Part 1: Concepts – Multiple Choice (8 questions - 8 points) Part 2: Application – Short Answers (2 questions - 12 points) Part1: Multiple Choice (Section Total: 8 Points, 8 questions) Questions 1 – 8 are worth 1 point each. 1. What does “k” represent in k-means cluster analysis? a. The number of customers b. The number of segments c. The number of questions used for segmentation d. None 2. In the Sticks Kebob Case, a K-means clustering of the 4 questions, (I tend to plan things very carefully, I sometimes have trouble controlling my spending, I think it is important to purchase products that are made locally, I carefully consider the health benefits of what I eat) results in an elbow plot like diagram below. What does the elbow plot illustrate? a. A power equation b. An equation with upward slope c. Change in the ratio of within to between cluster variance as the number of clusters increase 1 d. Change in the ratio of within to between clusters variance over different repetitions of the kmeans clustering 3. The model used by Dunia Bank to measure CLV was essentially one that adjusted net present value of a customer, or short-term margin, using a measure of retention rate (1 – churn rate): CLV = [M-R]* [(1 + d) / (1 + d – r)] where M equals the current gross margins earned from a customer, R is the retention spending, d is a standard discount rate, and r is retention rate. How does marketing affect the CLV metric above? a. b. c. d. e. Increases retention spending Does not affect CLV Affects retention rate All 3 of the above Only a and c 4. What is CLV used for? a. To determine how much to spend to acquire a customer. b. To determine how aggressively to spend to retain a customer c. To value a company d. Only a and c e. a, b and c 5. What conditions help establish causality? a. Change in marketing mix produces change in sales b. Increased advertising dollars today leads to higher sales tomorrow c. No increase in advertising results in same sales d. Only a and b e. a, b and c 6. What are good criteria for effective segmentation? a. Identifiable b. Accessible c. Responsive d. a and c only e. a, b and c 7. Greater the number of sales calls, greater the sales. In a system of metrics, what type of relationship does this represent? a. Identity b. Empirical c. Either Identity or Empirical depending on the business problem 2 d. Neither 8. Greater the number of sales calls, greater the marketing cost. In a system of metrics, what type of relationship does this represent? a. Identity b. Empirical c. Either Identity or Empirical depending on the business problem d. Neither Part2: Short Answers (Section Total: 12 Points, 2 questions) 9. Consider the following subscription behavior information from Genie.com, a web site that provides tools for constructing a family tree (ancestor search). Subscriptions cost $9.99 per month, but you are charged for the entire year at the time of purchase. There is a one-year minimum term when you sign up for the service. Once purchased, subscriptions are set to renew automatically unless the subscriber cancels them. When a membership renews, it renews for a one-year term and again you are charged for the entire year. There are no variable costs associated with providing this service to an individual customer, but Genie does engage in customer relationship activities that they believe will increase customer retention. These customer relationship activities cost Genie about $10 per year per customer. Based on a sample of 1000 customers that joined Genie.com five years ago, near the time when the company was founded, they were able to determine how many of those customers remained subscribers in the second year, third year etc. Based on this information, Genie calculated the average annual retention rate to be 20%. Genie uses an annual discount rate of 8%. a. Last year, Genie spent $10,000 placing advertisements on Google. Genie management believes that these advertisements were responsible for about 300 new subscribers. Would you recommend to Genie management that they purchase more Google ads? (2 points) b. Suppose a newly-introduced loyalty program increases the number of customers that remained to 30%. Does this new data change your answer to 9.a? (2 points) 3 c. Do you have any hesitations or concerns about making recommendations to management based on your above estimate of customer lifetime value? (2 points, 50 words or fewer) 10. Suppose that we want to market a new golf ball. We know from experience that there are three important features of golf balls • • • Average Driving Distance Average Ball Life Price Based on this information a conjoint analysis has been performed in which the preferences for these features were tested. The conjoint led to the following estimated attribute-level utilities.1 Table 1: Golf Ball Utilities Average Driving Distance Effects (or Utilities) 275 Yards 3 250 Yards 0 225 Yards -3 Average Ball Life 54 Holes 2 36 Holes -1 18 Holes -1 Price 1 $1.25 3 $1.50 -1 Assume that all attributes are statistically significant. 