Darling Dinners Incorporated (DDI)
Darling Dinners Incorporated (DDI)
Darling Dinners Incorporated (DDI) sells premium foods. Three independent strategies are being considered to promote a new product to families. Currently the contribution margin ratio on DDI’s foods is 65%, which is expected to apply to the new product. DDI's policy for promoting new products permits only one type of advertising campaign until the product has been established.
STRATEGY ONE
The first strategy concentrates on television and magazine advertising. Darling Dinners Incorporated would hire a marketing consultant to prepare a 30-second video commercial and a magazine advertisement.
The commercial would air during the evening to address the working market, while the magazine advertisement would be place in magazines read by career-minded individuals. This advertising campaign would provide Darling Dinners Incorporated $230,000 expected contribution from sales.
STRATEGY TWO
The second strategy promotes the product by offering 25% off coupons in the Sunday newspaper supplements, with a projected 15 percent redemption rate on sales revenue. Darling Dinners Incorporated would hire a marketing consultant for $5,000 to design a one-quarter page, two-color coupon advertisement.
The coupon would be distributed in the Sunday newspaper supplements at a cost of $195,000.
Based on prior experience, Darling Dinners Incorporated expects the following additional sales from this form of advertisement.
Expected sales
$500,000
?600,000
?700,000
?800,000
?900,000
Probability
10%
25??
35??
20??
10??
STRATEGY THREE
The third strategy offers a $0.50 mail-in rebate coupon attached to each box. Darling Dinners Incorporated would hire a marketing consultant for $5,000 to create a one-sixth page, one-color rebate coupon. Printing and
attaching costs for the rebate coupon are $0.07 per package, and Darling Dinners Incorporated is planning to include the rebate offer on 500,000 packages. Although 500,000 packages may be sold, only a 10 percent redemption rate is expected. Darling Dinners Incorporated expects the following additional sales from this type of promotion:
Expected sales
$400,000
?450,000
?500,000
?550,000
?600,000
Probability
10%
30??
35??
20??
?5??
REQUIRED:
1. Exquisite Foods Incorporated (DDI) wishes to select the most profitable marketing alternative to promote the new product. Recommend which of the three strategies presented above should be adopted by DDI. Support your recommendation with appropriate calculations and analysis.
2. What selection criteria, other than profitability, should be considered in arriving at a decision on the choice of promotion alternatives?
