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 Able currently has an awareness level of 78% . While an important product for Andrews, Able’s promotion budget will be reduced to one million dollars for the upcoming year. Assuming that Able loses one-third of its awareness each year, what will Able’s awareness level be next year?

Answer 1

Answer:

78%

Explanation:

Able has an awareness level of 78%.

Next year, it will lose a third of its awareness level.

78% * 1/3 = 26%

78% - 26% = 52%

So the base awareness level of able for next year will be 52%, however, even if the company reduced the promotion budget, it still has 1 million dollars to invest, and the question is telling us that 1 million in promotion investment results in a 26% increase in awareness, therefore

52% + 26% = 78%

Thus, after investing the 1 million dollars, Able's awareness level next year will be the same as the current year: 78%