General Mills normally prices Cheerios at $4.69 for an 18 ounce box at Safeway.
ID: 464637 • Letter: G
Question
General Mills normally prices Cheerios at $4.69 for an 18 ounce box at Safeway. The Cheerios cost General Mills $1.00 per box to make, and they normally sell them to Safeway for $3.29. Two Cheerios promotions are run at Safeway: One promotion is a straight discount to $2.99 per box. The second Promotion is: Buy 2 Boxes for $7 In a normal week they sell 100 boxes of Cheerios The first promotion sells 150 incremental units The second promotion sells 130 incremental units. General Mills pays the retailer 90% of the amount of the discount to reduce Cheerios to the promoted price. Questions: Which Promotion is the best promotion for General Mills and which is the best for Safeway? Explain why? Based on what metrics? In the ideal world, what other data would you want to make a good decision on promotion effectiveness?
Explanation / Answer
it is better to promote the product as single units, i.e. offer each product at $2.99 per box. because in the second option when the sales are going to increase the firm will get less margin on each additional sale. it may not be profitable to the firm in the second alternative. so, it is better to offer each box at $2.99.
to make a right decision we need to know the exact market conditions to the product, consumer income levels, the necessity of the good, availablility of alternatives and so on. untill we have all these we may not make right decisions about the product sales and marketing. and also about our promotional campaign also we should think.
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