OraSure is a medical technology firm based out of Pennsylvania that produces a device
that allows consumers to test for HIV at home. In 2015, OraSure decided to reduce
advertising for this device. The firm’s chief executive officer stated that the advertising had
not been as effective as he hoped in increasing sales of the device. A news story quoted
him as saying, “Consequently, we had to adjust our spending on advertising to make it
more proportional to revenue.” The CEO of OraSure made an irrational decision assuming
that reducing advertising would create more revenue and not waste money on useless
advertizing. In the long run, OraSure evidently ended up losing revenue because less
people knew about them, due to the decrease in advertising.
Instead of cutting advertisement all together, the CEO should use a commitment device to
create a better marketing program or even better advertising maybe they would not have
lost all revenue. Cutting advertisement may have not been the wrong decision; however,
cutting all advertisement was very irrational. A more rational way would have been to
decrease advertisement to be in equilibrium with revenues, and create a better outcome for
OraSure.
We have seen that any activity should be continued to the point where the marginal benefit
is equal to the marginal cost. Therefor, oraSure will be better off reducing its advertising