Costs and Benefits of Internet Advertising Programs
help with this case study, the questions are mentioned in the case
©2015 IMA INTRODUCTION Hula Island is a boutique Internet shop, not a brick-and- mortar store, specializing in hand-painted glassware and Hawaiian-themed products. 1 Its customers are primarily women between the ages of 30 and 50 whose household earnings are above the national average. Hula Island caters to a unique niche market, providing its customers with a combination of artsy products, custom glassware, and vivid pictures at comparatively low prices. They also offer a generous return policy. To encourage impulse purchases, most items are priced between $15 and $30 with a very small markup. An extensive analysis of the company’s customer list shows that, on average, each new customer will generate approximately $3.50 in immediate profits and $25 in lifetime profits (the lifetime profits include the immediate profits). The owner, who refers to himself as the Chief Coconut of Hula Island, has strong industry contacts and can usually obtain inventory items a month or so before the company’s competitors. As a result, Hula has a comparatively loyal customer base. Most customers consider the company’s hand-painted glassware products as collectible art objects. For instance, many customers collect the annual Lolita® Wicked Witch wine glass. 2 Hula’s best customers collect and display sets of specialty glasses—the “Sister Wife,” glass for example—along with holiday-themed glasses for Halloween and Christmas. The wine glass shown in Figure 1 is one of its best-selling products. Figure 1: An example of a Hula Island product, the “Rich Witch, Too” Wine Glass by Lolita. Hula is a small business with approximately $300,000 in annual sales and roughly $48,000 in annual profits. Table 1 IMA EDUCATIONAL CASE JOURNAL VOL. 8, NO. 3, ART. 2, SEPTEMBER 2015 1 ISSN 1940-204X Hula Island: Strategic Decisions Involving Costs and Benefits of Internet Advertising Programs Stephen C. Hansen Associate Professor Naval Postgraduate School Monterey, CA Tom Albright Professor and Area Chair Financial Management Naval Postgraduate School Monterey, CA Authors note: The views expressed in this document are those of the authors and do not reflect the official policy or position of the Department of Defense or the U.S. Government.
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