A small bath tissue manufacturer is considering two sales promotions: a 50% OFF coupon promotion or a reusable container (premium) promotion. If the manufacturer uses a coupon promotion, 1,000,000 coupons are to be distributed with the expectation of a 2.5% redemption rate. The costs of printing and distributing the coupons is $250,000. The other option is to offer a FREE canister (premium) for every purchase. The premium being considered costs $0.50 per unit. There are no other costs associated with running the canister promotion. Historical records show that coupon promotions typically double the product's average monthly sales while a premium promotion increases sales by only 50%. Neither promotions affect the next month sales. On an average month, the product being considered for sales promotion sells 100,000 units at its regular price of $10.00, and its unit contribution at full price is $6.00. Based on contributions after sales promotions, which sales promotions should the manufacturer use?
a. The manufacturer can use either the coupon or the premium promotion.
b. The manufacturer should not use either sales promotion.
c. The manufacturer should use the coupon promotion.
d. The manufacturer should use the premium promotion.
Answers: 1
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