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 Adam currently has an awareness level of 77% . While an important product for Andrews, Adam’s promotion budget will be reduced to one million dollars for the upcoming year. Assuming that Adam loses one-third of its awareness each year, what will Adam’s awareness level be next year?

Answer 1

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%