A retailer, Kohl’s expects to sell $53,000 worth of a supplier, Rachel Ray, cook

Question

A retailer, Kohl’s expects to sell $53,000 worth of a supplier, Rachel Ray, cooking pans in a typical month without any advertising. In August, while running a newspaper ad campaign that cost $2,800, the store sells $77,000 worth of cooking pans. It engages in no other promotions or non-recurring events during the month. The current margin Kohl’s makes on cooking pans is 35%. For the month of September, Kohl’s has negotiated a deal with Rachel Ray, who will offer a one-month promotional opportunity to purchase cooking pans at price discounted by 16% ($9 x .65 x .16 = 0.936). Currently, Kohl’s sells cooking pans at a price of $9.00, but they plan on reducing the price by $0.90 during the promotion. The current margin Kohl’s makes on cooking pans is 35%.Top of Form

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QUESTION 1: What were the total incremental sales generated by the newspaper ad campaign?

QUESTION 2: What was the lift (%) from the ad promotion?

QUESTION 3: What was the cost to the retailer per incremental sales dollar achieved as a result of the advertising?

QUESTION 4: Based on the margin, what is Kohl’s cost per cooking pan in any regular month?

QUESTION 5: In September the month with the extra discount, what was the percentage of pass-through on cooking pans?

Explanation / Answer

QUESTION 1

Total incremental sales= Total sales - Baseline sales

Total incremental sales=77,000-53,000 =$24,000

QUESTION 2

Lift % = Incremental sales / Baseline sales

Lift %=24,000/53,000 =45.28%

QUESTION 3

Cost of incremental sales = Marketing spending / Incremental sales

Cost of incremental sales = 2,800 / 24,000= $0.116

QUESTION 4

Cost per cooking pan=(Pan price) * (1- Margin%)

Cost per cooking pan =(9)(1-.35)

=$5.85

QUESTION 5

Pass-through % = Discounts given to customers / Discounts given to retailers

=0.9/0.936=96.15%

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