LVMH's Marketing investment prioritization, payback

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Your task is to present a compelling case for the allocation of limited marketing funds within your company, focusing on one of the three regions: the Americas (South & North), Europe, and Asia/Rest of the World. To support your proposal, you will employ marketing mix modeling, demonstrating why your chosen region is the optimal investment and substantiating your claim with a payback analysis. 

Guidelines: 

Clearly articulate the business idea that your region aims to promote. 

What is the business idea?? 

Revenue: sales price and revenue for 3 years. For product cost, assume the company’s gross margin. 

How are you going to sell it/launch it? 

Why would consumers buy it?  

Where are you going to sell it? 

Investment Calculation: 

Determine the initial investment required for advertising. Utilize existing advertising expenses as a baseline and justify any increase for the launch. 

Support your investment calculations with detailed slides, clearly explaining the methodology used. 

Incremental Net Sales: 

Assess the incremental net sales by researching similar projects launched in the past. Focus on marginal net sales, avoiding irrelevant factors such as store expansion. 

  1. Present your findings concisely, drawing on examples from submissions by previous students. 

Payback Analysis: 

Utilize the provided template for the payback analysis, ensuring all details are included on a single page. 

Highlight the projected payback period and substantiate it with accurate calculations. 

  1. Include footnotes to clarify assumptions and sources. 

Tips for Success: 

Keep the focus on marketing investment and incremental net sales, avoiding excessive details about the overall company. 

Research and accurately report the current advertising expenses of the company. 

Aim for a payback period between 6 months to less than 2 years. 

Be mindful of potential pitfalls, such as exaggerating revenue or investment figures. 

Common Mistakes to Avoid: 

  1. Failure to submit a payback analysis will result in a zero. 

Focus your slides on marketing investment and incremental net sales. 

Be cautious about exaggerating figures or making unrealistic claims. 

Please refer to the blog for additional guidance and FAQs.  

