Needing help on 3-7 The Flamingo Grill is an upscale restaurant located in St. P
ID: 431010 • Letter: N
Question
Needing help on 3-7
The Flamingo Grill is an upscale restaurant located in St. Petersburg, Florida. To help plan an advertising campaign for the coming season, Flamingo's management team hired the advertising firm of Haskell & Johnson (HJ). The management team requested HJ's recommendation concerning how the advertising budget should be distributed across television, radio, and newspaper advertisements. The budget has been set at $279,000.
In a meeting with Flamingo's management team, HJ consultants provided the following information about the industry exposure effectiveness rating per ad, their estimate of the number of potential new customers reached per ad, and the cost for each ad.
Advertising Media
Exposure rating per ad
New Customers per ad
Cost per ad
Television
90
4000
10000
Radio
25
2000
3000
Newspaper
10
1000
1000
The exposure rating is viewed as a measure of the value of the ad to both existing customers and potential new customers. It is a function of such things as image, message recall, visual and audio appeal, and so on. As expected, the more expensive television advertisement has the highest exposure effectiveness rating along with the greatest potential for reaching new customers.
At this point, the HJ consultants pointed out that the data concerning exposure and reach were only applicable to the first few ads in each medium. For television, HJ stated that the exposure rating of 90 and the 4000 new customers reached per ad were reliable for the first 10 television ads. After 10 ads, the benefit is expected to decline. For planning purposes, HJ recommended reducing the exposure rating to 55 and the estimate of the potential new customers reached to 1500 for any television ads beyond 10. For radio ads, the preceding data are reliable up to a maximum of 15 ads. Beyond 15 ads, the exposure rating declines to 20 and the number of new customers reached declines to 1200 per ad. Similarly, for newspaper ads, the preceding data are reliable up to a maximum of 20; the exposure rating declines to 5 and the potential number of new customers reached declines to 800 for additional ads.
Flamingo's management team accepted maximizing the total exposure rating, across all media, as the objective of the advertising campaign. Because of management's concern with attracting new customers, management stated that the advertising campaign must reach at least 100,000 new customers. To balance the advertising campaign and make use of all advertising media, Flamingo's management team also adopted the following guidelines. Use at least twice as many radio advertisements as television advertisements.
Use no more than 20 television advertisements
The television budget should be at least $140,000
The radio advertising budget is restricted to a maximum of $99,000
The newspaper budget is to be at least $30,000
HJ agreed to work with these guidelines and provide a recommendation as to how the $279,000 advertising budget should be allocated among television, radio, and newspaper advertising.
Now, prepare a managerial report developing a model that can be used to determine the advertising budget allocation for the Flamingo Grill. Include a discussion of the following in your report,
1. A schedule showing the recommended number of television, radio, and newspaper advertisements and the budget allocation for each medium. Show the total exposure and indicate the total number of potential new customers reached.
2. How would the total exposure change if an additional $10,000 were added to the advertising budget?
3. A discussion of the ranges for the objective function coefficients. What do the ranges indicate about how sensitive the recommended solution is to HJ's exposure rating coefficients?
4. Independent of Q2, suppose a new marketing research data shows that for radio advertisements beyond 15 ads, the exposure rating declines to 15 (instead of 20 described earlier), and while for newspaper advertisement beyond 20 the exposure rating declines to 7 (instead of 5 described earlier). What would be the campaign plan then, and the resulted total exposure?
5. Independent of Q2-4, suppose that the Flamingo’s management team has raised the TV and newspaper minimum budgets to $150,000 and $40,000 respectively. What would be the campaign plan then, the resulted total exposure and new customers reached?
6. Independent of Q2-5, after reviewing HJ's recommendation in Q1, the Flamingo's management team asked how the recommendation would change if the objective of the advertising campaign was to maximize the number of potential new customers reached. Develop the media schedule under this objective.
7. Compare the recommendations made from Q1 and Q6. What is your final recommendation for the Flamingo Grill's advertising campaign?
Advertising Media
Exposure rating per ad
New Customers per ad
Cost per ad
Television
90
4000
10000
Radio
25
2000
3000
Newspaper
10
1000
1000
Explanation / Answer
optimal Solution:
TV Advertisements (T1 + T2)
10 + 5= 15
Radio Advertisements (R1 + R2)
15 + 18= 33
Newspaper Advertisements (N1 + N2)
20 + 10= 30
Media # of Ads Budgets:
Television (15)
$150,000
Radio (33)
$99,000
Newspaper (30)
$30,000
Totals (78):
$279,000
The allocation of ads in each media is in the following table
Advertising Media
Number of ads
Total Exposure
Total new customer reached
Total cost
Television
15
1175
47500
$150,000
Radio
33
735
51600
$99,000
Newspaper
30
250
28000
$30,000
Total
78
2160
127100
$279,000
The total exposure is: 2160.
Total New Customer Reached: 127,100 (surplus constraint 5)
The allocation of ads in each media is in the following table
Advertising Media
Number of ads
Total Exposure
Total new customer
Total cost
Television
16
1230
49000
$160,000
Radio
33
735
51600
$99,000
Newspaper
30
250
28000
$30,000
Total
79
2215
128600
$289,000
The total exposure is: 2215.
Actually, you can see that this additional $10,000 is all devoted to television ads. Creating an increase in the dual price of advertising by 0.006 points for each dollar. Right hand side range of the dual price shows the budget increase: $289,000-$279,000= $10,000 and provides an increase of 2.8% in the total exposure.
The ranges indicate how much the exposure rating coefficients can change so that the current optimal solution remains optimal. For example, if the range of exposure rating coefficient of Radio is (13, 19) then the exposure rating coefficient of television can go as low as 13, and as high as 19 to keep the current optimal solution the same.
Grill compares schedule 1 and schedule 4, Flamingo Grill should consider schedule 4 to stay within their budget and optimize new customers. Since schedule 1 has a total of 78 advertising media with a total cost of $279,000 and potential total of 127,100 new customers. Compare to Schedule 4, which has a total of 97 in advertising media, the same total cost of $279,000 and reaches a total of 139,600 potential new customers. Flamingo Grill objective is to maximize total exposure, appeal to repeat customers and new customers. More potential new customers will be reach by maximizing total exposure and put out more media advertising. In the end Flamingo Grill should strategically place their budget in schedule 4.
TV Advertisements (T1 + T2)
10 + 5= 15
Radio Advertisements (R1 + R2)
15 + 18= 33
Newspaper Advertisements (N1 + N2)
20 + 10= 30
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