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

Answer 1

Answer:

52%

Explanation:

Calculation for Ant’s awareness level be next year

First step

Based on the information given Ant current awareness level is 78% and we are told that Ant loses 1/3 of its awareness each year. Hence we are going to first calculate for Ant Starting awareness using this formula

Starting Awareness=Currently awareness level *(1-1/3 of awareness each year)

Starting Awareness=78%*2/3

Starting Awareness=52%

Second Step

Based on the information given we were told that the first one million dollars results in a 26% increase in awareness.This means that we are going to find the percentage of the awareness after promotion using this formula:

Awareness after promotion = Starting Awareness +increase in awareness

Awareness after promotion=52% + 26%

Awareness after promotion= 78%

The last step is to find the what Ant’s awareness level will be next year using this formula

Awareness level next year = Awareness after promotion * 2/3

Awareness level next year = 78%*2/3

Awareness level next year= 52%

Therefore Ant’s awareness level next year will be 52%