Part I
- (1 point) What happens to the absolute Customer Lifetime Value (CLV) when the
retention rate increases by 20% holding everything else constant? Assume a positive
margin m, a discount rate of 10%, and an initial retention rate r=80%.
a) CLV increases less than 20%
b) CLV increases more than 20%
c) CLV increases exactly 20%
d) CLV increases depending on the value of margin m
e) None of the above - (1 point) In the CLV calculation you should ignore acquisition cost if:
a) You have not incurred the acquisition cost yet
b) It is smaller than the absolute CLV
c) Customer retention rates are very high
d) It is an existing customer - (1 point) Describe what share of wallet (SoW) is and how it is different from market share.
- (1 point) An air conditioner that turns on when the temperature surpasses 25º C is an
example of:
a) The task unification template
b) Ideation crowdsourcing
c) The attribute dependence ideation template
d) Both a) and c) - (1 point) Among the list of variables mentioned below, which variable would be the best
variable to segment the market based on customer preferences?
a) Age
b) Income
c) Postal Code
d) History of redeemed products from loyalty program
e) Education - (1 point) A restaurant from which you can order either by phone, takeaway or eat inrestaurant added the option of ordering over Deliveroo. They found that adding Deliveroo
increased the number of customers coming to the restaurant for a sit-down meal. Which
of the following may be used to describe this effect?
a) Volume effect
b) Substitution effect
c) Augmentation effect
d) The leaky bucket problem
e) Attribution effect - (1 points) Provide two different marketing tactics to expand the customer base value
through expansion. Give one concrete example for each expansion tactic (use different
brands/products from those seen in class). - (1 point) Assume a small market with two high-end phones:
(1) Samsung Galaxy with a memory of 2GB RAM and battery life of 24 hours, and
(2) Apple iPhone with a memory of 4GB RAM and battery life of 18 hours.
Note: You can assume for both memory and battery life, higher is better.
If Samsung were interested in boosting the sales of its current Samsung Galaxy (2GB
RAM and 24 hours of battery life), how could they apply the asymmetric dominance
effect through the introduction of a new product to boost sales of the phone already in
the market? Provide the attributes of the new Samsung phone and explain why
introducing this phone would increase the sales of the existing Galaxy phone. - (2 points) Chase Sapphire Reserve Case. Why was Chase successful at attracting
customers?
Part II
(8 points) Question 1
The firm Threadflix provides a monthly subscription service of online streaming of movies
and TV shows. Threadflix offers two subscription plans: standalone service which costs £8
per month and allows only one device to stream simultaneously, and the family service
which costs £16 per month and allows to stream from multiple devices at the same time.
Threadflix currently has 10,000,000 customers globally, of which 85% have a standalone
subscription.
Historical data shows that, in an average month, 5% of the customers with standalone
service unsubscribe to the service. On the other hand, only 1% of the family subscription
customers unsubscribe each month. (It is believed that these differences in churn rates are
driven by multiple members of the family may be engaged in a Threadflix TV show.)
Assuming that the profit margin for the firm (for all subscribers) is 50%, answer the following
questions:
a. (2 points) How much more value the firm obtains from one customer with family
subscription vs. one customer with standalone subscription? (Assume a monthly discount
rate of 1%)
b. (1 points) Which segment of customers (standalone or family) represents the highest
proportion of the total value of the firm’s customer base? (Assume a monthly discount
rate of 1%)
c. (2 points) Threadflix is interested in attracting new customers, for which is considering
start producing new shows and movies that differ notably from their current catalogue.
Firm’s forecast indicates that the production of new and different content will attract
2,000,000 new subscriptions, in the same proportion of standalone and family as they
currently have. Assuming, this new content does not change existing customers’
retention rates, how much is the maximum budget Threadflix should spend to produce
this new content?
d. (2 points) Another option Threadflix is considering is to renew new seasons for their
existing shows for £200,000,000. The firm forecast that this action will decrease
standalone customers unsubscribing behavior from 6% to 3%. Considering it does not
affect how family subscribers behave, what is the net increase in value of this strategy?
e. (1 points) Finally, assuming that the production of new content (as discussed in part b))
costs £150,000,000; which strategy, new content production (part c) or renewal of
existing shows (part d), is best for Threadflix? Why?
(4 points) Question 2
Read the scenario below and answer the questions that follow.
A marketing agency recently conducted a market research study in a foreign market to
determine consumers’ perception of different mass-market cars. From this research, the
company put together the following perceptual map:
The company also conducted an analysis to understand consumers’ preference for different
product attributes. The attributes examined were safety, affordability, and sporty/family.
