Northwell Sparkling Water: Sampling Versus Reach
Northwell Sparkling Water is preparing a 12-week launch in two mid-sized cities. The £180,000 budget must cover all activity; no additional funds will be released until a six-month review. The team is choosing between three options. Option A uses 60,000 samples at transit hubs with a 25%-off coupon. Option B uses 30,000 samples at gyms with loyalty-app points. Option C uses no sampling and puts the full budget into out-of-home advertising. Internal tests show gym sampling produces an 18% repeat-purchase rate within four weeks, versus 9% for transit sampling. Coupon redemption is 12% for transit and 6% for gym. Each sample costs £0.55, and each redeemed coupon costs £0.30 in margin. A full-price unit contributes £0.80 gross margin. The average sampled buyer purchases 2.4 units in the first month when they repeat. The Sales Director argues that transit gives more trials. The Brand Manager says trial quality matters more. The CFO wants a payback estimate before approving any sampling plan.
1. Estimate first-month gross-margin contribution for options A and B. What does the comparison imply, and what important costs or effects are excluded?
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Option A
- Sample cost: 60,000 × £0.55 = £33,000.
- Repeat buyers: 60,000 × 9% = 5,400.
- First-month units from repeat buyers: 5,400 × 2.4 = 12,960.
- Gross margin: 12,960 × £0.80 = £10,368.
- Coupon cost: 60,000 × 12% × £0.30 = £2,160.
- Net first-month contribution: £10,368 − £33,000 − £2,160 = −£24,792.
Option B
- Sample cost: 30,000 × £0.55 = £16,500.
- Repeat buyers: 30,000 × 18% = 5,400.
- Gross margin: 5,400 × 2.4 × £0.80 = £10,368.
- Coupon/points cost: 30,000 × 6% × £0.30 = £540.
- Net: £10,368 − £16,500 − £540 = −£6,672.
Both lose money on a one-month view, but B loses about £18,100 less for the same repeat buyers. The calculation excludes logistics, sampling waste, out-of-home costs, long-term repeat beyond month one, halo sales, and any cannibalisation of existing Northwell buyers. It also assumes repeat buyers are incremental. Therefore B is more efficient, not automatically profitable; the CFO should require a six-month repeat and lifetime-value view before calling either option a success.
2. Which option would you recommend, and under what conditions? Show how you trade off trial volume, trial quality and awareness.
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Recommend B as the core, but not the whole budget. B produces the same 5,400 repeat buyers as A at half the sample cost and avoids much of the transit coupon leakage. A is volume-rich but buys lower-quality trial; C buys awareness with no trial mechanism, which is weak for a new beverage where taste is the adoption barrier. Use B, but negotiate sample cost below £0.55 and cap at 20,000–25,000 samples; add localized out-of-home and digital retargeting around participating gyms, plus email or SMS capture at sampling. Conditions: gym partners must match the target audience; repeat must be tracked at 8 and 12 weeks, not just four; a six-month payback threshold must be set in advance; and a matched control city should isolate the sampling effect. If B cannot show payback after 12 weeks, shift remaining budget to C. This is a judgement about trial quality and learning speed, not just cost per acquisition.
3. Design a measurement plan that would let Northwell decide whether to continue, stop or scale the sampling plan.
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Use a matched-market design: two similar cities receive the plan and two do not, or stagger rollout across matched pairs. Pre-register the decision metrics: cost per trial, trial-to-repeat at 4, 8 and 12 weeks, repeat units, coupon redemption, new-buyer share, and six-month contribution after sampling costs. Capture source of trial at purchase and use a short post-campaign survey for awareness and consideration. Keep a small transit sample cell only if gym trial volume is too low to read repeat rates. The key is to avoid measuring only coupon redemption; the decision metric is incremental gross margin per £1 spent, including any cannibalisation of existing Northwell buyers.