Question 1. Couch-potato Cable TV competes in a regional market of 5,000,000 cable users in the Pennsylvania area. Their price is $30 per month. They have achieved the following results and have the following objectives for their marketing program.
Objective Actual
Awareness .85 .77
Like programming .90 .81
Price OK .90 .76
Distribution OK .85 .78
Service Ok .90 .82
a) What are their MSI and SDI?
b) What will be their sales revenue at a price of $30/month?
c) How much sales revenue did they lose because they did not achieve their price objective?
d) If they have 1,200,000 customers still with them at the end of the year what is their annual retention rate?
Question 2: Assume that if Couch Potato (as in Question 1) invests $10,000,000 in product and marketing improvements that they can increase their Customer Retention for this year by 5% over the CR in Question 1.
a) Is this investment worth it assuming?
- A variable cost of $20 per customer to provide the service
- A marketing cost of $30 to retain an old customer and $150 to recruit a new customer. Note this is a sunk cost that applies however long the customer is with the company.
- Customer who leave do so after 6 months on average
- New customers join Couch potato at the 6-month mark.
b) If the enhanced Customer Retention continues for 5 years what is the NPV of the increased marketing contribution (not net contribution after investment) assuming a discount rate of 6%.
Question 3: Couch Potato Products, a sister company to Couch Potato Cable produces signal converters. The total market demand is 7,000,000 units and Couch potato has 12% of this. Their per unit price is $220 and their variable cost per unit $140. Their marketing expenses are $32,000,000.
a) What is their NMC?
b) Assume that the total market demand doubles and Couch potato maintains their share. Also assume that a 15% experience curve effect applies to any product volume over their original volume. What is their new NMC?