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 80% . 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

Answer:

52.88%

Explanation:

The computation of the awareness level for next year is shown below

But before that we need to find out the ending awareness i.e Y which is

= 80% × (1 - 1 ÷ 3)

= 53.33%

Now awareness after the promotion is

= 53.33% + 26%

= 79.33%

Now the ending awareness i.e (Y +1)  is

= 79.33% × 2 ÷ 3

= 52.88%

Hence, the awareness level next year is 52.88%