Higher numbers indicate stronger preferences for the specific product attribute (e.g., Cluster
3 exhibits stronger preference for affordability relative to the other clusters, Cluster 1 really
values family cars). The company then conducted a cluster analysis to group consumers into
different segments based on their preferences for the different product attributes. The
company identified 3 clusters. The clusters’ preferences and profiles are below:
Clusters’ size and preferences for product attributes in a 1-7 scale
Cluster
Size Safety Affordability
Sporty
(vs.
Family)
Cluster 1 45% 4.5 4 1
Cluster 2 35% 5.5 3.5 5
Cluster 3 20% 5 6 3
Clusters’ profiles
Avg. Age Income Female
Cluster 1 53 £ 48K 24%
Cluster 2 39 £ 51K 53%
Cluster 3 40 £ 53K 65%
a) (1 points) What brand is most likely to be considered by Cluster 3? Why?
b) (1 points) Which cluster should Honda target?
c) (2 points) Write a positioning statement for Honda assuming they decide to target the
cluster you chose in the previous question. (WRITE CLEARLY)
(6 points) Question 3
The B2B company mobiCRM offers CRM cloud solutions for mobile marketers (i.e., app
developers) that helps them manage the users that actively engage with their apps.
Currently mobiCRM offers two products: iOS-CRM and Android-CRM for managing users of
iOS and Android apps, respectively. Each product allows one customer (i.e., mobile marketer)
to manage any number of apps of their respective operating system. That is, for a fixed
subscription price iOS-CRM allows mobile marketers to manage multiple iOS apps, but they
cannot manage any Android apps.
For each mobile marketer that contracts mobiCRM products, mobiCRM incurs monthly variable
costs of £960 for the iOS-CRM product, and £840 for the Android-CRM product.
A marketing research study conducted by mobiCRM reported that the market of mobile
marketers consists of 4 equally sized segments; each segment with a different willingness to
pay for the iOS-CRM and Android-CRM products depending on which device their current users
use the most. The results of this study are shown in Table 1.
Table 1: Willingness to pay for mobiCRM products for each segment (in monthly GBP)
Product
Segment iOS-CRM
(cost = 960)
Android-CRM
(cost = 840)
Segment A 1200 240
Segment B 1200 1020
Segment C 1140 1080
Segment D 600 1080
For all calculations, you can assume each segment consists of a single customer (i.e., mobile
marketer).
a) (2 points) What would be the profit-maximizing prices of each CRM product if mobiCRM
were to sell their products independently?
b) (2 points) mobiCRM is interested in moving away from selling their products individually,
to selling them exclusively in a bundle. What would be the price of this bundle that would
maximize profits? How does this pricing strategy compare with question a)?
Note that in this scenario iOS-CRM and Android-CRM cannot be sold separately.
c) (1 point) What would be the best possible pricing strategy to maximize total profits? You
may assume that all else equal, a customer may prefer two CRM products to one.
d) (1 point) For those customers that subscribe the bundle, how should mobiCRM manage
their communications to increase the perception of get value that they are getting from
the bundle? Explain why.
(6 points) Question 4
A&B, a consumer-packaged goods company, is interested in generating a communications
strategy for their orange juice Pulpy to increase its sales. You can assume this tomato sauce is
sold through traditional retailers such as supermarkets and convenience stores.
a) (3 points) Describe what would be the most common customer decision journey. Use the
most appropriate model among those seen in class.
b) (3 points) What type of content/promotions are most likely to be effective for each stage
of the journey. Explain in the specific context of this tomato sauce product.
(6 points) Question 5
A company is launching a mindfulness and meditation app. A limited version of the service will
be offered to consumers as a free download. Users must pay £9.99 to upgrade to the full
version of the service. To support the launch of the service, the company is planning to run ads
on Facebook. This includes both ads on the regular site (i.e., online ads) and ads on the mobile
application (i.e., mobile ads). The company received 8 million impressions online at a CPM of
£1.5. These impressions led to 56,000 clicks. The company received 1.6 million impressions on
mobile at a promotional price of CPM of £0.75. These impressions led to 8,000 clicks. Through
both channels 50% of the customers who clicked on the ad eventually download the service.
10% of the customers arriving from the online channel upgrade to the full version after
downloading the app. Customers who arrive from mobile are younger and more engaged in
meditation; therefore, 15% of these customers upgrade to the full version. If an upgrade occurs,
it usually occurs within the first few days of downloading the free version.
a) (2 points) Which channel has a lower cost-per-click?
b) (2 points) What is the acquisition cost per paying (upgrading) customer through each
channel? Do either of these channels justify the cost of acquisition?
c) (2 points) Provide at least two possible reasons for also using the channel with higher
cost per acquired customer.
Sample Solution