Unformatted Attachment Preview

Quantifying the Value of a Marketing Campaign Presented By: Juanita Guio Castro Quantifying the Impact and Value of Marketing and Communications Programs, Section 001 Professor George Benaroya CONTEXT The Loyalty program continued to exceed their expectations In 2022, Delta Airlines earned 2.6 billion U.S. dollars in their loyalty program revenue. The year prior, this number stood at 1.77 billion, which constitutes an increase in revenue of almost 1 billion dollars from year to year. Loyalty program revenue of Delta Air Lines, Inc. from 2018 to 2022 (in billion U.S. dollars) Details: Worldwide; 2018 to 2022 Understanding this, there is potential growth in this business line that is important to leverage from Delta. That's why we must delve into a segment that has not been specifically addressed. Compared to the average onliner, Delta Air Lines customers are relatively likely to live in a nuclear family Source: Airlines: Delta Air Lines customers in the United States, Statista Consumer Insights Global Survey For this reason, we are proposing a strategic alliance with the biggest company for families worldwide. WITH THE AIM OF MAXIMIZING THE ALLIANCE, WE PROPOSE THE FOLLOWING MARKETING CAMPAIGNS 1 Disney space within the Sky Club Lounge. 2 Children's clothing line in cobranding with Disney and Delta. 3 Baby-sitting service in the Sky Club Lounge. To understand what our marketing investment will be and its impact on incremental net sales and net margin, we will take into account the following information. Advertising costs of Delta Air Lines, Inc. from 2018 to 2022 (in million U.S. dollars) In 2022, Delta Airlines invested 302 million U.S. dollars in advertising activities. The year prior, this number stood at 198 million, which constitutes an increase in advertisement spending of over 100 million dollars from year to year. Details: Worldwide; 2018 to 2022 Leading TV advertisers in the travel and tourism industry in the United States in 2022, by ad spend(in million U.S. dollars) In 2022, Delta Airlines invested 302 million U.S. dollars in advertising activities. 24% of the marketing This represents investment in 2022. Details: Worldwide; 2018 to 2022 WHAT WILL BE THE STARTING POINT OF THE MARKETING INVESTMENT? • • Total Sales Delta $ 50.582 Marketing Invest. 2022 $ 302 % Ratio / Total Sales 0,6% Miscellaneous Sales $ 894 % Ratio / Total Sales 1,8% Marketing Invest. 2022 $5 The miscellaneous sales represents the 1,8 % of the whole sales for Delta The Ad Spend in 2022 for Micellaneous category was, 0,6% from the Miscellaneous sales. This is primarily composed of lounge access, including access provided to certain American Express cardholders, and codeshare revenues. WHAT WILL BE THE STARTING POINT OF THE MARGIN ESTIMATION ? The gross profit margin is 14% for 2022, we proposed the gross profit margin with idea in partnership with Disney will be 18% 14% Source: https://www.wsj.com/market-data/quotes/DAL/financials/annual/income-statement ALSO, ITS IMPORTANT UNDERSTAND THE NET SALES FROM DELTA Delta Air Lines Inc.'s net income FY 2008 to FY 2022 The revenue grew from 2021 to 2022 by 69%, indicating that the recovery truly began in 2022. Source: https://www.wsj.com/market-data/quotes/DAL/financials/annual/income-statement BUT SPECIFICALLY, FROM THE MISCELLANEOUS CATEGORY, WHICH IS PRIMARILY COMPOSED OF LOUNGE ACCESS, Miscellaneous Sales $ 894 Domestic (81%) $ 723 Atlantic (16%) $ 146 Pacific (3%) $ 25 TO ACHIEVE THE EXPECTED IMPACT, WE PROPOSE STARTING IN THE REGION WITH THE GREATEST POTENTIAL, TAKING INTO ACCOUNT THE INCOME FROM DELTA AND DISNEY. NET SALES: • • • DOMESTIC: UNITED STATES ATLANTIC: EUROPE PACIFIC: ASIA THE SELECTED REGION IS: AMERICA Best Domestic Hubs from Delta and Most Important Parks from Disney Now, let´s dive in into each idea and understand how it will be INCREMENTAL NET SALES Assume that the marketing investment will increase the growth in Americas by 15%. The net sales of Miscellaneous Category in America is $724, so the incremental Net Sale = $724*15% (growth by marketing investment) = $ 108 Americas Net Sales Incremental Net Sales 15% $ 724 $ 108 1 Disney space within The Sky Club Lounge. MARKETING INVESTMENT IDEA #1 % Incremental Sales Ratio 15% Marketing Investment For The Business Idea (Incremental Sales x 2) $ 216 $ 108 MARKETING INVESTMENT IDEA #1 Advertising Investment TV Ads Digital Marketing Ad Production Outdoor Online Marketing PR Disney Licence Space adjustments Event (Brand Activations) Total America 43 22 17 11 22 65 4 22 11 216 PAYBACK IN AMERICAS AMERICA In Million $ Year 0 1 2 3 4 5 6 7 8 9 10 Cumulative Incremental Net Sales Margin % Cash Flow $ 108 124 143 164 189 217 250 287 330 380 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% 19 22 26 30 34 39 45 52 59 68 -216 Cash Flow -216 -198 -175 -149 -120 -86 -47 -2 50 109 178 PAYBACK CALCULATION 8 YEARS 2 Children's clothing line in cobranding with Disney and Delta. MARKETING INVESTMENT IDEA #2 % Incremental Sales Ratio 15% Marketing Investment For The Business Idea (Incremental Sales x 1.5) $ 162 $ 108 MARKETING INVESTMENT IDEA #2 Advertising Investment TV Ads Digital Marketing Ad Production Outdoor Online Marketing PR Disney Licence Total America 32 16 32 6 23 49 4 162 PAYBACK IN AMERICAS AMERICA In Million $ Year 0 1 2 3 4 5 6 