Download Managerial Statistics I

QBA 121 – Managerial Statistics II
Having fun with Data - Solutions
We’ll go over a couple of cases today in class. The objective of these cases is to “get our hands
dirty” with some real data. In each situation I’ll introduce the problem. It’s your job, in small
groups, to figure out a solution.
Example #2: Optimizing Advertising Expenditure
International Timeshare Incorporated is trying to evaluate its advertising alternatives and
optimize spending on advertising. It has numerous advertising venues it can choose from, with
different costs and varying levels of effectiveness. To evaluate the effectiveness of advertising
using different media the company experimented during one week in 75 different markets. In
each market it varied the number and types of advertising utilized and measured audience
response. The advertising alternatives at its disposal are: (1) TV Daytime ads in 1 minute slots;
(2) TV Evening ads, in 30 second slots; (3) Daily newspaper ads – one quarter page; (4) Sunday
ads – one-eighth page; and (5) Radio ads in 30 second slots. They have two important response
measures that they follow: The number of purchases and the number of families reached. The
company tracks the Reach of its ads, because this builds brand awareness and familiarity with the
product. Data for the experimental markets is in the file: AdvertisingModel.xls.
Assignment:
Notes:
 Read the entire problem. Answer only parts A and C.
 Do not be concerned about fractions. Report all answers rounded to one decimal place.
Part
A:
How
do
I
evaluate
the
effectiveness
[1]
of
each
advertising
alternative.
QBA 121 – Managerial Statistics II
Part B: ITI wants to utilize the results from its experiment to implement an advertising initiative
in one representative market over the next month. Its objective is to maximize the number of
purchases during the month. To achieve this objective it has a limited advertising budget and
several additional constraints. The key decisions are how many ads of each type to purchase.
 The advertising budget is set at $46,000 for this month. Costs of different types of ads in this
market are given below.
 The VP of marketing has added to additional stipulations:
o The first is that the advertising initiative should reach at least 8,800 families (in
expectation). Remember to incorporate the intercept from the regression model.
o The second requirement is that at least 10 TV ads (of either type) be used.
 Based on past experience and local market factors there is a limit to the availability and
effectiveness of different types of ads. The table below lists those limits. Newspaper ads are
limited by the number of days in a month. Over-the-air advertising is less effective once the
audience is saturated. The marketing department will not purchase more ads of each type
than the amounts listed in the table.
Table 1: Cost and Limits of Advertisements
TV-Daytime TV-Evening Daily
Sunday
Radio
Cost per Ad
$2,500
$2,000
$600
$1,000
$425
Limit
15
20
26
4
40
discussed in other courses.
[2]
QBA 121 – Managerial Statistics II
[3]