Transcript Slide 1

Final Exam
Course Learning Outcomes
At the end of the course, students should be able to:
• Understand how company strengths and
weaknesses and external opportunities and threats
influence the success of a marketing strategy;
• Develop and communicate marketing action plans
that effectively target, attract, and retain profitable
customer segments; and
• Conduct basic quantitative analyses to evaluate
the outcomes associated with alternative
marketing programs.
Marketing Process Model
SWOT Analysis Product-Market Definition
Company Customers Competitors Collaborators Context
Competitive Adv. & Capabilities
Market
Segmentation
Creating
Value
Selection &
Targeting
Product/Service
Offering
Promotion/
Communicating
Communication
& Capturing
Value
Customer
Acquisition
Product/Service
Offering Positioning
Place/
Channel
Pricing
Customer
Relationship
Management
Customer
Sustaining
Expansion/Retention
Value
Revenue & Profits
MKTG 6201 Final Exam
Directions: You may not use notes or text materials in
completing this exam. You can use your own calculator but not
someone else’s. You cannot use a smart phone. There are 4
sections. The three mini-cases are worth 5 points each and the
multiple choice questions are worth a total of 5 points (1 point
each). For the mini-case problems, be sure to answer the
questions in the outlined boxes. You can use the back of the
pages to make calculations or scribble notes, but
I will grade information provided in the boxes only.
Be sure that you respond directly to each question and that you
have completed all outlined boxes. The exam will last 2 ½
hours.
Acquisition Value and Customer Lifetime Value
As the local Time Warner manager, you are considering two promotional
campaigns, one targeting new students and the other targeting new faculty at
SMU. The promotion includes free installation and set-up for new accounts.
You normally charge $20 for setting up a new account, which barely covers the
variable costs for installation, regardless of the type of service. To qualify for
free installation, customers have to agree to a 12-month contract.
Most students purchase the basic package at $20 per month but most faculty
purchase the HDTV package for $50 per month. Variable cost is $10 per month
for basic and $20 for HDTV. To encourage students to upgrade to the HDTV
package, you will offer them 3 months of HDTV for just $30, with the price
changing to the normal $50 after the first 3 months. You think that 50% of the
new student accounts will take advantage of this offer.
There are 3,000 new students and 200 new faculty at SMU every year. The
student promotional campaign will yield a 20% acquisition rate and the faculty
promotional campaign will yield a 50% acquisition rate. To target the 2 groups,
you will have to buy mailing lists and generate a direct mail campaign.
What is the most you would spend per acquired customer for the promotional
campaign if you want a three-month payback? Six-month payback?
Students –
Basic
StudentsHDTV
Faculty
1. Total number of customers targeted
3,000
200
2. Acquisition rate
20%
50%
3. Total # of customers acquired (#1 × #2,
student split 50-50)
300
300
100
4. First-quarter contribution per month (i.e.,
Price – VC)
10
10
30
5. Number of monthly purchases (first quarter)
3
3
3
6. First-quarter gross contribution (#3×#4×#5)
$9,000
$9,000
$9,000
7. Minus installation & set-up costs ($20 × #3)
$6,000
$6,000
$2,000
8. First-quarter net contribution (#6-#7)
$3,000
$3,000
$7,000
$10
$10
$70
9. First quarter net contribution per acquired
customer (#8/#3)
Three-month payback:
$10
&
$70
Six-month payback? $70 (.5 * 40 + .5 * 100) per student and $160 (70+90) per faculty member.
To promote the campaign, you will spend $10 per targeted student and $20 per
targeted faculty. You want to calculate the lifetime value of each new student
and faculty customer using first-year expected contribution. Expected retention
rates and risk factor (associated with students skipping out without paying and
stealing the equipment) for the 3 customer groups are shown below. Is the
HDTV upgrade offer worthwhile? What is the total increase in the firm’s
customer equity?
Students Basic
StudentsHDTV
Faculty
12×$10
$120
3×$10+9×$30
$300
12×$30
$360
10. First-year per-customer gross contribution
($10×3000)/600
$70
$70
+ $20
11. Per-customer acquisition costs (AC) to
promote + install
12. Retention rate (r)
13. Discount rate (i)
40%
20%
70%
10%
10%
10%
2
3
1
14. Risk factor
15. CLVinfinite lifetime = CM/(i* + 1 - r) – AC
where i* = i × risk factor.