4 $1.75 -2 10.1 Calculate the attribute importance scores for each attribute. Which attribute is most important in determining choice? (3 points) 10.2 Suppose a company is currently considering marketing a ball with the following profile (250 Yards, 36 Holes, $1.25). How much more would the average consumer be willing-to-pay for the ball if the company increased the average distance of the ball to 275 Yards? (3 points) 5 Part 1: Concepts – Multiple Choice (8 questions - 8 points) Part 2: Application – Short Answers (2 questions - 12 points) Part1: Multiple Choice (Section Total: 8 Points, 8 questions) Questions 1 – 8 are worth 1 point each. 1. What does “k” represent in k-means cluster analysis? a. The number of customers b. The number of segments c. The number of questions used for segmentation d. None 2. In the Sticks Kebob Case, a K-means clustering of the 4 questions, (I tend to plan things very carefully, I sometimes have trouble controlling my spending, I think it is important to purchase products that are made locally, I carefully consider the health benefits of what I eat) results in an elbow plot like diagram below. What does the elbow plot illustrate? a. A power equation b. An equation with upward slope c. Change in the ratio of within to between cluster variance as the number of clusters increase 1 d. Change in the ratio of within to between clusters variance over different repetitions of the kmeans clustering 3. The model used by Dunia Bank to measure CLV was essentially one that adjusted net present value of a customer, or short-term margin, using a measure of retention rate (1 – churn rate): CLV = [M-R]* [(1 + d) / (1 + d – r)] where M equals the current gross margins earned from a customer, R is the retention spending, d is a standard discount rate, and r is retention rate. How does marketing affect the CLV metric above? a. b. c. d. e. Increases retention spending Does not affect CLV Affects retention rate All 3 of the above Only a and c 4. What is CLV used for? a. To determine how much to spend to acquire a customer. b. To determine how aggressively to spend to retain a customer c. To value a company d. Only a and c e. a, b and c 5. What conditions help establish causality? a. Change in marketing mix produces change in sales b. Increased advertising dollars today leads to higher sales tomorrow c. No increase in advertising results in same sales d. Only a and b e. a, b and c 6. What are good criteria for effective segmentation? a. Identifiable b. Accessible c. Responsive d. a and c only e. a, b and c 7. Greater the number of sales calls, greater the sales. In a system of metrics, what type of relationship does this represent? a. Identity b. Empirical c. Either Identity or Empirical depending on the business problem 2 d. Neither 8. Greater the number of sales calls, greater the marketing cost. In a system of metrics, what type of relationship does this represent? a. Identity b. Empirical c. Either Identity or Empirical depending on the business problem d. Neither Part2: Short Answers (Section Total: 12 Points, 2 questions) 9. Consider the following subscription behavior information from Genie.com, a web site that provides tools for constructing a family tree (ancestor search). Subscriptions cost $9.99 per month, but you are charged for the entire year at the time of purchase. There is a one-year minimum term when you sign up for the service. Once purchased, subscriptions are set to renew automatically unless the subscriber cancels them. When a membership renews, it renews for a one-year term and again you are charged for the entire year. There are no variable costs associated with providing this service to an individual customer, but Genie does engage in customer relationship activities that they believe will increase customer retention. These customer relationship activities cost Genie about $10 per year per customer. Based on a sample of 1000 customers that joined Genie.com five years ago, near the time when the company was founded, they were able to determine how many of those customers remained subscribers in the second year, third year etc. Based on this information, Genie calculated the average annual retention rate to be 20%. Genie uses an annual discount rate of 8%. a. Last year, Genie spent $10,000 placing advertisements on Google. Genie management believes that these advertisements were responsible for about 300 new subscribers. Would you recommend to Genie management that they purchase more Google ads? (2 points) b. Suppose a newly-introduced loyalty program increases the number of customers that remained to 30%. Does this new data change your answer to 9.a? (2 points) 3 c. Do you have any hesitations or concerns about making recommendations to management based on your above estimate of customer lifetime value? (2 points, 50 words or fewer) 10. Suppose that we want to market a new golf ball. We know from experience that there are three important features of golf balls • • • Average Driving Distance Average Ball Life Price Based on this information a conjoint analysis has been performed in which the preferences for these features were tested. The conjoint led to the following estimated attribute-level utilities.1 Table 1: Golf Ball Utilities Average Driving Distance Effects (or Utilities) 275 Yards 3 250 Yards 0 225 Yards -3 Average Ball Life 54 Holes 2 36 Holes -1 18 Holes -1 Price 1 $1.25 3 $1.50 -1 Assume that all attributes are statistically significant. 4 $1.75 -2 10.1 Calculate the attribute importance scores for each attribute. Which attribute is most important in determining choice? (3 points) 10.2 Suppose a company is currently considering marketing a ball with the following profile (250 Yards, 36 Holes, $1.25). How much more would the average consumer be willing-to-pay for the ball if the company increased the average distance of the ball to 275 Yards? (3 points) 5
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