Marketing Analytics: Selective Processes

Instructions:

Read the problem below and refer to the spreadsheet provided. The spreadsheet values highlighted in yellow can be manipulated in order to determine possible outcomes and answer the questions. You must answer the follow-up questions (a-e) correctly to receive full credit.

Problem:

Submag, Inc., uses direct-mail promotion to sell magazine subscriptions. Magazine publishers pay Submag $3.12 for each new subscription. Submag's costs include the expenses of printing, addressing, and mailing each direct-mail advertisement plus the cost of using a mailing list. There are many suppliers of mailing lists, and the cost and quality of different lists vary.

Submag's marketing manager, Shandra Debose, is trying to choose between two possible mailing lists. One list has been generated from phone directories. It is less expensive than the other list, but the supplier acknowledges that about 10 percent of the names are out-of-date (addresses where people have moved away). A competing supplier offers a list of active members of professional associations. This list costs 4 cents per name more than the phone list, but only 8 percent of the addresses are out-of-date.

In addition to concerns about out-of-date names, not every consumer who receives a mailing buys a subscription. For example,selective exposureis a problem. Some target customers never see the offer?they just toss out junk mail without even opening the envelope. Industry studies show that this wastes about 10 percent of each mailing?although the precise percentage varies from one mailing list to another.

Selective perceptioninfluences some consumers who do open the mailing. Some are simply not interested. Others don't want to deal with a subscription service. Although the price is good, these consumers worry that they'll never get the magazines. Submag's previous experience is that selective perception causes more than half of those who read the offer to reject it.

Of those who perceive the message as intended, many are interested. Butselective retentioncan be a problem. Some people set the information aside and then forget to send in the subscription order.

Submag can mail about 25,000 pieces per week. Shandra Debose has set up a spreadsheet to help her study effects of the various relationships discussed earlier and to choose between the two mailing lists.

Spreadsheet

The spreadsheet values outlined in yellow can be changed in order to determine possible outcomes. You can find the initial values in the corresponding blue cells in columns E and F. Start by entering the initial values into columns B and C. Then review the questions below and adjust the values in columns B and C to determine the correct answers.

1. If you were Debose, which of the two lists would you buy based on the initial spreadsheet? Explain your answer.

A) List from phone directory

B) List from professional association membership

C) There is no difference between the lists

2. For an additional cost of $.01 per mailing, Submag can include a reply card that will reduce the percent of consumers who forget to send in an order (Percent Lost?Selective Retention) to 45 percent. If Submag mails 25,000 items using the Association List, is it worth the additional cost to include the reply card? Explain your answer and calculation.

A) Yes for the Phone List, No for the Association List

B) No for Phone List, Yes for the Association List

C) Yes for both lists

D) No for both lists

3. Shandra is worried that she is underestimating the impact selective perception will have.If she uses a more conservative figure of 75% loss for the Association List (with 25,000 items mailed), and assuming Submag does not include a reply card.What would the expected profit be? Explain your answer and calculation

A) $1422.87

B) $2,678.16

C) $8,342.88

D) $11,678.16

E) A loss of $657.12

A B C D E F Initial Initial 2 Phone List Assoc. List Phone List Assoc. List 3 Cost per Mail Promotion Piece 0.32 $ 0.36 $ 0.32 0.36 4 Revenue from Publishers $ 3.12 $ 3.12 $ 3.12 $ 3.12 5 Number of Items Mailed 25,000 25,000 25,000 25,000 6 Percent Bad Addresses on Mail List 10.00% 8.00% 10.00% 8.00% 7 Number of Consumers Who Receive Mailing 22,500 23,000 22,500 23,000 8 Percent Lost-Selective Exposure 8.00% 7.00% 8.00% 7.00% 9 Number of Consumers Who Read Mailing 20,700 21,390 20,700 21,390 10 Percent Lost-Selective Perception 70.00% 65.00% 70.00% 65.00% 11 Number of Consumers Who Understand 6,210 7,486 6,210 7,486 12 Percent Lost-Selective Retention 50.00% 50.00% 50.00% 50.00% 13 Number of Consumers Who Subscribe F 3,105 3,743 3,105 3,743 14 Total Revenue from Publishers F 9,687.60 11,678.16 $ 9,687.60 $ 11,678.16 15 Total Mail Promotion Cost F 8,000.00 F 9,000.00 $ 8,000.00 $ 9,000.00 16 Expected Profit F 1,687.60 F $ 2,678.16 $ 1,687.60 $ 2,678.16