Read the case and answer questions.

Anonymous
timer Asked: Dec 11th, 2018
account_balance_wallet $50

Question description

This case will require an excel spreadsheet to support your answers to the attached questions.

When you are finished you can submit a word doc and excel to assignments. As you answer the questions either include the excel tables you are referencing in the word doc and clearly reference your exhibits; or if you submit the excel separately be sure to clearly reference in your word doc the specific tables in your spreadsheet and submit both.

For the exclusive use of T. Tan, 2018. UV0311 THE INDEPENDENT ADVISER FOR VANGUARD INVESTORS Although Dan Silver’s MBA education was backed by considerable experience in editing and publishing, he felt challenged by some of the details of his new job as director of Marketing and Operations for the Independent Adviser for Vanguard Investors (TIAVI), a financial newsletter. In particular, many of the complexities surrounding the renting of mailing lists and the direct-mail solicitation of additional customers were new to him. Currently there was growing pressure within his company to cut back on prospecting because several recent efforts had lost money. It was clearly his responsibility to respond to the pressure. Newsletter Background Dan Wiener, a former U.S. News & World Report associate editor, started the Vanguard Adviser in 1991. The newsletter’s purpose was to give investment advice to investors in the Vanguard-Group family of mutual funds and to make money doing so. In 1993, the Vanguard Group of Investment Companies was the second-largest group of mutual funds, managing over $100 billion of assets in its more than 70 funds. Approximately 2.5 million individual investors had money invested in one or more Vanguard funds. For many of these investors, the advice of a Wall Street outsider like Wiener was seen as particularly valuable. Not only was Wiener not associated with Wall Street, he had no ties to the funds about which he gave advice. Because he had nothing to sell, Wiener’s independent advice was seen by subscribers as more valid and trustworthy. In addition, mutual-fund companies such as the Vanguard Group were prohibited by law from giving advice on their own funds. In early 1992, Wiener and his company, the Fund Family Shareholder Association, had brought in two partners from the publishing business to manage the day-to-day operations of the newsletter. Wiener, of course, remained the president. Later that summer, the Fund Family Shareholder Association hired Dan Silver as director of Marketing and Operations. In May 1993, the newsletter made Marketing Services International, Inc., (MSI) the manager of its member and inquiries file. This case was prepared by Professor Phillip E. Pfeifer as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Some elements in the case are disguised. Copyright © 1994 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email to sales@dardenpublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Rev. 11/04. This document is authorized for use only by Tian Tan in Finance for Marketing Decisions, Fall 2018 taught by BURDIN HICKOK, New York University from Sep 2018 to Mar 2019. For the exclusive use of T. Tan, 2018. -2- UV0311 The newsletter received some early publicity about its feud with the Vanguard Group over the newsletter’s original name, the Vanguard Adviser. Because the Vanguard name was the brand name of the Vanguard family of funds, they at first strongly objected to its use by Wiener as the title of his newsletter. According to their lawsuit, because Wiener had no connection with the Vanguard Group or the Vanguard family of funds, he had no right to call his newsletter the Vanguard Adviser. The Vanguard Group dropped their lawsuit and made several concessions in June 1993, in return for the newsletter changing its name to the Independent Adviser for Vanguard Investors. The publicity surrounding the feud was thought to have contributed to the newsletter’s rapid growth (from 10,000 subscribers to 25,000 within a year). A description of the newsletter can be found in the promotional piece included as Exhibit 1. Prospecting for New Customers The newsletter relied heavily on direct-mail “prospecting” to attract new subscribers.1 Slightly over $1 million was spent in 1993 to mail promotional material to carefully selected lists of individuals in the hope that they would purchase an introductory subscription to TIAVI. The promotional package was a regular four-by-nine-inch envelope stuffed with information on the newsletter (see Exhibit 2 for the front and back views of two such envelopes). An initial one-year membership was offered at a price deeply