Incremental Net Sales 108 127 150 177 209 247 Margin % Cash Flow $ 18% 18% 18% 18% 18% 18% (162) 19 23 27 32 38 44 Cumulative Cash Flow -162 -143 -120 -93 -61 -23 22 PAYBACK CALCULATION 6 YEARS 3 Baby-sitting service in the Sky club Lounge. MARKETING INVESTMENT IDEA #3 % Incremental Sales Ratio 15% Marketing Investment For The Business Idea (Incremental Sales 0.5) $ 54 $ 108 MARKETING INVESTMENT IDEA #3 Advertising Investment TV Ads Digital Marketing Ad Production Outdoor Online Marketing PR Disney Licence Babysitter contracts Total America 11 5 11 2 8 11 1 5 54 PAYBACK IN AMERICAS AMERICA In Million $ Year Incremental Net Sales Margin % Cash Flow $ Cumulative Cash Flow 0 1 2 3 4 5 108 127 150 177 209 18% 18% 18% 18% 18% (54) 19 23 27 32 38 -54 -35 -12 15 47 85 PAYBACK CALCULATION 4 YEARS In summary, we can determine the prioritization level in terms of launch based on the payback of each initiative. However, any of the options will support the loyalty category in the long term, generating significant revenue for Delta. THANK YOU MARKETING PAYBACK BUSINESS IDEA • • • Product Concept: Kids Section (Partnership with Disney) in the Sky Delta Clubs Target Market: Kids and parents Sales Strategy: Online and On plane sales. Marketing Strategy: Digital Marketing & Brand Activations. WHY The Loyalty program continued to exceed their expectations In 2022, Delta Airlines earned 2.6 billion U.S. dollars in their loyalty program revenue. The year prior, this number stood at 1.77 billion, which constitutes an increase in revenue of almost 1 billion dollars from year to year. Loyalty program revenue of Delta Air Lines, Inc. from 2018 to 2022 (in billion U.S. dollars) Details: Worldwide; 2018 to 2022 Compared to the average onliner, Delta Air Lines customers are relatively likely to live in a nuclear family Source: Airlines: Delta Air Lines customers in the United States, Statista Consumer Insights Global Survey 1 Investment 3 REGIONS AMERICA EUROPE ASIA FACTS 1 HEADQUARTERS: KEY HUBS AND MARKETS: 3 REGIONS LARGEST HUB: Atlanta, Georgia, U.S.A. AMERICA EUROPE ASIA Atlanta London Tokyo Boston Paris Seoul Detroit Minneapolis NORTH & SOUTH AMERICA New York México Salt Lake City Sao Paulo Santiago Bogotá Seattle 130 COUNTRIES AND OVER 700 DESTINATIONS Atlanta, world's largest airline hub and most-traveled airport FACTS AMERICA Delta’s LAX Sky Club was named North America’s Best Airline Lounge for 2023 by Business Traveler FACTS Leading airlines in Europe in 2022, based on passenger traffic (in millions) EUROPE Sky Team Source: Europe; Statista; Various sources (Company reports, news articles); 2022 FACTS ASIA Sky Team Sky Team 2 DELTA´S ADVERTISING COSTS Advertising costs of Delta Air Lines, Inc. from 2018 to 2022 (in million U.S. dollars) In 2022, Delta Airlines invested 302 million U.S. dollars in advertising activities. The year prior, this number stood at 198 million, which constitutes an increase in advertisement spending of over 100 million dollars from year to year. Details: Worldwide; 2018 to 2022 Leading TV advertisers in the travel and tourism industry in the United States in 2022, by ad spend(in million U.S. dollars) In 2022, Delta Airlines invested 302 million U.S. dollars in advertising activities. 24% of the marketing This represents investment in 2022. Details: Worldwide; 2018 to 2022 Advertising costs of Delta Air Lines, 2022 per Region Ad Investment Per Region 300.0 250.0 The advertising investment by Delta in 2022 was $302 million. To determine how much was spent on advertising per region, I asume that is the same proportion of revenue per region. 200.0 150.0 100.0 50.0 0.0 Domestic Details: Worldwide; 2018 to 2022 Atlantic Pacific INVESTMENT (THE CASH FLOW FOR PERIOD 0) • • Total Sales Delta $ 50.582 Marketing Invest. 2022 $ 302 % Ratio / Total Sales 0,6% Miscellaneous Sales $ 894 % Ratio / Total Sales 1,8% Marketing Invest. 2022 $5 This is primarily composed of lounge access, including access provided to certain American Express cardholders, and codeshare revenues. The miscellaneous sales represents the 1,8 % of the whole sales for Delta The Ad Spend in 2022 for Micellaneous category was, 0,6% from the Miscellaneous sales. Advertising Investment TV Ads Digital Marketing Ad Production Outdoor Online Marketing PR Disney Licence Space adjustments Event (Brand Activations) Total America (81%) 104,20 56,44 34,73 21,71 43,42 78,15 8,68 65,12 21,71 434 Atlantic (16%) 20,58 11,15 6,86 4,29 8,58 15,44 1,72 12,86 4,29 86 ADVERTISING INVESTMENT Pacific (3%) 3,9 2,1 1,3 0,8 1,6 2,9 0,3 2,4 0,8 16 America (81%) Atlantic (16%) Pacific (3%) EVENT (BRAND ACTIVATIONS) 14.50 2.86 0.5 SPACE ADJUSTMENTS 43.50 8.59 1.6 DISNEY LICENCE 5.80 1.15 0.2 PR 52.20 10.31 1.9 ONLINE MARKETING 29.00 5.73 1.1 OUTDOOR 14.50 2.86 0.5 AD PRODUCTION 23.20 4.58 0.9 DIGITAL MARKETING 37.70 7.45 1.4 TV ADS 69.60 13.75 2.6 3 INCREMENTAL NET SALES MARGIN ESTIMATION The gross profit margin is 14% for 2022, we proposed the gross profit margin with the new section for kids in the sky clubs with Disney will be 18% 14% Source: https://www.wsj.com/market-data/quotes/DAL/financials/annual/income-statement NET SALES Delta Air Lines Inc.'s net income FY 2008 to FY 2022 The revenue grew from 2021 to 2022 by 69%, indicating that the recovery truly began in 2022. Source: https://www.wsj.com/market-data/quotes/DAL/financials/annual/income-statement NET SALES • • • DOMESTIC: UNITED STATES ATLANTIC: EUROPE PACIFIC: ASIA Passenger unit revenue ("PRASM") for the year ended December 31, 2022 increased compared to the year ended December 31, 2021 as a result of stronger demand and higher levels of traffic due to the ongoing recovery from the COVID-19 pandemic throughout 2022. ATLANTIC REGION EXPERIENCING THE MOST SIGNIFICANT IMPROVEMENT, AS TRAVEL TO MANY EUROPEAN DESTINATIONS INCREASED Domestic (81%) Atlantic (16%) Pacific (3%) NET SALES 1 Miscellaneous Sales $ 894 Domestic (81%) $ 723 Atlantic (16%) $ 146 Pacific (3%) $ 25 INCREMENTAL NET SALES Assume that the marketing investment will increase the growth in Americas, Europe and Pacific by 15%. The net sales of Miscellaneous Category is $894, so the incremental Net Sale = $894*15% (growth by marketing investment) = $ 134 Miscellaneous Domestic Atlantic Pacific Net Sales Incremental Net Sales 15% $ 894 $ 134 $ 724 $ 143 $ 27 $ 108 $ 22 $4 MARKETING INVESTMENT % Incremental Sales Ratio 15% Marketing Investment For The Business Idea (Incremental Sales x 2) $ 268 America Atlantic Pacific $ $ $ 217 43 8 $ 134 5 PAYBACK 1. PAYBACK IN AMERICAS AMERICA In Million $ Year 0 1 2 3 4 5 6 7 8 9 10 Incremental Net Sales 108 124 143 164 189 217 250 287 330 380 Cumulative Margin % 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% Cash Flow $ -217 19 22 26 30 34 39 45 52 59 68 Cash Flow -217 -198 -175 -149 -120 -86 -47 -2 50 109 178 PAYBACK CALCULATION 0,84 YEARS 7,84 YEARS 2. PAYBACK IN EUROPE ATLANTIC / EUROPE In Million $ Year Incremental Net Sales Margin % 0 Cash Flow $ Cumulative Cash Flow -43 -43 PAYBACK CALCULATION 1 22 18% 4 -39 -0,91 YEARS 2 25 18% 5 -34 5,09 YEARS 3 29 18% 5 -29 4 33 18% 6 -23 5 38 18% 7 -16 6 44 18% 8 -8 7 51 18% 9 1 3. PAYBACK IN ASIA PACIFIC / ASIA In Million $ Year 0 1 2 3 4 5 6 7 8 9 Incremental Net Sales Margin % Cash Flow $ 4 5 5 6 7 8 9 11 12 18% 18% 18% 18% 18% 18% 18% 18% 18% 1 1 1 1 1 1 2 2 2 -8 Cumulative Cash Flow -8 -7 -6 -5 -4 -3 -2 0 2 4 PAYBACK CALCULATION -1,02 YEARS 4,98 YEARS AMERICAS 7,84 YEARS EUROPE 5,09 YEARS ASIA 4,98 YEARS Selected Region is ASIA, because the payback ad investment is 4,98 shorter than the other regions It's important to take into account that Delta’s LAX Sky Club was named North America’s Best Airline Lounge for 2023 by Business Traveler. That airport is one of the biggest connection hubs for Asia. This allows us to assess whether the next region to address should be LAX, despite America having the longest investment recovery time. THANK YOU Example 2 PAYBACK – UNITEDHEALTH GROUP 30 BUSINESS IDEA • UnitedHealth Group hosts individual healthcare exc hange products in 26 states (+4 in 2024) • Concept: Expand coverage to 4 additional states in 2025 (bronze, silver, gold, platinum plans) on individual exc hanges • Target Markets: CA, CT, RI, ID or PA, KY, MN, ME • Marketing Mix: Sales reps, digital, direct, traditional 31 CURRENT INDIVIDUAL EXCHANGES p e r s t a t e CURRENT Source: Individual Exchange Plan Information for Providers | UHCprovider.com 32 2024 & 2025 POTENTIAL EXPANSION OF INDIVIDUAL EXCHANGES CURRENT 2024 2025? 2024 2025? Source: New 2024 Individual Exchange plans and prior authorization information | UHCprovider.com 33 NEW STATES & POSSIBLE CUSTOMER COUNTS 1 2 3 4 CA CT ID RI 2.3M 129,000 93,000 28,661 1 2 3 4 PA KY ME MN 435,000 105,000 62,533 146,445 Source: 2024 UnitedHealthcare Care Provider Administrative Guide 34 UNITEDHEALTHCARE MARKETING SPEND estimated monthly - 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Sales reps (in-person) Social media Professional meetings/conferences Paid digital advertising Websites/microsites Direct marketing Sales materials Search engine optimization / marketing Paid traditional advertising (print, TV, radio) Marketing research PR (earned media) Advocacy relations Content development / content marketing Sales reps (remote) Video and non-linear TV Mobile/apps Point of care Source: Statista UnitedHealthcare Monthly Spend 35 New State Expansion PAYBACK IN MILLION $ States Eligible Enrollees Forecast Potential New Customers Bronze Plan Cost/Month California Connecticut Idaho Rhode Island 2,300,000 129,000 93,000 28,661 1% 1% 1% 1% 23000 1290 930 287 110 110 110 110 Year 0 1 2 3 4 5 Gross Margin % 33.668 34.341 35.028 35.729 36.443 5.8% 5.8% 5.8% 5.8% 5.8% Cash Flow $ (4.459) 1.953 1.992 2.032 2.072 2.114 Cumulative Cash Flow -4.459 -2.506 -0.514 1.518 3.590 5.703 1320 1320 1320 1320 30,360,000 1,702,800 1,227,600 378,325 33,668,725 *used CT as basis pricing ($330 lowest cost plan divided by 3) Incremental Net Sales Annual Estimated Net Costs Sales/State Payback calculation: $4.459 – 1.953 – 1.992 = 1.518 0.514/2.032 = 0.25 Years 2+0.25 = 2.25 Years Payback for launching CA, CT, RI & ID = 2.25 Years 1. Cash flow or marketing investment: Per Statista data on United spend & healthcare marketing budgets spend/channel. Divided in half for United spend vs. Optum. Estimated 50% of spend for 30 individual exchange recruitment, multiply for 4 states * 6 for 6 month = estimated marketing spend for 4 new states launch 2. Incremental Net Sales: Forecast capturing 1% of current exchange business 3. Margin: From UnitedHealth Group Reports 2023 Results * Assumption: 2%+ net sales YOY 36 New State Expansion PAYBACK IN