16. Total number of each type of customer
17. Increase in customer equity =
($20×200)/100
$60
+ $20
$120
.20+1-.40
- $70
$300
.30+1-.20
-$70
$360
.10+1-.70
$80
$203
$840
300
300
100
$24,000
$60,818
-$60
$84,000
You are the product manager for the new Mountain Man Lite beer. Research results are in for the new positioning
strategy, which targets 21-34-year-old, men and women. In the region, there are 10,000,000 people in this demographic,
beer penetration is 20%, and beer drinkers consume 50 gallons per year on average. Research indicates the following
response to the new positioning strategy.
Definitely would try MM Lite
Probably would try MM Lite
20%
30%
Past experience indicates that adjusted trial rates are 80% for respondents indicating they “Definitely would try…” and
30% for respondents indicating they “Probably would try…” You worked up numbers for two advertising & promotion
(A&P) campaigns. The $2,000,000 campaign focuses on a pull strategy, using advertising to build awareness among the
target market. With this campaign, 20% of the target market will be aware of MM Lite. Using the current sales staff to
promote the MM Lite to current retail customers, you expect to achieve 40% distribution coverage. The $3,000,000
campaign implements the same pull strategy but also implements a push strategy that includes trade promotions and
point-of-sale merchandising. These efforts will increase distribution coverage to 50% but will likely have little additional
impact on target customer awareness.
Two product concepts have also been tested. One concept remains true to the “bitter flavor and slightly higher-thanaverage alcohol content” that differentiates Mountain Man Lager, the flagship beer. Taste tests indicate that target
customers respond fairly well to this concept and that 50% would retry the product. Target customers respond more
positively to the second concept, which offers a smoother taste and average alcohol content, suggesting that 60% would
retry the product. Trial purchase volume is estimated to be 1 gallon and repeat purchase volume is estimated at 10
gallons per year. Pricing for both products will be around $10 per gallon. The COGS for the “Bitter Flavor” concept will be
$7.50 per gallon, the same as the MM Lager COGS. COGS for the “Smooth Taste” concept would be $8.00 per gallon,
because it requires different ingredients than those currently used. Product development expenses, which were
$2,000,000, are treated as sunk costs.
Assuming that awareness and distribution coverage targets apply for the entire first year, what is the first-year unit volume
sales forecast (in gallons) for the first year for each option?
2MM Promotion, Bitter Flavor
10,000,000
Research
Results
Adjusted Awareness Coverage Penetration Trial
Trial
%
%
%
Rate %
# Trial
Buyers
Repeat
%
# Repeat
Buyers
Repeat
Volume
Definites 20%
X 80% X
20%
X
40%
X
20%
= .256% 25,600 50% 12,800
10
Probables 30%
X 30% X
20%
X
40%
X
20%
= .144% 14,400 50% 7,200
10
$2MM
Promotion
& Bitter
Flavor
Total Unit Volume->
Unit Volume
Trial +
Repeat
25,600 +
153,600
128,000
14,400 +
72,000
86,400
240,000
2MM Promotion, Smooth Taste
Research
Results
Adjusted Awareness Coverage Penetration Trial
Trial
%
%
%
Rate %
# Trial
Buyers
Repeat
%
# Repeat
Buyers
Repeat
Volume
Definites 20%
X
80%
X
20%
X
40%
X
20%
= .256% 25,600 60% 15,360
10
Probables 30%
X
30%
X
20%
X
40%
X
20%
= .144% 14,400 60% 8,640
10
$2MM
Promotion & Smooth Taste
Total Unit Volume->
Unit Volume
Trial +
Repeat
25,600 +
179,200
153,600
14,400 +
100,800
86,400
280,000
3MM Promotion, Bitter Taste
Research
Results
Adjusted Awareness Coverage Penetration Trial
Trial
%
%
%
Rate %
# Trial
Buyers
Repeat
%
# Repeat
Buyers
