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Unformatted text preview: 1 INTRODUCTION TO MARKETING Prof. Eric Greenleaf Fall 2011 Practice Questions for Quantitative Concepts with Answers for Quiz 2: Customer Value, Value-Based Pricing, and Market Testing These practice questions are meant to give you a opportunity to get practice with some of the quantitative analysis methods we have used in class that may appear on the second quiz. There are two questions each for Customer Value, Value-Based Pricing, and Market Testing. I have also included answer guidelines so you can test your knowledge. These are not the only quantitative concepts that we have studied since Quiz 1, and there are many concepts that we have studied which are not quantitative in nature. However, since these are the major quantitative concepts, I thought it would be helpful for you to have some practice applying them. Please note that these questions will take longer to answer, and are more detailed, than the question on that topic that would appear on your exam. I’ve included longer, more demanding questions to give you a chance to thoroughly test what you know. Customer Value Calyx & Corolla sells fresh flowers to consumers through the mail. Calyx initially contacts a potential new customer by sending them a single catalog, which also offers them a $20 discount on their first order, which can be placed by mail, phone, or online. Once a customer places a first order Calyx sends them monthly emails. These emails include a $5 discount coupon, which can only be used once a year. Calyx estimates that 3.5% of all people who receive an initial catalog will place an order. Of these new customers, 80% will place another order within a year of the first order, while 20% will never place another order. After that, Calyx estimates that it will retain 80% of its remaining customers in any given year, and will lose the other 20%. Note: This 20% annual customer attrition rate means that once Calyx determines the profit margin it expects to earn from a customer in a given year, it must multiply that profit by the probability that this person will still be a Calyx customer, to determine the expected profit it will earn from the customer in a particular year. This probability is calculated by using the customer attrition rate. This 2 approach is discussed in Slide 29 in the Customer Value session, which has an example. We did not discuss this slide in class, so this particular aspect of this question will not be on the exam, but I am including it here to give you some experience with using customer attrition rates. Based on analyzing past responses to its catalogs and emails, Calyx estimates that the average first order placed by someone who received a catalog and the $20 discount is $40 (before the discount). The average order placed by an existing customer responding to an email is $50. Calyx’s average gross margin on selling price is 60%. Calyx estimates that it costs $1 to send a potential new customer a catalog. Emails cost nothing....
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- Fall '11
- Net Present Value, Incandescent light bulb, Fluorescent lamp, Compact fluorescent lamp, test market, CALYX