Category Archives: Marketing

Solution to Management Science Series #216: Should Condor launch a new website?

An online video games store named ‘Condor’ needs to test its old and new web designs. Condor randomly redirects a sample of customers to either site and measures the sales information of customers who purchase.

Condor will launch the new website only if it is 90% confident that the new site generates more sales per transaction (i.e. average transaction amount) than the old website.

Below are shared the data for the sample of customer transaction amounts from the new site and that from the old site.

a) Could you make an educated guess on what Condor should do without calculating anything?

b) Design a hypothesis test and determine whether Condor should roll out the new website.

c) Solve the same problem by using Excel.

Solution to Management Science Series #213: Real-world example: Marbella Call Center

Marbella Call Center is a contractor assessing the quality of calls to the customer services of top global brands. Recently, Marbella agreed with Eldorado, a global retailer, on assessing the quality of the customer service of Eldorado.

Marbella has been periodically recording a random sample of customer calls to Eldorado. Calls are evaluated on whether the employee taking the call abides by Eldorado’s customer support policies.

Historically, 80% of all calls conformed to the policy. A recent sample of 120 calls found that 70 adhered to the policy.

1. What is the sample proportion?

2. Is the normal distribution a good approximation?

3. What is the expected value and standard deviation of the sample proportion?

4. What is the probability of getting 70 or fewer calls that adhered to the company policy?

5. Do you see any problems concerning the adherence to the company’s customer support policies?

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.

Making the hard decision of pricing easier: A blueprint comparing different pricing strategies

Pricing is an important decision involving both qualitative and quantitative considerations. 🧭

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From start-ups to strong incumbents, many companies still struggle to find the market clearing price-contrary to what you were taught in your microeconomics class, such a price does not exist in real life 😉

Given current inflationary environment and incessant decline in the purchasing power, this decision is now harder than it has ever been.

Whether your company follows a value-based, cost-based, or a hybrid pricing model, there are still some guidelines working in the pricing universe.

For example, you should know how to set relative prices for the following product pairs: razor and blades, video game hardware and software, printers and cartridges.

In this article, I lay out the fundamentals of different pricing strategies and which strategy makes sense for your company. Comparing different pricing strategies and the rationale behind, I also share examples of different pricing strategies from real-world companies and that particular pricing strategy is suitable for that specific company. The content can be utilized as a blueprint or guide concerning your efforts to determine the price of your services and products.

How too much reliance on sales promotions can upend long-established brands and companies: With lessons from video games industry

Designing a profitable sales promotion campaign is difficult, yet generally, sales promos make up big part of any company’s marketing budget.

You may think that even a poorly designed sales promo will lift your company’s gross revenues in the short-term, perhaps for a period of 2-3 months.

Having said that, a supposedly very well thought out, at least on paper, sales promotion can hurt your company’s both short- and long-term profitability, brand loyalty, and brand equity, as well as long-term overall gross revenues.

So, be careful with promotions; your company may have started its life as a differentiator but after so many promotions your company will become a commodity supplier that cannot command any price premium and dwindle, waging promotion and price wars.

I will briefly investigate and provide examples from my childhood heroes, namely Sega and Nintendo.

Using hypothesis testing in important marketing and e-commerce decisions

This time, the focus is on e-commerce and digital marketing.

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Hypothesis testing is underutilized in many sectors although it is cheap, effective, and quick.

From manufacturing and medicine to marketing and e-commerce, its applications are abundant.

Quick experiment follows ⬇️

You are contemplating adding a new feature to your e-commerce website.

You are wondering whether this new feature will lift your sales.

You can randomly channel your customers to both sites, i.e. one without the feature and the other with the feature.

You will launch the new feature provided that you are 95% confident that website with the feature will yield more sales than that without the feature.

How would you design this experiment so that you can make a decision based on it?

What do you need to measure? Which metrics?

In this article, I show how you design this experiment and solve this problem cost- and time-efficiently.

Marketing research done poorly!

Like many contemporary marketing concepts, marketing research is both an art and a science, containing many qualitative and quantitative aspects.

Star Wars and Friends would not have been created if its producers had listened to their “high-esteemed” marketing researchers.

Even for iPhone, many marketing researchers thought that the product would fail because consumers would still prefer to have their phones and MP3 players stand-alone.

Although these examples are of poorly conceived and conducted marketing research projects that still could not derail excellent products, there are still many successful products and services shaped by the insights gained through marketing research.

Success or failure of a marketing research project can be measured more easily, albeit in hindsight, if the product is launched.

For products that are scraped through marketing research, such measurement is more complicated: Obviously, you will never know if you never launch.

Think once what would have happened if George Lucas or Steve Jobs had listened to these “marketing researchers”!

Where did Apple get its inspiration to build its own D2C stores or allegedly even its sleek design policy? What about their marketing mix strategy?

Where did Apple get its inspiration to build its own D2C stores or allegedly even its sleek design policy? What about their marketing mix strategy?

Management Science Series #158: Solution to the ‘Understanding acquisitions costs, retention and churn rates (Nintendo example)’ 🧮

Understanding acquisitions costs, retention and churn rates 🧮

Nintendo has launched Nintendo Online membership program. The membership allows members to play additional retro Nintendo games, as well as store data. Subscribers are charged $10 per month and cost of maintaining this service is $2 per month per customer.

Nintendo expects the churn rate for this service to be 3%.

What is the maximum acquisition cost per customer?

Nintendo has a four-year time horizon for this new project so that the success of this project will be evaluated over a 4-year time period. Time value of money is not important and can be ignored.

Resources are limited and customers are smarter. So, marketing efforts should change, too! 🔔On the importance of customer reviews

Resources are limited and customers are smarter.
So, marketing efforts should change, too! 🔔

A consumer, who is trained and smart enough to distinguish between what is fake and what is wrong, will continue to rely on online reviews throughout the decision journey and is less likely to be affected by traditional marketing activities.

Their numbers are increasing and in a world where businesses try hard to decommodify products and services and differentiate them, spend your marketing budget wisely.