Skip to 0 minutes and 0 secondsLet's look at another TV advertising campaign that Ohio Art ran for one of their newest toys, Betty Spaghetty. Just like Etch A Sketch, we have few videos of the TV advertisements that Ohio Art tested. We have provided links on YouTube. Why don't you go watch them, and when you're back let's see what happened. Welcome back, hope you liked the ads. Now let's see what Ohio Art did with these ads. So Arizona was the test state. This is the state where the ads were run. The ads feature two of the stock keeping units, or skews as it's commonly called, of Betty Spaghetty, Color Crazy and Go Go Glam.
Skip to 0 minutes and 53 secondsThe test period, the time when the ads were run, was June 17-17 July. And the number of units they sold were 1.8 and 2.2 in total for the stores per week. Now they had a control state. So California was the control and Arizona is the test. The sales of Color Crazy and Go Go Glam in California were 0.3 and 1.2. So from here, we should be able to calculate the lift of sales provided to Betty Spaghetty by these TV ads. So how would we do that? So we would take 1.8+2.2 / 0.3+1.2. So how much is this going to be? As you know, I'm a bit slow with arithmetic. So, let's see what happens here. 10, and 4 over 1.5.
Skip to 2 minutes and 10 secondsOkay, whew, that was a bit scary over there but that's okay, let's see what that means. That's about 267%. It's 1.8+2.2 / 0.3+1.2. So one of the things if you notice that is different with the Betty Spaghetty from Etch A Sketch is that in Etch A Sketch you had sales of Etch A Sketch before the experiment. In Betty Spaghetty, we have sales only during the experiment. Now this is a practical reality when you do experiments in reality, right? Betty Spaghetty was not in the stores before the TV ads were run, so you really didn't have any pre-existing sales data.
Skip to 3 minutes and 3 secondsSo it's really difficult to compare this lift to any base, or to control this lift for any pre-existing differences between Arizona and California. That's just the way it is, we have to deal with it and then figure out and make a decision because that's the reality of the situation that Ohio Art faced. Now with lift of 267%, what do we have to do next? That's right, we have to think about the break even lift that is necessary for the national campaign. Now just like Etch A Sketch, let's walk through this. Now the first things first, is to see what the Ad budget was. It was about 3 million. Now Betty Spaghetty sold for about $15.
Skip to 3 minutes and 50 secondsRetail percent margin was 36% which means the retailer keeps 36% off the $15. The price Ohio Art is selling the products to the retailer is 9.6 and we get that by taking 15X(1-36%). Now the manufacturer contribution margin, this is how much Ohio Art can keep off the 9.6, is about 58%, and that is equal to $5.5 so that will been 9.6 times 58%. The break even units would be, break even units is equal to 3 million over how much Ohio Art makes from the sale of a single Betty Spaghetty. So that would be 5.5 over here. The 3 million is the ad budget and that gives us 538,000 units that Ohio Art has to sell to recover the ad budget.
Skip to 5 minutes and 8 secondsNow let's pause here, think about this and figure out whether the 267% lift is going to give Ohio Art these break even units.
Analyzing an Experiment: Betty Spaghetty
When Ohio Art introduces a new product, the Betty Spaghetty doll, they have to run their experiments a little differently since there are no pre-test sales. Learn how to do this and analyze the results. In the end, do you think the projected lift is enough to break even? Post your analysis in the discussions.
© Copyright Rector and Visitors of the University of Virginia