Let's suppose we are launching a new product called "Awsum." New products are considered newsworthy events. A modest amount of public relations expenditure, just $250,000, generates 50% awareness in the customer base. This $250,000 is spent automatically. When Awsum hits the streets, the awareness immediately begins to fade. If you do not promote Awsum, next year awareness would fall to two thirds of 50% or 33%, and the following year to two thirds of 33% or 21%.

To counteract this decay, in the years following Awsum’s release, you spend an annual promotion budget. The promotion budget is subject to diminishing returns. It buys advertising, which in turn creates awareness. Each additional dollar you spend has less impact than the previous dollar. (Think of it this way. If every customer heard your message to buy Awsum 99 times, chances are the 100th time would not make much difference.) In the simulation, $2 million will purchase 44% additional awareness. The next $1 million will buy only 6% more additional awareness; you are pushing into diminishing returns.

Due to diminishing returns, a new product will receive half the additional awareness established products receive for the same amount of Promo Budget. All new products get 50% starting awareness for $250,000, therefore any additional awareness can still be viewed as a relative bargain.

Tip: The $250,000 fee will not be reflected in the Marketing spreadsheet in Capstone.xls. The fee will appear in the next Courier and annual reports.