MILLION $ States Eligible Enrollees Pennsylvania Kentucky Maine Minnesota 435,000 105,000 62,533 146,445 Potential Forecast New Customers 1% 4350 1% 1050 1% 625 1% 1464 Bronze Plan Cost/Month 110 110 110 110 Annual Estimated Net Costs Sales/State 1320 1320 1320 1320 *used CT as basis pricing ($330 lowest cost plan divided by 3) Year 0 1 2 3 4 5 6 7 8 Incremental Net Sales Gross Margin % 9.886 10.084 10.285 10.491 10.701 10.915 11.133 11.356 5.8% 5.8% 5.8% 5.8% 5.8% 5.8% 5.8% 5.8% Cash Flow $ (4.459) 0.573 0.585 0.597 0.608 0.621 0.633 0.646 0.659 Cumulative Cash Flow -4.459 -3.885 -3.300 -2.704 -2.095 -1.475 -0.842 -0.196 0.463 5,742,000 1,386,000 825,436 1,933,074 9,886,510 Payback calculation: $4.459 – 0.573 – 0.585 – 0.597 – 0.608 – 0.621 – 0.633 – 0.646 = 0.463 0.196/0.659 = 0.30 Years 7+0.30 = 7.30 Years Payback for launching PA, KY, ME & MN = 7.30 Years 1. Cash flow or marketing investment: Per Statista data on United spend & healthcare marketing budgets spend/channel. Divided in half for United spend vs. Optum. Estimated 50% of spend for 30 individual exchange recruitment, multiply for 4 states * 6 for 6 month = estimated marketing spend for 4 new states launch 2. Incremental Net Sales: Forecast capturing 1% of current exchange business 3. Margin: From UnitedHealth Group Reports 2023 Results * Assumption: 2%+ net sales YOY 37 SUMMARY Expanding into the individual exc hanges of 4 new states (CA, CT, RI & ID) is a good business move for UnitedHealthcare as compared to launc hing in PA, KY, ME & MN. Payback on an aggressive marketing plan using a conser vative forecast shows payback in 2.25 years for CA, CT, RI & ID. 2/24/2024 38 Annex 2/24/2024 39 REFERENCES Source: UNH-Q4-2023-Release.pdf (unitedhealthgroup.com) 2/24/2024 40 REFERENCES Distribution of healthcare companies' marketing budgets in the U.S. 2023, by channel Distribution of healthcare companies' marketing budgets in the United States as of March 2023, by channel Sales reps (in-person) Social media Professional meetings/conferences Paid digital advertising Websites/microsites Direct marketing Sales materials Search engine optimization / marketing Paid traditional advertising (print, TV, radio) Marketing research PR (earned media) Advocacy relations Content development / content marketing Sales reps (remote) Video and non-linear TV Mobile/apps Point of care 11.80 10.00 10.00 8.60 8.30 7.50 5.50 5.10 5.10 5.00 4.80 3.90 3.80 3.60 2.70 2.70 1.80 in % in % in % in % in % in % in % in % in % in % in % in % in % in % in % in % in % 209,000,000 0.12 0.1 0.1 0.08 0.08 0.07 0.05 0.05 0.05 0.05 0.04 0.03 0.03 0.03 0.02 0.02 0.01 Annual Spend in each Category United Annual Spend Optum Annual Spend United Monthly 25,080,000 20,900,000 20,900,000 16,720,000 16,720,000 14,630,000 10,450,000 10,450,000 10,450,000 10,450,000 8,360,000 6,270,000 6,270,000 6,270,000 4,180,000 4,180,000 2,090,000 12,540,000 10,450,000 10,450,000 8,360,000 8,360,000 7,315,000 5,225,000 5,225,000 5,225,000 5,225,000 4,180,000 3,135,000 3,135,000 3,135,000 2,090,000 2,090,000 1,045,000 12,540,000 10,450,000 10,450,000 8,360,000 8,360,000 7,315,000 5,225,000 5,225,000 5,225,000 5,225,000 4,180,000 3,135,000 3,135,000 3,135,000 2,090,000 2,090,000 1,045,000 194,370,000 97,185,000 97,185,000 50% Spend (30 States) Spend in 4 New States 1,045,000 870,833 870,833 696,667 696,667 609,583 435,417 435,417 435,417 435,417 348,333 261,250 261,250 261,250 174,167 174,167 87,083 69,667 278,667 46,444 185,778 40,639 162,556 29,028 116,111 8,098,750 185,778 743,111 4 State Spend 6 Months 4,458,667 UnitedHealthcare spends 209,000,000 in advertising per Statista. Source: Statista 2/24/2024 41 REFERENCES New State Expansion States Eligible Enrollees California Connecticut Idaho Rhode Island 2,300,000 129,000 93,000 28,661 Potential Forecast New Customers 1% 1% 1% 1% 23000 1290 930 286.61 *used CT as basis pricing ($330 lowest cost plan divided by 3) Bronze Plan Cost/Month 110 110 110 110 Annual Estimated Net Costs Sales/State 1320 1320 1320 1320 30,360,000 1,702,800 1,227,600 378,325 33,668,725 Source: State Exchange Data & Access Health CT 2/24/2024 42 REFERENCES Using Anthem as comparable plan – United is not available in CT yet Source: AccessHealthCT 2/24/2024 43 Marketing Investment Prioritization. / PAYBACK UNITEDHEALTH GROUP Business Idea Concept: Personalized Preventive Health Microinsurance Marketplace Target Market: Uninsured or underinsured individuals Sales Strategy: Direct-to-consumer/ Employersponsored Marketing Strategy: Brand messaging/ Targeted advertising Personalized Preventive Health Microinsurance Marketplace but lets call it... Preven t o d o s What is PREVENTODOS and how does it innovate? Microinsurance marketplace specifically focused on preventive health measures. Highly targeted, short-term, and affordable insurance plans covering specific preventive health screenings, tests, or activities (e.g., cancer screenings, fitness trackers, gym memberships, healthy cooking classes). Leverage data analytics and AI to personalize offerings based on individual health risks, demographics, and lifestyle choices. Partner with healthcare providers, fitness centers, and wellness institutions to offer discounted services and seamless integration with their products. Implement gamification elements and reward systems to encourage engagement