Master of Science / Department of Agricultural Economics / John M. Crespi / The objective of this analysis is to develop a demand model for the Sunsweet
Cooperative and from this model, determine if the benefits to Sunweet’s advertising, as
measured by the change in revenues, exceed the advertising costs.
Weekly retail scanner data from July 20, 2008 through June 13, 2010 were used.
Ordinary least squares regression equations were estimated to determine the overall demand for
Sunsweet dried prunes. Two different models were estimated, one for Sunsweet’s overall prune
demand and another for the Sunsweet’s Ones product. The advertising elasticity for the total
dried prune demand was 0.10 and for the Ones product was 0.24. The demand equations
demonstrated that Sunsweet’s advertising expenditures are increasing the overall demand for
their dried prunes and their specific Ones product. What cannot be determined from the demand
estimations is whether increase in revenues was greater than the cost of the advertising program.
This is an especially important question for Sunsweet as it can be discerned from the data that
Sunsweet’s advertising expenditures are quite large as a fraction of its revenues when compared
with other similar food sellers.
Using the regression equations, a benefit-cost simulation was conducted. We developed
a measure that tells us how much the quantities sold of prunes would be affected by increased
advertising expenditures by Sunsweet while taking into account the costs of advertising under an
assumption of monopolistic competition. Two different scenarios were evaluated, one with a
shutdown condition that did not allow average revenue to be below average cost and another
without this shutdown condition. The total Sunsweet prune model resulted in an average benefit
cost of 2.143 with the shutdown constraint and 1.845 without the shutdown constraint. The Ones
product model resulted in an average benefit-cost estimate of 2.672 with the shutdown constraint
and 2.358 without the shutdown constraint. Overall these ratios are good for a company
operating under monopolistic competition and suggest that for every dollar spent on the
advertising campaign, the average return was near to or greater than $2.
Overall our analysis showed that Sunsweet’s advertising expenditures are increasing their
overall demand and their benefits of advertising are exceeding their costs of advertising.
| Identifer | oai:union.ndltd.org:KSU/oai:krex.k-state.edu:2097/6989 |
| Date | January 1900 |
| Creators | Silva, Jena |
| Publisher | Kansas State University |
| Source Sets | K-State Research Exchange |
| Language | en_US |
| Detected Language | English |
| Type | Thesis |
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