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Information Needed when Considering an Increase in Advertising Budget

The advertising manager of a large firm asked you, the vice president of marketing, to approve a $500,000 increase in the advertising budget for one of the company's brands. She predicts that the additional $500,000 in advertising will increase the brand's sales by $2,000,000. Even if you were 100 percent sure that her prediction was correct, what additional information would you still need before making a decision?

Solution Preview

A $2,000,000 return on sales for a $500,000 advertising investment means a $4 return in sales per $1 investment in advertising which is impressive, but there are a few things I would need to know:

1) Will the increase in sales of this brand come at the expense of another of the company's brands? For example, does the company have two complimentary brands, one that will benefit from the ads and another that will lose sales? If the sales increase $2,000,000 at the expense ...

Solution Summary

The solution describes what information must be considered by the VP of marketing to make the decision to spend $500,000 more on advertising, even when given a guaranteed quadruple return. 314 words.