“Many businesses gain only limited advantages as they grow to large scale.
Service businesses especially are difficult to make monopolies.
If you own a yoga studio, for example, youâll only be able to serve a certain number of customers.
You can hire more instructors and expand to more locations, but your margins will remain fairly low and youâll never reach a point where a core group of talented people can provide something of value to millions of separate clients, as software engineers are able to do.”
âĄïž Taken from Peter Thiel’s Zero to One
In this article, I try to disprove Thielâs claim, providing a number of companies that are services businesses and have scaled through digitization successfully let alone have become monopolies despite inherently being service businesses. I elaborate on how these companies reinvented their business models and became successful while also sharing what they could have done better and some potential risks looming large in the future. I also demonstrate how these exceptional companies destroyed established trends and biases.
Category Archives: Management Science
Solution to Management Science Series #212: Real-world example: Determining Portfolio Returns
An ETF created by the investment management firm, Gold Returns (GR) has a normally distributed expected monthly return with ÎŒ = 2% and Ï = 8%.
a)What is the probability that the return is positive next month?
b)What is the probability that the portfolioâs return exceeds 10%?
c)What is the median return?
d)What is the first quartile of return?
Solution to Management Science Series #211: Real-world example: Kabuto Drinks forecasting production capacity and launching a loyalty program
A soft-drink company called Kabuto plans to model the production capacity for the year 2026.
The forecasters determined that the annual soft-drink consumption with the respect to Kabutoâs brands is normally distributed with a mean of 160 liters per customer of Kabuto per year and a standard deviation of 40 liters per customer per year.
a)What is the median per person annual consumption?
b)What is the mode for the per person annual consumption?
c)What percentage of Kabuto consumers do consume more than 160 liters per year?
d)What percentage of Kabuto consumers do consume more than 200 liters per year?
e)What percentage of Kabuto consumers do consume more than 230 liters per year?
f)What percentage of Kabuto consumers do consume fewer than 120 liters per year?
g)Your marketing department is proposing a loyalty program for the consumers who lie within the top 5% of Kabuto-branded soft-drink consumption. Find the threshold value of annual Kabuto drink consumption for these top consumers in liters.
h)In an alternative scenario, Kabuto will have customers within the top 3% of consumption join the loyalty program. Find the threshold value of annual Kabuto drink consumption for these top consumers in liters.
Solution to Management Science Series #210: Real-world example: Famous hotel chain, Mushroom Kingdom, bent on improving customer satisfaction
Real-world example: Famous hotel chain, Mushroom Kingdom, bent on improving customer satisfaction
You are the owner of the famous hotel chains called Mushroom Kingdom (MK). Historically, 75% of all the customers claimed that they were âcompletely satisfiedâ with the services and accommodation offered by the MK.
You hired an analytics company, named Gotham Analytics (GA), that would conduct analyses to determine whether this still holds true. GA conducted a survey, by randomly sampling 35 customers out of a total of chainâs 250 customers. The number of customers in the sample who claimed that they were âcompletely satisfiedâ is 25.
1) Calculate the sample proportion.
2) Could you assume that the distribution of the sample proportion is normal?
3) What is the standard deviation of the sample proportion using the finite population correction factor?
4) What is the standard deviation of the sample proportion ignoring the finite population correction factor?
5) Recalculate 3) and 4) assuming the chain has 110 customers.
6) Recalculate 3) and 4) assuming the chain has 1500 customers.
7) Assume again that the firm has 250 customers. Using the finite population correction factor to calculate the standard deviation of the sample proportion, what is the likelihood of finding 25 or fewer âcompletely satisfiedâ customers in a sample of 35 customers?
The Value of Your Customers to Your Firm
The Value of Your Customers to Your Firm
Your company has only two types of customers. Segment 1 consists of customers who purchase less in absolute dollars. However, the retention rate of this segment is high.
Segment 2 consists of customers who purchase more in absolute dollars compared to the purchasing level of segment 1. However, these customers churn at higher rates.
Both segments have identical acquisition costs.
Which segment should your company target?
Impossible to answer! That is why for your marketing efforts to work efficiently, you need a quantitative and data-driven approach even though some inputs are prone to assumptions.
In this text, I will demonstrate why this question cannot be answered easily even if you have all the data measured and ready to be tinkered with. I will also provide some contingency scenarios in which both segments can be very significant or less significant to your firm.
Solution to Management Science Series #209: Mysterious Disease in a Tropical Island: Data Analytics & Medicine
Mysterious Disease in a Tropical Island: Data Analytics & Medicine
23% of males in the tropical island, Cappytopa, are known to carry a mysterious disease called âDinosaur fluâ.
