2.29 (LO 1) Calculate expected costs Bohlander Botanicals develops hybrid tea roses. A relative newcomer to the field, Bohlander is looking for innovative ways to advertise its products to potential customers. Rose Mayfield, sales manager and avid online shopper, wonders about advertising the company’s roses on various gardening websites. She has contacted Kimland Media, Inc., an advertising firm specializing in Internet advertising campaigns, to explore some options.
After meeting with Rose, Sami Landon, regional sales coordinator, has suggested that Bohlander use a targeted marketing strategy by placing banner ads on a few gardening websites. Bohlander would pay for the service based primarily on the number of ad impressions (the number of times the ads are shown). Using past campaigns as a guide, Sami has prepared the following quarterly estimate for Bohlander.
|Banner ad development (6 banners per quarter)||$7,200|
|Banner ad placement||$1.50 per thousand impressions|
|Estimated ad impressions||1,000,000|
|Banner ad click-throughs||$0.60 per click-through|
From past experience, Kimland Media estimates that 1% of all viewers will “click through” the banner ad to Bohlander’s website. Of those viewers who click through, Kimland estimates that 20% will actually make a purchase.
a. What is the expected total cost per quarter of Bohlander’s Internet advertising campaign?
b. Given Sami’s cost estimates, what is Bohlander’s expected cost of acquiring a new customer through the campaign?
c. Using the information you just calculated, what is the estimated cost to get one more person to click through and make a purchase?
2.30 Ethics (This is a continuation of ) On March 15, Jeff Blake, Kimland Media’s sales director, stopped by Sami Landon’s cubicle. “Sami, I’ve been reviewing your accounts, and they aren’t generating as much revenue as we had hoped. If you want to achieve your quota for the quarter, you’re going to have to bump it up a bit.”
Sami thought for a few minutes about how she might increase her revenue pool. She could sign some new customers, but she didn’t have any strong leads, and developing the ones she had would take too much time. She couldn’t create new banner ads for her current customers. Then it dawned on her: She could increase her variable revenue through increased click-through counts on her existing banner ads.
Sami got on the phone and called her friends and family members. “I need a small favor. Would you go to www.tearosegarden.com and look for the Bohlander ad? Then just click through the ad as many times as you can.”
a. Was it ethical for Sami to enlist the help of friends and family to drive up the number of click-throughs to Bohlander’s website? Why or why not?
b. Would your answer to part (a) change if Sami’s friends and family members actually made a purchase from Bohlander? Why or why not?
c. What impact did Sami’s actions have on Bohlander Botanicals?