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ACCT - Darling Dinners Incorporated (DDI) sells premium foods

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Question;Darling Dinners Incorporated (DDI) sells premium foods. Three independent strategies are beingconsidered to promote a new product to families. Currently the contribution margin ratio onDDI?s foods is 65%, which is expected to apply to the new product. DDI's policy for promotingnew products permits only one type of advertising campaign until the product has beenestablished.STRATEGY ONEThe first strategy concentrates on television and magazine advertising. DDI would hire amarketing 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 magazineadvertisement would be place in magazines read by career-minded individuals. This advertisingcampaign would provide DDI $230,000 expected contribution from sales.STRATEGY TWOThe second strategy promotes the product by offering 25% off coupons in the Sunday newspapersupplements, with a projected 15 percent redemption rate on sales revenue. DDI would hire amarketing 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, DDI expects the following additional sales from this form ofadvertisement.Expected sales$500,000?600,000?700,000?800,000?900,000Probability10%??35??20??10??STRATEGY THREEThe third strategy offers a $0.50 mail-in rebate coupon attached to each box. DDI would hire a marketing consultant for $5,000 to create a one-sixth page, one-color rebate coupon. Printing andattaching costs for the rebate coupon are $0.07 per package, and DDI 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. DDI expects the following additional sales from this type of promotion:Expected sales$400,000?450,000?500,000?550,000?600,000Probability10%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?

 

Paper#43505 | Written in 18-Jul-2015

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