discounted from its usual price of $139. Six-month and two-year memberships were also available. The average amount received with an initial membership was $56. With a one-year membership, subscribers received 12 issues a year of TIAVI, five special reports, and one year’s access to the Fund Family Shareholder Association hotline, a private telephone number offering weekly updates and late-breaking financial news on a 24-hour-a-day basis. As the promotional material stated, “That’s a total value of $307 for only $99, a savings of $208!” Dan Silver relied heavily on both MSI and Kim Scott, a free-lance circulation consultant, to select rental lists of individual names and addresses for these prospecting activities. For the most part, the selection of lists was left to the experts who knew that Silver and his partners would carefully monitor and track their results. In general, Silver thought it was a good idea to rent lists through a broker because the seller (renter) of the list paid the broker’s commission. Thus, the broker’s services were “free” to Silver when used to rent lists. In addition, the use of a broker eliminated many of the day-to-day hassles involved in prospecting—something particularly important to a small organization like Silver’s. Silver’s decisions, then, were not so much about which lists to use but rather about how aggressive to be. Recently, for the first time, some promotional mailings had failed to break-even. One line of thinking within the organization was that promotional mailings should “pay for themselves.” In other words, the total cost of the mailing (printing, postage, list rental, etc.) should be recovered from the initial subscription revenues achieved from the mailing. Given that response 1 For the purposes of this case, we will use the terms “subscriber” and “member” interchangeably. Technically, the Fund Family Shareholder Association sold memberships that included a subscription to the newsletter. This document is authorized for use only by Tian Tan in Finance for Marketing Decisions, Fall 2018 taught by BURDIN HICKOK, New York University from Sep 2018 to Mar 2019. For the exclusive use of T. Tan, 2018. -3- UV0311 rates almost always declined when a list was used again and again, it was argued that once a mailing failed to break-even it made no sense to return to that list. Taken to its logical conclusion, this suggested that a promotional mailing that failed to break-even was also a mistake—the company would have been better off without it. Exhibit 3 shows the results of the most recent promotional mailing to 10 rental lists. Included in the last column is total net cash—calculated as subscription revenues minus prospecting costs. Several of the lists showed a loss, and the percentage of lists showing losses had been increasing over time. Nevertheless, Silver knew he was offering a good product. About 50% of those who tried an initial subscription at the promotional rate converted it to a regular subscription at the end of the year. And the majority (75%) of subscribers renewed in each subsequent year. It cost about $5 per subscriber to produce and send the promotional material designed to convince them to resubscribe. Because all subscription prices after the initial trial were higher, revenues were higher—about $99 on average. Fulfillment costs (costs to print, insert, and mail the newsletter) were about $12 per year. At a recent Newsletter Publishers Association conference, Silver had obtained a copy of a formula that could be used to calculate the total number of subscriptions (circulation) to expect from a promotional mailing (see Exhibit 4). At the time, it reminded him of the dividend discount growth formula he had learned in his MBA Finance class. Silver knew he needed to respond to the growing pressure from within the company to do something about the recent prospecting losses. The $64,000 total gain from the recent prospecting effort was not nearly enough to cover his share of company fixed costs. He wondered if there was anything else he could do in addition to developing new and better promotional materials, which was something he worked on all the time. Were the losses something to worry about? Exhibit 5 presents a new set of mailing lists his brokers had recently recommended he try on his next prospecting effort. In the past, he would have mailed promotional material to all of them. But now he was not so sure. This document is authorized for use only by Tian Tan in Finance for Marketing Decisions, Fall 2018 taught by BURDIN HICKOK, New York University from Sep 2018 to Mar 2019. For the exclusive use of T. Tan, 2018. -4- UV0311 Exhibit 1 Promotional Material This document is authorized for use only by