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Teaching notes · lesson 8 · a 20-minute class

Diminishing returns and saturation

Each extra euro buys a little less. Tracks: Media, Finance.

Open the lesson

Learning goalsBy the end, students can

  • Read a response curve and explain why it flattens.
  • Tell average return from marginal return, and say which a budget decision changes.
  • Find the best spend on a curve: where the next euro returns one euro.

The 20-minute classMinute by minute, with the lab on the projector

  1. 0:003 min, to 3:00

    Cold open

    Ask: a channel returns €1.40 for every €1 on average. Should we spend more? Most will say yes.

  2. 3:004 min, to 7:00

    The idea

    Draw a curve that flattens. Mark average return and the slope at the end. Explain reaching the same people again.

  3. 7:005 min, to 12:00

    Lab on the projector

    Pick a channel and spend more, then less. Read the extra gross profit against the extra spend at each step.

  4. 12:003 min, to 15:00

    Pairs

    Pairs find the point on the curve where the next euro stops paying back.

  5. 15:003 min, to 18:00

    Discussion

    Return to the cold open with marginal return in hand.

  6. 18:002 min, to 20:00

    Check

    Three lesson questions.

Discussion questionsWith what a strong answer covers

  1. A channel's average return is above €1 but the next euro returns €0.60. What do you do?

    A strong answer covers
    • Hold or trim: the last euros lose money.
    • Decisions change the marginal euro, not the average.
    • Consider moving money to a less saturated channel.

  2. Why do response curves flatten?

    A strong answer covers
    • Later euros mostly reach people already reached.
    • Saturation, as modelled with curves such as the Hill curve.
    • Notes brand media saturates more slowly as memory builds.

  3. Why is a small brand often on the steep part of the curve?

    A strong answer covers
    • It reaches fewer people now, so each extra euro finds new ones.
    • So extra spend can pay back better than for the leader.
    • Links back to penetration.

The lab as homeworkAbout 15 minutes for a student

Use the lab to find where extra spend stops paying back in one channel.

  1. Choose a channel.
  2. Raise its spend in steps and note the extra gross profit at each step.
  3. Find the step where the next euro returns less than one euro.

They answer: For the channel you chose, at what spend did the next euro stop paying for itself, and how did you tell?

A strong answer covers
  • Names the channel and quotes the lab's readings.
  • Uses the extra return per extra euro, not the average.
  • Says what they would do with the money past that point.

Students also answer the lesson's three questions. Their score is worked out on the server from their answers.

Set this lab as homework

Students open a link, do the lab, answer the three questions and write what they found. You see each student's quiz score and finding on your class page.

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