and healthy behavior. from the word “prevention” “everybody” Where First things, first... ar e we inv est UHG taking on the world Focus on LATAM Important facts about UHG LATAM Operations: Brazil, Chile, Colombia, and Peru. Market share: As of 2023, over 6.2 million people with UHG medical benefits. Acquisitions: 2012 purchase of Amil, the largest healthcare company in Brazil, and the 2018 acquisition of Banmédica, a major healthcare provider in Chile, Colombia, and Peru. The region: notable for its informal economy that generates a space in the market to target those people that are not insured and do not have high disposable income. Source: https://disruptor-globaldata-com.proxy.library.nyu.edu/Company/Locations/unitedhealth_group_incorporated Why an emerging market? Higher growth potential Diversification Younger populations Developing industries Why LATAM? Growing demand for private healthcare for the middle class Existing presence and experience through Amil and Banmédica, giving knowledge and infrastructure in the region. Government initiatives to improve healthcare access Source: file:///Users/marianaperret/Downloads/study_id46081_insurance-industry-in-latin-america.pdf Health Inssurance is BIG in LATAM U S market represents 82.6% of UHG revenue Latin American market represents 2.2% of UGH Rrevenue U S 2022 ad spend = $209 (millions) Assuming their US budget represented 82.6% of their total ad budget (100%= $261.25 millions). LATAM ad investment should be 2.2%= $5.74 millions. Nontheless we suggest a more agressive aproach in order to get a quicker payback. Our suggestion is of 23% of the total ad budget. The strategy behind this more agressive aproach is to capitalize on being the first in market of this type of service in the region. Initial ad investment required for Preven = $60 million t o d o s 2.2% advertising investment is conservative enough without being to far off of what is the common ad spend in LATAM source: https://www-statista-com.proxy.library.nyu.edu/statistics/1367540/share-advertising-spending-latin-america/ Let’s asses... Incremental Net Sales MARGINS, NET SALES AND INCREMENTAL NET SALES Gross profit margins Source: https://finbox.com/NYSE:UNH/explorer/gp_margin/ Source: https://finbox.com/NYSE:UNH/explorer/total_rev_growth Net sales growth therefore the LATAM total revenue is $8.17 billion Where are we? UHG total revenue 2023 = $371.6 billion The incremental net sales for 2023 was 14.6% The growth in profit margin in 2023 is 24.5% Where are we going to be with P r e v e n ? t o d o s We propose a growth of 0.5% in gross sales margin, totaling a margin of 25% (the 0.5% signifies to the 2.2% market share that LATAM as at UHG. Keeping in mind we are source:https://www.unitedhealthgroup.com/content/dam/UHG/PDF/investors/2023/UNH-Q4-2023-Release.pdf not in the U S market, we are choosing a conservative growth. Incremental Net Sales Assume that the marketing investment will increase the growth in LATAM by 3%, from 14.5% to 17.5%, so the incremental net sale= $8.17 billion * 3%= $245.1 million And now, how long until we make our money back ... PAYBACK PAYB ACK Let’s review: Investment: according to the research of adverstising cost from UHG’s anual report, the cost of investment in LATAM should be $60 million Incremental Net Sales = $8.17 billion * 3%= $245.1 million The margin is 25% PAYBACK TIME for P r e v e n = 11.8 months t o d o s Th an k FEB. 2 0 2 4 Example 3 D E LTA AI R LI N E S Payback HW By: Kara V. Guioguio Quantifying the Impact and Value of Marketing and Communications Programs, NYU Prof. George Benaroya Did You Know? Delta Airlines has recently garnered organic online attention due to its unique trading cards, a "secret menu" item distributed by pilots that remains relatively unknown to the broader public. This surge in online interest has significantly enhanced visibility for Delta's branding. BIG IDEA Delta Pop-Up Shops Exclusive merchandise pop-up shops within key airports, featuring a curated selection of merchandise designed to boost Delta Airlines' brand presence, engage with its current customer base, and attract new ones. Runway Collection Premium items, exclusively available at the Delta Lounge, will cater to their most loyal travelers, offering them a taste of luxury and exclusivity. Partnership with esteemed labels like Ralph Lauren, ON, Beats, Rimowa, and Sporty and Rich will ensure that the Delta merchandise not only embodies the spirit of travel but also meets the highest standards of quality and design. Runway Collection General Items Airport shops will showcase special lines, including the highly anticipated Team USA x Delta collaboration, alongside a variety of unique pilot trading cards, adding a collectible and interactive element to the shopping experience. INVESTMENT Market Share Sources: Delta 10-K, WSJ, and Statista Americas 82% Europe 15% Asia Pacific 3% Advertising Spend In Millions 2018 267 2019 288 2020 119 2021 198 2022 302 2023 350* Source: Statista Advertising Spend In Millions Americas 248 Europe 45 Asia 9 The project will cost 20% of each market’s advertising budget. This will cover the ff: ● Logistics (in-store activation) ● Creatives (branding, design collaterals) ● Production (of new in-house merchandise) ● Digital Marketing ● Public Relations ● Store Manpower NET SALES Margin