Flamingo Grill Advertising Allocation Strategy
he 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 & Johnson (HJ). The
management team requested HJ's recommendation concerning how the
advertising budget should be distributed across television, radio, and newspaper
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 / Ad New Customers / Ad Cost / Ad
Television 90 4000 $10,000
Radio 25 2000 $ 3,000
Newspaper 10 1000 $ 1,000
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 media.
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 number of new
customers reached declines to 1200 per ad.
For newspaper 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
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 advertising media,
Flamingo's management team also adopted the following guidelines.
• Use at least twice as many radio advertisements as television advertisements.
Flamingo Grill Advertising Allocation Strategy
• Use no more than 20 television advertisements.
• The television budget should be at least $140,000.
• The radio advertisingbudget is restricted to a maximum of $99,000.
• The newspaper 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 newspaper advertising.
Managerial Report
Develop a model that can be used to determine the advertising budget
allocation for the Flamingo Grill. Include a discussion of the following in your
report.
1. A schedule showing the recommended number of television, radio, and
newspaper advertisements and the budget allocation for each media. Show the
total exposure and indicate the total number of potential new customers
reached.
Advertising Potential Exposure $allocated
T.V. 15 47500 1175 150000
Radio 33 51600 735 99000
Newspaper 30 28000 250 30000
Total 127100 2160 279000
2. How would the total exposure change if an additional $10,000 were added to
the advertising budget?
The exposure rating would rise to 2215
3. A discussion of the ranges for the objective function coefficients. What do the
ranges indicate about how sensitive the recommended solution is to HJ's
exposure rating coefficients?
The ranges should indicate a high degree of sensitivity of the exposure
coefficients to the recommended solution
4. After reviewing HJ's recommendation, the Flamingo's management team
asked how the recommendation would change if the objective of the advertising
campaign was to maximize the number of potential new customers reached.
Develop the media schedule under this objective.
Flamingo Grill Advertising Allocation Strategy
Advertising Potential Exposure $allocated
T.V. 14 46000 1120 140000
Radio 28 45600 635 84000
Newspaper 55 48000 375 55000
Total 139600 2130 279000
5. Compare the recommendations from parts 1 and 4. What is your
recommendation for the Flamingo Grill's advertising campaign?
The potential customers reached rises by 12500 but the exposure rating drops
by 30 units. Less money is allocated to tv and more money is allocated to
newspaper advertising.
