Question

Brand managers know that increasing promotional budgets eventually result in diminishing returns. The first one million dollars typically results in a 26% increase in awareness, while the second million results in adding another 18% and the third million in a 5% increase. Andrews’s product Alan currently has an awareness level of 77% . While an important product for Andrews, Alan’s promotion budget will be reduced to one million dollars for the upcoming year. Assuming that Alan loses one-third of its awareness each year, what will Alan’s awareness level be next year?

Answer 1

Explanation:

Awareness level is currently 77%, or .77.

Awareness decreases by 33% per year, so without any additional promotion spending, awareness next year would be .77 * .66 (2/3 of 77%)

The 1 million dollar spending will increase awares by 26%, so the effect on awareness will be 0.77 * 1.26

To calculate awareness next year:

77% times (1.26 - .33)

= .77 * 0.93

= .716, or 71.6%

Answer 2

Answer:

Answer will be 52%

Explanation:

Current awareness 77%

Alan loses 1/3 of its awareness each year = 77*1/3 = x

Next year's awareness 77-x=52%