Repeat
Volume
Definites 20%
X 80% X
20%
X
50%
X
20%
= .320% 32,000 50% 16,000
10
Probables 30%
X 30% X
20%
X
50%
X
20%
= .180% 18,000 50% 9,000
10
$3MM
Promotion
& Bitter
Flavor
Total Unit Volume->
Unit Volume
Trial +
Repeat
32,000 +
192,000
160,000
18,000 +
90,000
108,000
300,000
3MM Promotion, Smooth Taste
Research
Results
Adjusted Awareness Coverage Penetration Trial
Trial
%
%
%
Rate %
# Trial
Buyers
Repeat
%
# Repeat
Buyers
Repeat
Volume
Definites 20%
X
80%
X
20%
X
50%
X
20%
= .320% 32,000 60% 19,200
10
Probables 30%
X
30%
X
20%
X
50%
X
20%
= .180% 18,000 60% 10,800
10
$3MM
Promotion & Smooth Taste
Total Unit Volume->
Unit Volume
Trial +
Repeat
32,000 +
192,000
224,000
18,000 +
126,000
108,000
350,000
Market
Share
Market Size
Unit Volume
Revenue
Forecast
$2MM Bitter
.24%
100,000,000
240,000
2,400,000
$7.50
1,800,000
600,000
30%
$2MM Smooth
.28%
100,000,000
280,000
2,800,000
$8.00
2,240,000
560,000
28%
$3MM Bitter
.30%
100,000,000
300,000
3,000,000
$7.50
2,250,000
750,000
25%
$3MM Smooth
.35%
100,000,000
350,000
3,500,000
$8.00
2,800,000
700,000
23%
Options
COGS
Contribution
Return on A&P
What are revenue and contribution margin forecasts for the first year?
Assuming the A&P campaign is a fixed cost for the first year only (i.e., not
recurring after the first year) and revenues are stable, at what point will MM Lite
break even under the best scenario? Which option would you choose and
why?
Channel Pricing & Required Volume to Breakeven
Altius’s Victor TX golf balls currently retail at $40 per dozen. Golf ball sales have been
steady at 20 million dozens per year but Altius’s market share has decreased over the
last few years from 50% to 40%. As the manager for the golf ball product line, you are
considering one of two strategies to recapture share: (1) decrease the retail price for
TX by 5% to $38 for a dozen, or (2) introduce a new, lower-priced XX ball that will
compete at the $25 retail price point. Retailers expect a 20% margin on all golf balls.
Complete the table below to determine the unit profit implications of a $2 decrease in
the retail price for TX, assuming the gross margin is currently 70%, and the unit
contribution for Victor XX, assuming a gross margin of 60%?
Victor TX $2 Price decrease
Victor XX
Retail price
$40
$38
$25
Retailer margin
20%
20%
20%
$32.00
$30.40
$20.00
$9.60
$8.00
$20.80
$12.00
Victor price
Victor variable cost
Victor unit contribution
Victor gross margin
$9.60
70% * 32 = $22.40
70%

60%
Complete the table below to determine current gross profit and the break-even
market share and unit volume for the $2 retail price decrease option.
1.60
22.40-1.60
Total Unit Volume
20,000,000
BE%D
BE Share & Volume
BE%D =
— $DP
$CM’ + $DP
Victor TX Market Share Victor TX Unit Volume Victor TX Gross Profit
40%
8,000,000
7.7%

43.1%
8,615,385
You believe that Altius could recapture 5 market share points (to 45%) by introducing
the XX ball, but it would result in an additional 5 point drop in share for TX; in other
words, TX would capture 35% share and XX would capture 10% share. Complete the
table below to determine the gross profit implications.
Unit Volume
Victor unit
contribution
Gross Profit
Total Market
Victor TX
Victor XX
100%
35%
10%
20,000,000
7,000,000
2,000,000
$22.40
$12.00
$156,800,000
$24,000,000
Combined Gross
Profit
$180,800,000
You also believe the $2 price decrease on TX balls would recapture 5 market share
points (to 45%) without introducing the XX ball. Complete the table below to
determine the gross profit implications.
Market Share
Unit Volume
Total Market
Victor TX
100%
45%
20,000,000
Victor unit contribution
Gross Profit
Which option would you choose and why?
9,000,000
$20.80
$187,200,000
Questions?