A newly developed test correctly detects dinosaur flu 90% of the time for males, but incorrectly detects dinosaur flu in non-infected males 35% of the time (false positive).
1.A randomly selected male is tested for the dinosaur flu and the result is positive. What is the probability that this male is dinosaur flu positive?
2.What is the probability that this same male is dinosaur flu negative?
3.What is the probability that a randomly selected male has a positive test? Would you trust in this test?
Solution to Management Science Series #208: Zodd Japanese Manga trying to improve customer satisfaction
Selim Hasagasioglu Academy and Consulting Services was contacted by a very niche e-commerce platform called Zodd that markets and sells Japanese manga and relevant merchandise.
Zodd has been recently struggling with customer satisfaction issues. Furthermore, Zodd does not have the information on the historical customer satisfaction levels.
Selimâs firm carried out a survey, randomly sampling 50 customers out of the firmâs 1300 customers. The number of customers in the sample who claimed that they were âentirely satisfiedâ was 35.
a) Do you need to use the finite population correction factor?
b) What is the sample proportion for the sample collected by Selimâs firm?
c)Is the distribution of the sample proportion normal or can it be used to conduct a confidence interval analysis?
d) What is the margin of error assuming a 95% confidence level?
e) What is the 95% confidence interval for the proportion of customers who are âentirely satisfiedâ? What is the 99% confidence interval? Are you 95% confident that customers are more than likely to be entirely satisfied with Zodd? Are you 99% confident that customers are more than likely to be entirely satisfied with Zodd?
f) How many customers should be sampled to ensure a margin of error of 0.12 with a 90% confidence level if you use p* = 0.5?
g) How many customers should be sampled to ensure a margin of error of 0.12 with a 90% confidence level if you use p* = 0.75?
h) Between the answers to f) and g), which is a more conservative approach and why is this difference important in the practice of data/business analytics?
On Management Consulting Practices: Turnaround Projects followed by Business Transformation, Brand Revitalization, and Sustainable Growth. Focusing on Lego, Nintendo, and Sega
Studying successful turnaround projects will provide you with great lessons.
Many consultants tasked with turning around a business focus mainly on cost reduction projects and deem the mission complete after a successful turnaround.
However, natural and subsequent steps after a turnaround are business transformation and brand revitalization.
Business may have survived after the turnaround but whether it will reach a sustainable and organic growth phase ever again depends on following transformation and revitalization.
In this article, I elaborate on what needs to follow after a turnaround project for a business to continue to thrive in the future. I share how successful business transformation and brand revitalization look like, analyzing the history of Lego, Nintendo, and Sega in greater detail.
Solution to Management Science Series #207: Marketing real-world example ‘Crenner Toys designing a promotion’
Marketing real-world example: Crenner Toys designing a promotion
Crenner Toys, famous for its toy vehicles transforming into attack vehicles and sold with complementary figures, is planning to roll out a promotion through which Crenner will send discount codes to its existing customers via emails.
Crenner will deem this promotion viable and subsequently implement it at national scale only if more than 15% of customers receiving the codes use them within 10 days. To assess the viability of this promotion, Crenner sent codes to a random sample of 150 customers and 23 of those receiving the code used it.
1.Construct the Null and Alternative hypotheses.
2.Should Crenner launch this promotion at national scale? Crenner believes that a significance level of 5% is appropriate for the hypothesis testing.
Solution to Management Science Series #206: Hanagawaâs Mailing Campaign
Producer of high-quality plastic model kits, Hanagawa, strategized a mailing campaign. Hanagawa will send informational and promotional emails to its customers. Through pilot tests, Hanagawa found out that 15% of these emails are considered spam by the customersâ emailing services.
Hanagawa knows that each such email goes through a spam filter and only if the filter clears the email, it goes to the inbox of the customers. Otherwise, it will wind up in the customerâs Spam folder. Hanagawa estimates that 45% of the spam messages and 95% of non-spam messages end up in customersâ inboxes.
1.What is the probability that the next email sent by Hanagawa winds up in a customerâs inbox?
2.What is the probability that Hanagawaâs next email is spam and ends up in a customerâs inbox?
3.What is the probability that Hanagawaâs next email is labelled as either spam or ends up in a customerâs inbox?
4.Suppose the next email sent by Hanagawa is labelled as spam. What is the probability that it ends up in a customerâs spam folder?
5.Suppose the next email sent by Hanagawa goes to a customerâs Spam folder. What is the probability that it is spam?