Does the promotion strengthen the premium position?
Read contribution and the future full-price question together.
The question
Luma sells a fictional premium tea gift box for £100 with £40 variable cost. In the same four-week period, the no-promotion forecast is 1,000 units. A 20% price reduction is forecast to sell 1,400 units. No extra fixed costs or mixed prices apply.
| Unit price (£) | Variable cost per unit (£) | Units | |
|---|---|---|---|
| No promotion | 100 | 40 | 1000 |
| Promotion | 80 | 40 | 1400 |
Contribution is revenue less the stated variable cost, not total accounting profit.
Luma wants to remain a credible full-price premium gift. The decision must consider immediate contribution and what repeated discounts could teach buyers to expect.
“Choose your next action and explain the evidence behind it.”
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A strong answer, step by step
Open each step in turn. This is one strong answer, not the only one.
Step 1: Name the price promise
What would you do here? Open the move you’d make.
State the intended full-price role before approving frequency.
The strong move. Price helps express the position as well as convert demand.
Assume any promotion permanently destroys a premium brand.
Tempting, but it misses something. The packet contains no evidence of permanent damage; the risk needs to be tested.
See how a strong candidate says it
“I would ask how frequent discounts fit Luma’s premium role. One price cut is not proof of permanent harm, but the brand decision is wider than four-week volume.”
Why it works: Price helps express the position as well as convert demand.
Step 2: Calculate the contribution
What would you do here? Open the move you’d make.
Compare contribution and the break-even volume.
The strong move. Revenue growth can hide a lower contribution.
Approve because revenue rises 12%.
Tempting, but it misses something. The extra revenue does not offset the lower unit contribution at 1,400 units.
See how a strong candidate says it
“Base contribution is 1,000×£60 = £60,000. Promotion is 1,400×£40 = £56,000. Revenue rises from £100,000 to £112,000, but contribution falls £4,000. Break-even is 1,500 units.”
Why it works: Revenue growth can hide a lower contribution.
Step 3: Read the two horizons
Verified promotion volume is 1,600 units. A separate follow-up panel has 200 exposed shoppers and 200 unexposed shoppers: 60 exposed and 76 unexposed say they would buy at full price. The groups were not randomly assigned to promotion exposure.
What would you do here? Open the move you’d make.
Report the gain and test the full-price concern.
The strong move. A short-term contribution gain does not settle the long-term price expectation.
Declare the promotion harmful because willingness differs by 8 points.
Tempting, but it misses something. The small, separate panel does not establish that the promotion caused the gap or quantify future losses.
See how a strong candidate says it
“Actual promotion contribution is 1,600×£40 = £64,000, £4,000 above the base forecast. The follow-up panel shows 30% versus 38% willingness to buy at full price, an 8-point gap. I would investigate full-price repeat behaviour before making this a regular promotion.”
Why it works: A short-term contribution gain does not settle the long-term price expectation.
Step 4: Choose the next evidence
What would you do here? Open the move you’d make.
Define a controlled repeat-purchase check before repeating.
The strong move. Behaviour over time is stronger evidence than a stated-intent forecast.
Convert the panel gap directly into lost lifetime value.
Tempting, but it misses something. The packet gives neither causal purchase loss nor customer lifetime contribution.
See how a strong candidate says it
“I would avoid automatic repeat discounts and propose a controlled check of actual full-price repeat purchases over a defined period. I would track contribution and consumer price expectations separately.”
Why it works: Behaviour over time is stronger evidence than a stated-intent forecast.
The answer, in short
- Decision
- Report contribution £4,000 above the base forecast and keep repeat promotion conditional.
- Because
- The immediate contribution is known; the future full-price effect is not.
- What would change it
- Controlled evidence of full-price repeat behaviour could support or oppose a regular promotion.
Common traps
- Equating revenue with contribution.
- Converting an unmatched panel into causal lifetime loss.
Check your answer
- I used the discounted margin.
- I found 1,500-unit break-even.
- I updated actual contribution.
- I separated intent from causal behaviour.
Last reviewed Nov 10, 2026