Topic 2 DQ 2
Feb 15-19, 2024
Review Cases 2.29 and 2.30 in your textbook. Respond to the questions in 2.30, supported by data that you calculate for 2.29. Discuss how a company’s policy can encourage or prevent employees from engaging in unethical behavior in order to meet quotas.
To participate in follow up discussion, ask questions and post comments regarding classmates’ posts, or respond to follow-up questions posted by the instructor.
Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.
Ryan Cooper
Feb 18, 2024, 2:47 PM
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Question 2.29
a)Total cost = variable cost x volume + fixed cost
Fixed costs = Banner ad development of $7,200
Variable costs = Banner ad placement of $1.50 per thousand impressions + Banner ad click-throughs of $0.60 per click-through
The scenario estimates 1,000,000 ad impressions, and of those 1% will click-through. Therefore:
Variable costs = ($1.50 * (1,000,000 / 1,000) = $1,500) + ($0.60 * 10,000 = $6,000). Therefore, total variable costs are $7,500
Total costs = $7,500 + $7,200 = $14,700
b) The expected cost of acquiring a new customer is $14,700 / total customers that make a purchase
Therefore:
Total expected click-through = 10,000 and of those only 20% will make a purchase. Therefore total customers = 2,000
Total cost per new customer is $14,700 / 2,000 = $7.35 per customer
c) Estimated cost to get one additional customer
Current total customers is 2,000 in order to get 2,001 customers we need to solve the following equation:
X = .20y where X = total customers and Y = total impressions. In this case we are solving for Y.
2001 = .20y
Therefore y = 10005 (for every new customer we need 5 additional impressions)
New variable cost for Banner ad click-throughs = $0.60*10,005 = $7,503
Therefore,
Total costs = $7,503 + $7,200 = $14,703
Total cost per customer = $14,703 / 20001 = $7.34 as volume increases the price per customer decreases
Question 2.30
a) No, it was not ethical for Sami to enlist the help of her friends because it gave a false impression of how many customers actually viewed the banner ads. In addition, by simply clicking through the ad only drove up the variable costs, but did not lead to additional customers.
b) Yes, the total cost from part a would change because the total ad impressions and click throughs would change.
c) It caused Bohlander Botanicals to spend more money on ad click-throughs, but it did not result in any additional customers. Therefore, the total costs increased based on volume. Whereas, if total volume naturally increased the total customers would have increased and the cost per customer would have been cheaper as volume increased.
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