Estimation =40% Source: Delta Income Statement accessed via Wall Street Journal We propose a minimum 40% profit margin for the Delta merchandise collection, taking into account that some items will be produced in collaboration with renowned brands. These partnerships will decrease our production costs but will also entail a revenue-sharing model with our collaborators. Net Sales Source: Delta Income Statement accessed via Wall Street Journal The 5% growth rate assigned to Delta's merchandise sales is a conservative estimate that acknowledges the various market factors influencing such a niche segment. Unlike the substantial 69.18% increase in flight sales for 2022, which signified a dramatic recovery from the pandemic's impact, merchandise sales typically follow a more gradual growth trajectory. Incremental Net Sales ● Assume that we're allocating 20% of each market's advertising budget to cover all project costs. Half of this allocation, meaning 10% of the total advertising budget, will be specifically used for producing the merchandise. To calculate the amount dedicated to production, we apply the formula: Production Budget = Advertising Market Budget × 20% × 50% ● We aim for a profit margin of 40% on the merchandise. This means we expect to retain 40% of the sales revenue a s profit after covering the production costs. ● Based on these parameters, the allocated production budgets for our markets are: ● ● ● Americas: $24.8 million Europe: $4.5 million Asia: $0.9 million PAYBACK Payback in Americas Year Incremental Net Sales Margin % 0 ● ● ● In Millions Cash Flow Cumulative Cash Flow (24.8) -24.8 1 41.33 40% 16.53 9.27 2 47.83 40% 19.13 28.4 3 50.22 40% 20.09 48.49 4 52.73 40% 21.09 69.58 5 55.36 40% 22.14 91.72 Incremental Net Sales = Production Budget / 0.6 (the profit margin is 40%) Annual increase of 5% based on Delta’s growth Cash Flow = Incremental Net Sales x 0.4 Payback in Europe Year Incremental Net Sales Margin % 0 ● ● ● In Millions Cash Flow Cumulative Cash Flow (4.5) -4.5 1 7.50 40% 3 -1.5 2 7.88 40% 3.15 1.65 3 8.27 40% 3.31 4.96 4 8.68 40% 3.47 8.43 5 9.11 40% 3.65 12.08 Incremental Net Sales = Production Budget / 0.6 (the profit margin is 40%) Annual increase of 5% based on Delta’s growth Cash Flow = Incremental Net Sales x 0.4 Payback in Asia Year Incremental Net Sales Margin % 0 ● ● ● In Millions Cash Flow Cumulative Cash Flow (0.9) -0.9 1 1.50 40% 0.60 -0.3 2 1.58 40% 0.63 .30 3 1.66 40% 0.67 .96 4 1.74 40% 0.70 1.66 5 1.83 40% 0.73 2.39 Incremental Net Sales = Production Budget / 0.6 (the profit margin is 40%) Annual increase of 5% based on Delta’s growth Cash Flow = Incremental Net Sales x 0.4 Payback Summary ● ● ● Americas 0.5 years Europe 2 years Asia 2.5 years Payback period in the Americas is remarkably fast, with a return on investment realized in just half a year Europe and Asia show longer payback periods of 2 and 2.5 years; however, these markets merit attention due to the low-risk investment and substantial brand equity gains The merchandise acts a s a form of priceless organic advertising, promoting brand loyalty and recognition THANK YOU! George Benaroya Practice Case The executives of your company met. They are organized in 3 regions: the Americas (South & North), Europe, and Asia/rest of the world*. This year, a limited amount of money can be spent on Marketing. Pick one of the regions and justify why your region should be funded instead of the others. Use marketing mix modeling to demonstrate your region is a better investment and prove it using payback. *Adapt the regions to how your company presents the data on its annual report. For example, if they use 5 regions, use that instead. The sales numbers must tie in with the annual report. Finance for Marketing Decisions G Benaroya Lecture 2 George Benaroya Payback Template In Million $ Year ▪ 0 1 2 3 4 5 Investment $800 M based on average production costs (see slides XX for details) ▪ Incremental revenue $4,069 (see slides XX for calculation details). ▪ Net Margin (company’s Gross Margin for 2023) Incremental Gross Margin Net Sales % Cash Flow $ 1,000 1,000 1,000 1,000 1,000 50% 50% 50% 50% 50% (2500) 500 500 500 500 500 Cumulative -2,500 -2,000 -1,500 -1,000 -500 0 Payback calculation -2500/ $500 = 5 Years Increase on marketing spending paid back in 5 months Finance for Marketing Decisions G Benaroya Lecture 3 George Benaroya Slides that must be included Incremental Net Sales 1. What is the business idea? 2. Revenue: sales price and revenue for 3 years. For product cost, assume the company’s gross margin 3. How are you going to sell it/launch it? 4. Why would consumers buy it? 5. Where are you going to sell it? Investment How much do you need to invest? Include slides to support for how you calculated the marketing investment Payback Use the template, including complete footnotes to show how you calculated each number 4 George Benaroya Common mistakes evaluating Payback Right way to do it: ▪ Consider only the cash you get from it. Using Gross Margin or Net Margin Wrong way to do it: ▪ Counting Sales or Revenue before deducting cost and expenses from it. If your marketing program enables you to sell more cups of coffee, you can't just add the additional sales. You need to deduct the cost of making those cups of coffee. ▪ Considering total Net Income instead of the Income