Management Science

Book Title: eTextbook: An Introduction to Management Science: Quantitative Approaches to Decision Making Chapter 4. Linear Programming Applications in Marketing, Finance, and Operations Management Case Problem 1. Planning an Advertising Campaign

Case Problem 1. Planning an Advertising Campaign

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 online

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:

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Advertising

Media

Exposure

Rating per Ad

New

Customers per

Ad

Cost per Ad

Television 90 4,000 $10,000

Radio 25 2,000 $ 3,000

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 online 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

Advertising

Media

Exposure

Rating per Ad

New

Customers per

Ad

Cost per Ad

Online 10 1,000 $ 1,000

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 online 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 online advertising.

Managerial Report

Develop 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

online 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?

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4. After reviewing HJ’s recommendation, 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.

5. Compare the recommendations from parts 1 and 4. What is your

recommendation for the Flamingo Grill’s advertising campaign?