Tian Tan in Finance for Marketing Decisions, Fall 2018 taught by BURDIN HICKOK, New York University from Sep 2018 to Mar 2019. For the exclusive use of T. Tan, 2018. -5- UV0311 Exhibit 2 Example Prospecting Envelopes This document is authorized for use only by Tian Tan in Finance for Marketing Decisions, Fall 2018 taught by BURDIN HICKOK, New York University from Sep 2018 to Mar 2019. For the exclusive use of T. Tan, 2018. -6- UV0311 Exhibit 2 (continued) This document is authorized for use only by Tian Tan in Finance for Marketing Decisions, Fall 2018 taught by BURDIN HICKOK, New York University from Sep 2018 to Mar 2019. For the exclusive use of T. Tan, 2018. -7- UV0311 Exhibit 3 Results of Promotional Mailings Names List Quantity In-Mail Cost Total List Rented CPM Mailed Cost per M1 Resp. AAA 50,000 $100 49,525 $21,8782 $442 501 1.01% $6,1783 BBB 50,000 $145 47,820 $23,598 $493 321 0.67% ($5,622) CCC 50,000 $125 39,683 $20,072 $506 723 1.82% $20,416 DDD 50,000 $200 45,920 $25,758 $561 340 0.74% ($6,718) FFF 50,000 $150 40,100 $21,451 $535 662 1.65% $15,621 GGG 50,000 $100 41,250 $19,308 $468 578 1.40% $13,060 HHH 50,000 $190 35,644 $22,067 $619 902 2.53% $28,445 JJJ 50,000 $140 48,303 $23,498 $486 128 0.26% ($16,330) KKK 50,000 $145 38,906 $20,830 $535 393 1.01% $1,178 LLL 50,000 $160 37,783 $21,232 $562 526 1.39% $8,224 500,000 $145.5 424,934 $219,692 $517 5,074 1.19% $64,452 Total/Avg % Resp. Net Cash ASSUMPTIONS Activity Merge/Purge Printing Lettershop Postage CPM $30 $242.50 $45 $23 Average Cash Per Order = $56 1 Cost per M and CPM refer to cost per thousand. $21,878 = 50 × ($100 + $30) + 49.525 × ($242.50 + $45 + $23). 3 $6,178 = 501 × ($56) − $21,878. 2 This document is authorized for use only by Tian Tan in Finance for Marketing Decisions, Fall 2018 taught by BURDIN HICKOK, New York University from Sep 2018 to Mar 2019. For the exclusive use of T. Tan, 2018. -8- UV0311 Exhibit 4 Formula for Total Circulation Variable Definition Circ Circulation: the total number of subscriptions (including conversions and renewals) resulting from a promotional mailing. Pcs Number of promotional pieces mailed. resp Response rate to the mailing (a fraction between 0 and 1). C Conversion rate: the fraction of responders who are later converted to a regular subscription (a fraction between 0 and 1). R Renewal rate: the fraction of regular subscribers who renew (a fraction between 0 and 1). ⎛1+ C − R ⎞ Circ = ( Pcs × resp )⎜ ⎟ ⎝ 1− R ⎠ This document is authorized for use only by Tian Tan in Finance for Marketing Decisions, Fall 2018 taught by BURDIN HICKOK, New York University from Sep 2018 to Mar 2019. For the exclusive use of T. Tan, 2018. -9- UV0311 Exhibit 5 Recommended Mailing Lists for Future Prospecting List Type of List 1 No. of Names (thousands) CPM Average Purchase2 QQQ Financial Newsletter 15 $200 $70 RRR Health Newsletter 200 $170 $35 SSS Personal Finance Magazine 500 $150 $30 TTT Business Magazine 1,000 $150 $25 UUU Financial Newsletter 75 $210 $129 VVV Political Newsletter 250 $160 $40 Books 200 $90 $20 XXX Tape Series 50 $90 $99 YYY Financial Newsletter 30 $180 $65 ZZZ Financial Newsletter 40 $190 $81 WWW 1 Each of these lists consisted of names of purchasers of a subscription similar to TIAVI. At the request of the company, the exact names of these subscriptions were kept confidential. 2 The average amount the individuals on the list paid to purchase the subscription. This document is authorized for use only by Tian Tan in Finance for Marketing Decisions, Fall 2018 taught by BURDIN HICKOK, New York University from Sep 2018 to Mar 2019.
The Independent Advisor to the Vanguard Investor • Is the company’s determination of the value of the recently purchased list valid? If not then how would you define “breakeven?” • Using the historical response rate and conversion rates as well as other relevant details in the case what would you determine to be the life time value of their average customer. Does your results change the profitability of the recent promotional results ( Exhibit 4)? • Given your determination of LTV per customer, what is the breakeven response rates needed to buy the first 4 lists detailed in Exhibit 5. Given those response rates and the company’s prior experience should Dan Silver buy any, some or all of the lists you reviewed??

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School: UC Berkeley

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Tutor went the extra mile to help me with this essay. Citations were a bit shaky but I appreciated how well he handled APA styles and how ok he was to change them even though I didnt specify. Got a B+ which is believable and acceptable.

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