derived only from the investments. Do not include the money you were already making. ▪ Account only for the additional, or marginal amount of cash you are getting. See example on next page 5 George Benaroya Disney’s Payback Example In Million $ Year ▪ 0 1 2 3 4 5 Investment $500 M based on average production costs (see slides XX for details) ▪ Incremental revenue $370M (see slides XX for calculation details). ▪ Net Margin (company’s global NM for XX) Incremental Net Sales 370 1,500 2,700 3,600 4,500 Margin % Cash Flow $ Cumulative Cash Flow 10% 10% 10% 10% 10% -500 37 150 270 360 450 -500 -463 -313 -43 317 767 Payback calculation ($500-$37-$150-$270)= +43);43/ $360 = 3.1 Years Arcade payback investment is 3.1 years Finance for Marketing Decisions G Benaroya Lecture 6 George Benaroya Do not change this worksheet. Download the file and make In Million $ Year Incremental Net Sales Gross Margin % 0 1 2 3 4 5 1,000 1,000 1,000 1,000 1,000 50% 50% 50% 50% 50% 1.Cash flow or marketing investment: show how it was calculated 2.Incremental Net Sales: show how it was calculated 3.Margin: show how it was calculated Download the file and make changes in your laptop Cash Flow $ Cumulative Cash Flow (2500) 500 500 500 500 500 -2,500 -2,000 -1,500 -1,000 -500 0 Months after positive -48 -36 -24 -12 You must manually calculate the 0 12 You must manually calculate the timing when it turns positive. In this default example, after 48 months the cash flow is still negative by 486. T 48 months the cash flow is still negative by 486. Thus, you divide 486 by the cash flow on year 5 to get the number of additional months (4) t the number of additional months (4) In Million $ Year Incremental Net Sales Margin % 0 1 2 3 4 5 2,707 2,129 2,129 2,129 2,129 48% 48% 48% 48% 48% Figures from file marketing investments on class material Cash Flow $ -575 1,290 1,014 1,014 1,014 1,014 Cumulative Cash Flow -575 715 1,729 2,744 3,758 4,772 Months after positive 7 5.3 56 -44.5 Months after positive Your task is to present a compelling case for the allocation of limited marketing funds within your company, focusing on one of the three regions: the Americas (South & North), Europe, and Asia/Rest of the World. To support your proposal, you will employ marketing mix modeling, demonstrating why your chosen region is the optimal investment and substantiating your claim with a payback analysis. Guidelines: Clearly articulate the business idea that your region aims to promote. 1. What is the business idea? 2. Revenue: sales price and revenue for 3 years. For product cost, assume the company’s gross margin. 3. How are you going to sell it/launch it? 4. Why would consumers buy it? 5. Where are you going to sell it? Investment Calculation: ▪ ▪ Determine the initial investment required for advertising. Utilize existing advertising expenses as a baseline and justify any increase for the launch. Support your investment calculations with detailed slides, clearly explaining the methodology used. Incremental Net Sales: ▪ ▪ Assess the incremental net sales by researching similar projects launched in the past. Focus on marginal net sales, avoiding irrelevant factors such as store expansion. Present your findings concisely, drawing on examples from submissions by previous students. Payback Analysis: ▪ ▪ ▪ Utilize the provided template for the payback analysis, ensuring all details are included on a single page. Highlight the projected payback period and substantiate it with accurate calculations. Include footnotes to clarify assumptions and sources. Tips for Success: ▪ ▪ ▪ ▪ Keep the focus on marketing investment and incremental net sales, avoiding excessive details about the overall company. Research and accurately report the current advertising expenses of the company. Aim for a payback period between 6 months to less than 2 years. Be mindful of potential pitfalls, such as exaggerating revenue or investment figures. Common Mistakes to Avoid: ▪ ▪ ▪ Failure to submit a payback analysis will result in a zero. Focus your slides on marketing investment and incremental net sales. Be cautious about exaggerating figures or making unrealistic claims. Please refer to the blog for additional guidance and FAQs. Read the FAQ on the blog here: You don’t need to be verified to see this content. It has now been translated to Spanish, French, Chinese, Russian and Ukranian 😃 Click on “Translate” at the bottom of the page to see it. https://wp.nyu.edu/speakers/6-marketing-investment-prioritization-payback/
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Attached.

LVMH'S MARKETING INVESTMENT
PRIORITIZATION, PAYBACK
STUDENT’S NAME
INSTITUTION AFFILIATION
COURSE
INSTRUCTOR’S NAME
DATE

WHAT IS THE BUSINESS IDEA?



LAUNCHING AN ECO-FRIENDLY CLEANING PRODUCT LINE IN ASIA AND/THE REST OF THE WORLD IS THE
BUSINESS IDEA.



THIS PRODUCT LINE WILL INCLUDE SURFACE, BATHROOM, AND DISHWASHING DETERGENTS CREATED FROM
NATURAL AND ECO-FRIENDLY CHEMICALS.



WE ENCOURAGE A GREENER LIFESTYLE AND DECREASE DANGEROUS CHEMICALS IN CLEANING GOODS.

THREE-YEAR SALES PRICE AND
REVENUE.
• This company proposal assumes a $5 per-product sales price and a 30% profit margin.
• Through a $500,000 advertising spend, we can unveil 100,000 units in the first year. Assuming the
trend to eco-fri...


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