MG 101 EXAM WITH COMPLETE
SOLUTIONS ALREADY GRADED
A+ (2024-2025 UPDATE)
LTV - Answer- customer lifetime value
common way to calculate:
1) determine Gross Margin (determine revenue and costs)
2) determine acquisition costs (cost to convince customer to buy product)
3) Break Even Analysis (transactions / year to break even - optional)
4) probability of cash flow in future years
5) discount cash flows in the future
LTV Formula - Answer- = (M/1-r+i)-(AC)
m: margin the customer generates in a year
r: retention rate
i: interest rate
AC: acquisition cost
churn rate = monthly loss NOT retention rate
How can LTV metric be used? - Answer- 1) understand VALUE of customers
2) learn about PATTERNS of customer behaviors
3) some basis for FIRING customers
4) some basis for REWARDING customers
5) identify CROSS SELLING opportunities
6) quantify IMPACT of marketing actions
7) conduct SENSITIVITY analysis
8) borrowing from MONEY MARKETS
9) A CURRENCY for M&A activity
10) could guide/discipline INNOVATION efforts
Total Lifetime Customer Value - Answer- = Total lifetime value of existing customers +
total lifetime value of new customers - total lifetime value of lost customers
segmentation - Answer- separating prospective buyers into groups such that, within a
group: similarity is high (between groups is low), needs are common, and responses to
marketing action are similar
,characteristics of segmentation - Answer- - large enough
- identifiable (based on observable/concrete)
- distinctive (distinctive behaviors)
- stable (across time)
*demographic segment didn't always work because people from the same segment may
have very different preferences. Solution: psychographic segment
US generation segmentation - Answer- -depression cohort 1912-1921)
-world war 2 cohort
-postwar cohort
-baby boomer 1 cohort
-baby boomer 2 cohort (youthful and more consumption oriented)
-generation x cohort (self reliant, better educated)
-generation y cohort (more idealistic and less cynical) (1976)
-generation z
segmentation techniques - Answer- -raw data
Positioning maps:
-plotting each customer
-plotting each customer and clustering them (closer together = greater similarity)
targeting - Answer- create an index
-weight each criterion
-rate each segment on each criterion
-weights x ratings
How do people really decide? - Answer- ALTERNATIVES
"thin slices" framework
Prospect Theory
"thin slices" framework - Answer- "blink" by Malcolm Gladwell and election choices
-thin slices of all possible variables and make decisions of that
-signals of confidence
-making very quick inferences about the state, characteristics or details of an individual
or situation with minimal amounts of information. Brief judgments based on thin-slicing
are similar to those judgments based on much more information.
*when compared to a photo shopped photo less features are less likely to be blamed
Prospect Theory - Answer- Daniel Kahneman
, -describes the way people choose between probabilistic alternatives that involve risk,
where the probabilities of outcomes are uncertain. The theory states that people make
decisions based on the potential value of losses and gains rather than the final outcome
Prospect Theory Value Function - Answer- -changes are respect to reference point
-as amount of loss/gain increases, marginal effect on value gets smaller (first unit of
loss/gain > impact than next ones)
-losses feel larger than gains
-with the car buying example... a discount improved consumer welfare by (Y1-Y2) but
the check in the mail is viewed as a gain so (Y1-Y3)>(Y1-Y2)
Applications of Prospect Theory - Answer- -segregate gains, aggregate losses
price fix menu (3 separate expenditures > one charge) & discounts vs rebates
(rationality says discounts but people choose rebates because they said they were
more satisfied - appears separately as bonus gain)
-price increase vs quantity increase
price = loss, product = gains, anything you do to amp up the loss side hurts more than
anything you do to gain side
-b/c of loss aversion, status quo is often chose:
check boxes on website: opt in vs opt out
(we tend to worry about missing out so leaving it checked people are reluctant to
uncheck whereas if you leave it unchecked people aren't likely to check it) and organ
donation in France (changed it to opt out (checked) and donation rates went up where
as before you had to go in a actively check the box and you don't think about it) - not
changing what believe in lines up with what they believe anyways
LECTURE 3 - Answer- conducting marketing research
qualitative research - Answer- "initial" insights
-final course of action - not on qualitative alone (ex Focus Groups)
Shield against "hypothesis guessing" - Answer- 1) mask your hypotheses with "neutral"
concepts (separate into groups and group question with other random concepts) ex;
word association
2) use "between subjects" design (two or more groups of subjects each being tested by
a different testing factor simultaneously. ex: credit card example
Focus Groups - Answer- problems:
-social contamination
-lack of any objected benchmarks on the managing side
manger team bias or subjective
-qualitative not quantitative
-not knowledgeable enough people
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