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 and Johnson (HJ). The management team requested HJ’s recommendation concerning how the advertising budget should be distributed across television, radio, and internet 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|
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 internet 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 the 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 the 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 internet 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 internet advertising.
Develop a model that can be used to determine the advertising budget allocation for the Flamingo Grill. Include a discussion of the following items in the report:
- A schedule showing the recommended number of television, radio and internet advertisements and the budget allocation for each medium. Show the total exposure and indicate the total number of potential new customers reach.
- A discussion of how the total exposure would change if an additional $10,000 were added to the advertising budget.
The Flamingo Grill is an upscale restaurant located in St. Petersburg, Florida. Adopting a higher corporate strategy the restaurant management wants to reach out people by several marketing methods. Flamingo’s management team hired advertising firm Haskell & Johnson (H&J) to recommend how their advertising budget of $279,000 should be allocated across television, radio, and internet advertisements. Like other companies the Flaming Grill has some constraints in the marketing strategy which needs to be taken care of by the advertising firm H&J.
Maximize the total exposure rating across all media, while reaching at least 100,000 new customers.
A linear programming model needs to be created which will take care of the objective and the constraints. The model is described below
- Decision Variables
T1: Number of TV advertisements with rating of 90 and 4000 new customers
T2: Number of TV advertisements with rating of 55 and 1500 new customers
R1: Number of Radio advertisements with rating of 25 and 2000 new customers
R2: Number of Radio advertisements with rating of 20 and 1200 new customers
I1: Number of Internet advertisements with rating of 10 and 1000 new customers
I2: Number of Internet advertisements with rating of 5 and 800 new customers
- Objective Function: – To maximize the total exposure rating across all media.
Max 90T1 + 55T2 + 25R1 + 20R2 + 10 I1 + 5I2
$10000T1 + $10000T2 +$3000R1 + $3000R2 + $1000 I1 + $1000 I2 <=$279000 (Total Budget)
4000 T1 + 1500 T2 +2000 R1 + 1200 R2 + 1000 I1 + 800 I2 >= 100000 (Customer Reach)
R1+R2>=2(T1+T2) (Radio ads should be at least twice of TV ads)
It can be written as,
R1+ R2 -2T1 -2T2 >= 0
T1 + T2 <= 20 (TV Advertisements Upper bound)
$10000 T1 + $10000 T2 >= $140000 (TV budget Lower bound)
$3000 R1 + $3000 R2 <= $99000 (Radio Budget Upper bound)
$1000 I1 + $1000 I2 >=$ 30000 (Online budget Lower bound)
T1 <=10 (Television first 10 ads)
R1 <=15 (Radio first 15 ads)
I1 <=20 (Internet first 20 ads)
T1, T2, R1, R2, I1, I2 >= 0 (Non-Negativity constraint)
T1, T2, R1, R2, I1, I2= Integer
This program was entered in excel and solved using the solver
- Number of ads in different media
- Budget allocation for different media
- Advertising Schedule:
|Media||Number of Ads||Budget|
Total Exposure: 2160 (Cell L4 in sheet1)
Total New Customers Reached: 127,100 (Cell L7 in sheet1)
2. The shadow price for the budget constraint is 0.0055 (Cell E29 in sensitivity report). So, if an additional $10,000 were added to the advertising budget, total exposure will increase by 55 (0.0055*10000) points
|Microsoft Excel 15.0 Answer Report|
|Report Created: 4/23/2019 4:33:23 PM|
|Result: Solver found a solution. All Constraints and optimality conditions are satisfied.|
|Objective Cell (Max)|
|Cell||Name||Original Value||Final Value|
|Cell||Name||Original Value||Final Value||Integer|
|$L$10||TV budget LB Value||150000||$L$10>=$N$10||Not Binding||10000|
|$L$11||Radio budget UB Value||99000||$L$11<=$N$11||Binding||0|
|$L$12||Internet budget LB Value||30000||$L$12>=$N$12||Binding||0|
|$L$13:$L$15 <= $N$13:$N$15|
|$L$6||Total Budget Value||279000||$L$6<=$N$6||Binding||0|
|$L$7||Customer Reach Value||127100||$L$7>=$N$7||Not Binding||27100|
|$L$8||Radio Lower bound Value||3||$L$8>=$N$8||Not Binding||3|
|$L$9||TV Upper bound Value||15||$L$9<=$N$9||Not Binding||5|
|Report Created: 4/23/2019 4:38:10 PM|
|$L$10||TV budget LB Value||150000||0||140000||10000||1E+30|
|$L$11||Radio budget UB Value||99000||0.001166667||99000||10000||5625|
|$L$12||Internet budget LB Value||30000||-0.0005||30000||10000||10000|
|$L$13:$L$15 <= $N$13:$N$15|
|$L$6||Total Budget Value||279000||0.0055||279000||15000||10000|
|$L$7||Customer Reach Value||127100||0||100000||27100||1E+30|
|$L$8||Radio Lower bound Value||3||0||0||3||1E+30|
|$L$9||TV Upper bound Value||15||0||20||1E+30||5|
|Radio Lower bound||-2||-2||1||1||0||0||3||>=||0|
|TV Upper bound||1||1||0||0||0||0||15||<=||20|
|TV budget LB||10000||10000||0||0||0||0||150000||>=||140000|
|Radio budget UB||0||0||3000||3000||0||0||99000||<=||99000|
|Internet budget LB||0||0||0||0||1000||1000||30000||>=||30000|
|TV first 10||1||0||0||0||0||0||10||<=||10|
|Radio first 15||0||0||1||0||0||0||15||<=||15|
|Internet first 20||0||0||0||0||1||0||20||<=||20|
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