating is viewed as a measure of the value of the
ad to both existing customers and potential new customers. It is
a function of such things as image, message recall, visual and
audio appeal, and so on. As expected, the more expensive
television advertisement has the highest exposure effectiveness
rating along with the greatest potential for reaching new
At this point, the HJ consultants pointed out that the data
concerning exposure and reach were only applicable to the first
few ads in each medium. For television, HJ stated that the
exposure rating of 90 and the 4000 new customers reached per
ad were reliable for the first 10 television ads. After 10 ads, the
benefit is expected to decline. For planning purposes, HJ
recommended reducing the exposure rating to 55 and the
estimate of the potential new customers reached to 1500 for any
television ads beyond 10. For radio ads, the preceding data are
reliable up to a maximum of 15 ads. Beyond 15 ads, the
exposure rating declines to 20 and the number of new customers
reached declines to 1200 per ad. Similarly, for newspaper ads,
the preceding data are reliable up to a maximum of 20; the
exposure rating declines to 5 and the potential number of new
customers reached declines to 800 for additional ads.
Flamingo’s management team accepted maximizing the total
exposure rating, across all media, as the objective of the
advertising campaign. Because of management’s concern with
attracting new customers, management stated that the
advertising campaign must reach at least 100,000 new
customers. To balance the advertising campaign and make use of
all advertising media, Flamingo’s management team also
adopted the following guidelines.
● Use at least twice as many radio advertisements as television
advertisements.
● Use no more than 20 television advertisements.
● The television budget should be at least $140,000.
● The radio advertising budget is restricted to a maximum of
$99,000.
● The newspaper budget is to be at least $30,000.
HJ agreed to work with these guidelines and provide a
recommendation as to how the $279,000 advertising budget
should be allocated among television, radio, and newspaper
advertising
Managerial Report
Develop a model that can be used to determine the advertising
budget allocation for the Flamingo Grill. Include a discussion of
the following in your report.
1. A schedule showing the recommended number of television,
radio, and newspaper advertisements and the budget allocation
for each medium. Show the total exposure and indicate the total
number of potential new customers reached.
2. How would the total exposure change if an additional $10,000
were added to the advertising budget? 3. A discussion of the
ranges for the objective function coefficients. What do the
ranges indicate about how sensitive the recommended solution is
to HJ’s exposure rating coefficients?
4. After reviewing HJ’s recommendation, the Flamingo’s
management team asked how the recommendation would
change if the objective of the advertising campaign was to
maximize the number of potential new customers reached.
Develop the media schedule under this objective.
5. Compare the recommendations from parts 1 and 4. What is
your recommendation for the Flamingo Grill’s advertising
campaign?
Submission Date: Monday 13/06/2018
Ali Saleh