Exercise -Tools of Measurement

There are three sections to this assignment. Enter your answers on this document. Show ALL WORK as needed.

SECTION I. Direct Marketing Testing

Part One: Split Test

You manage online advertising for AdEspresso, and you want to test how new copy will impact your response rates. Ad A is the original ad, and one that you have been running for 6 months. You test ad B.

You segment the market and select a sample of customers from the same segment. You divide those into two groups - Customer Group 1 and Customer Group 2. You serve Customer Group 1 Ad A, and you serve Customer Group 2 Ad B. Which Customer Group is the control group?

Part Two: Response Rate

After developing your null and alternate hypothesis for your split test, the test yielded the following results. Calculate the response rate for each Customer Group.

Customer Group 1 Customer Group 2

12,546 Impressions 13,868 Impressions

Response Rate? Response Rate?

Part Three: Lift

Is there a lift between the control and test group? If so, calculate it here.

Part Four: Recommendation

Which ad would you run for the campaign rollout? Why?

Part Five: Direct Mail Planning

To answer the following questions, use the tables in the Edward Nash "Testing" article that is posted in Week 11.

1) Your company is planning a direct mail campaign. At a 99% confidence level, how many test mailings must you send out to achieve an anticipated response rate of 3% with a variance of roughly 8% (plus or minus)?

2) You plan to send out a mailing of approximately 10 million pieces, and you anticipate a breakeven point of 3.6% with desired response rate of 4%. What do you need as a minimum sample size to be confident of your results at the 95% level?

SECTION II. Direct Marketing Campaign Evaluation

Evaluate your direct marketing campaign to understand which media channels yield the most profitable customers. Show all of your work for full credit.

Part One: Response Rate

Calculate the response rates for the following channels. Round your answer to the nearest tenth.

You launch a search ad for your client. It receives 140,000 impressions. Calculate the response rates for 120 clicks through to the landing page.

You conduct an email campaign with 6,000 targets emailed. 79 Customers were acquired. What was the response rate?

Your marketing team designs a direct mail postcard for your client and mails it to 2000 households. 250 new customers sign up for the promotion. Calculate the response rate.

Part Two: Customer Acquisition Cost
Calculate the customer acquisition cost for each channel in Part One.

Your search ads CPM*= $12.20.
Total search cost=
CAC=

Your email campaign CPM*= $127.50
Total search cost=
CAC=

Your direct mail cost per piece= $3.50
Total direct mail cost=
CAC=

*CPM stands for Cost Per Mille, or Cost Per Thousand. So, in this assignment, the number represents the cost to get 1,000 impressions or send 1,000 emails. Be sure to factor this into your analysis or your CAC will be way too high.

Part Three: Total Marketing Budget

What is your client's total customer acquisition budget?

Part Four: Evaluation

Use the table below to calculate Contribution Margin, Customer Lifetime Value, and Customer Acquisition Cost for each channel. Use 5% as your discount interest rate. Contribution margin is 30%. Fill in blanks based on what you know and assumptions.

Search

Marketing Email

Marketing Direct

Mail

Customers Acquired 120 79 250

Average Purchase Per Customer, Per Month $14 $26 $38

Annual Revenue Per Customer $________ $_________ $________

Retention Rate 80% 60% 75%

Contribution Margin Per Customer $________ $_________ $________

Customer Lifetime Value Per Customer $________ $_________ $________

Customer Acquisition Cost

(Use answers from above)
$________
$_________
$________

Part Five: Recommendation

Given the information in this table, where would you recommend your client invest its budget for the next direct marketing campaign?

SECTION III. Breakeven and Return on Investment

You recently accepted a position with a company that sells backpacks. Your boss asked you to conduct a break even analysis for one of the products. (Refer to Week Twelve lecture slides)

Price: $85
COGS: $25
What is the unit margin?

There are $7,500,000 in fixed costs per year allocated to this product. How many backpacks does the company need to sell to breakeven?

How many backpacks does the company need to sell in order to achieve a 20% profit?
Last year, your company sold 150,000 backpacks, and your boss invested $2,000,000 in a direct marketing campaign that generated those sales. What was the ROI on your firm's direct marketing campaign? Show your calculations below for full credit.