What Happens To The Absolute Customer Lifetime Value (CLV) Assignment

Assignment Task

Part I

1. What happens to the absolute Customer Lifetime Value (CLV) when the retention rate increases by 25% holding everything else constant? Assume a positive margin m, a discount rate of 10%, and an initial retention rate of r=80%.

1. CLV increases more than 25%
2. CLV increases less than 25%
3. CLV increases exactly 25%
4. CLV increases depending on the value of margin m
5. None of the above

2. Describe an example, different from the one seen in class, where share of wallet (SoW) provides additional information to market share. In your example, what decision(s) related to the marketing mix can SoW inform, that market share is unable to provide guidance on?

3. A smart grill that stop cooking a steak when the internal temperature of the meat reaches a pre-specified level is an example of:

1. Ideation crowdsourcing
2. The task unification template
3. The attribute dependence ideation template
4. Both a) and c)

4. Indicate if the following statement is True or False: “In the CLV calculation you should ignore acquisition cost if you have not incurred the acquisition cost ”

1. True
2. False

5. Why it could be beneficial for a company to override prices that have been chosen algorithmically? Explain using an

6. A famous hotel chain launched a new platform to book hotel rooms directly. They found that adding this platform decreased the number of bookings received through other online travel agencies without any impact on the total bookings. Which of the following may be used to describe this effect?

1. Cannibalization effect
2. Volume effect
3. Augmentation effect
4. The leaky bucket problem
5. Substitution effect

7. A marketing analyst sets an online targeting campaign in a social media platform using multiple demographics and preference variables available in the platform but decided not to include the variable “Race/Ethnicity” among those while targeting. However, after analysing the results of the campaign the analyst discovered that the platform disproportionately targeted Latino/Hispanic customers. Explain why the resulting campaign may have exposed more customers of a specific ethnicity if the “Race/Ethnicity” variable was left outside the targeting

8. Assume a small market with two high-end phones:

1. Huawei with a memory of 16GB RAM and battery life of 24 hours, and
2. Samsung Galaxy with a memory of 8GB RAM and battery life of 48

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 (8GB RAM and 48 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.

Part II

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 £7 per month and allows only one device to stream simultaneously, and the family service which costs £15 per month and allows to stream from multiple devices at the same time.

Threadflix currently has 5,000,000 customers globally, of which 80% have a standalone subscription.

Historical data shows that, in an average month, 8% of the customers with standalone service unsubscribe to the service. On the other hand, only 2% 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 30%, answer the following questions:

1. 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%)
2. 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%)
3. 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 1,000,000 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?
4.  Another option Threadflix is considering is to renew new seasons for their existing shows for £40,000,000. The firm forecast that this action will decrease standalone customers unsubscribing behavior from 8% to 4%. Considering it does not affect how family subscribers behave, what is the net increase in value of this strategy?
5.  Finally, assuming that the production of new content (as discussed in part c)) costs £30,000,000; which strategy, new content production (part c) or renewal of existing shows (part d), is best for Threadflix? Why?

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 2 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

Clusters’ profiles

1. What brand is most likely to be considered by Cluster 3? Why?
2. Which cluster should Toyota target?
3. Write a positioning statement for Toyota assuming they decide to target the cluster you chose in the previous question.

 Question 3

A&B, a consumer-packaged goods company, is interested in generating a communications strategy for their brand of men deodorant Lynce to increase its sales. You can assume this deodorant is sold through traditional retailers such as supermarkets, pharmacies, and convenience stores.

1. Describe what would be the most common customer decision journey. Use the most appropriate model among those seen in class.
2. What type of content/promotions are most likely to be effective for each stage of the journey. Explain in the specific context of this deodorant

Question 4

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 £4800 for the iOS-CRM product, and £4200 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)

For all calculations, you can assume each segment consists of a single customer (i.e., mobile marketer).

1. What would be the profit-maximizing prices of each CRM product if mobiCRM were to sell their products independently?
2. 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.
3. 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
4. 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.

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 £14.99 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 9 million impressions online at a CPM of

£2.80, with a CTR of 1.0%. The company received 1.7 million impressions on mobile at a promotional price of CPM of £1.15. These impressions led to 5,000 clicks. Through both channels 50% of the customers who clicked on the ad eventually download the service. 5% 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, 8% 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.

1. Which channel has a lower cost-per-click?
2. What is the acquisition cost per paying (upgrading) customer through each channel? Do either of these channels justify the cost of acquisition?
3. Provide at least two possible reasons for also using the channel with higher cost per acquired customer.

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