Brand managers know that increasing promotional budgets eventually result in diminishing returns. The first one million dollars typically results in a 26% increase in awareness, while the second million results in adding another 18% and the third million in a 5% increase. Andrews’s product Awe currently has an awareness level of 80% . While an important product for Andrews, Awe promotion budget will be reduced to one million dollars for the upcoming year. Assuming that Awe loses one-third of its awareness each year, what will Awe awareness level be next year?

The Expected Awareness level for the next year will be 58%

Explanation:

In order to calculate the Expected Awareness level, first we have to calculate opening awareness level using the following formula:

Opening awareness level=Closing level−Decrease in awareness per year

                                          =80%−(1/3×80%)

                                          =80%−26.4%

                                          =53.6%

After having calculated the Opening awareness level we can calculate the Expected Awareness level for next year with the following formula:

Expected Awareness level=Opening awareness level+Increase in level

                                             =53.6%+5%

                                             =58%

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