Question:
Helios Botanicals develops hybrid tea roses. A relative newcomer to the field, Helios is looking for innovative ways to advertise its products to potential customers. Rose Mayfield, sales manager and avid online shopper, wonders about advertising the company"s roses on various gardening websites. She has contacted Kim land Media, Inc., an advertising firm specializing in Internet advertising campaigns, to explore some options. After meeting with Rose, Sami Landon, regional sales coordinator, has suggested that Helios use a targeted marketing strategy by placing banner ads on a few gardening websites. Helios would pay for the service based primarily on the number of ad impressions (the number of times the ads are shown). Using past campaigns as a guide, Sami has prepared the following quarterly estimate for Helios.
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Banner and development (5 banners per quarter)
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$5,000
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Banner and placement
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$0.80 per thousand impressions
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Estimated and impressions
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2,000,000
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Banner and click- through
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$0.02 per click-through
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From past experience, Kimland Media estimates that 10% of all viewers will "click through" the banner ad to Helios"s website. Of those viewers who click through, Kimland estimates that 5% will actually make a purchase.
Required
1. What is the expected total cost per quarter of Helios"s Internet advertising campaign?
2. Given Sami"s cost estimates, what is Helios"s expected cost of acquiring a new customer through the campaign?
3. Using the information you just calculated, what is the estimated cost to get one more person to click through and make a purchase?