You are launching a radical innovation to the marketplace, an exercise mirror. You plan to adopt a social influencer marketing campaign where you seed the marketplace by giving away a mirror for free (a cost of 1000$). The idea is that this initially seeded influencer is able to convince his/her network to buy the product and then these subsequent adopters are able to convince their network members to buy the product. There are only two types of customers in this marketplace –Batman and Robin. Thus, the initially seeded influencer can be from either Batman or Robin customer segment. Every adopter of the product has the same traits of the initially seeded influencer. Therefore, if the initially seeded influencer is in the Batman segment, then the adopter of the product is in the Batman segment, which implies the adopters has the same social influence factor and the same network size as the initial seeded influencer.  As noted earlier, adopters of a product in a period can influence their networks to buy the product in subsequent periods.

For the initial seeded influencer, the profits only arise from premium apps used to run the mirror. Moreover, this individual is bound by contract to remain with the company for 5 years and only use the premium app. For, any subsequent adopter, the profits for the firm arise from one-time hardware profit margin and a recurring advertising profit. The advertising profit depends on the version of the app the adopter uses. Contractually, in the first year of adoption, the adopter has to use the premium version of the app. In the subsequent years, they have the option to downgrade to the basic version of the app, which results in lower ad profits. The ad profits generated from premium and basic version of the app are given in table below as well.

	Batman	Robin
Acquisition cost	1000$	1000$
Hardware Margin	200$	200$
Ad profits (Premium)	10$/month	15$/month
Ad profits (Basic)	5$/month	5$/month
Network Size	1000	1000
Social Influence	0.0125	0.0075
Retention Rate	See Table Below	See Table Below

Any adopter of the technology (besides the initial seeded influencer), has retention probability as shown in the table below. Specifically, someone who is in Batman premium account last year, has 55% probability to remain a premium account user and 30% probability to downgrade to Batman basic account. Someone who has the Batman basic account has probability of 75% of remaining a batman basic account user (note that they cannot upgrade the app to premium account once they have downgraded the app).

Which segment is the better segment to target? Please show the steps. Assume interest of 10% per year.

Last period / Next period	Batman Premium Account	Batman Basic Account	Robin Premium Account	Robin Basic Account
Batman Premium Account	55%	30%
Batman Basic Account		75%
Robin Premium Account			60%	20%
Robin Basic Account				70%

Note: As in your homework problem, the social influence measure is the probability of converting a member of the influencer’s network into an adopter of the product in any time-period. Network size is the number of members in the network.

Answer rating: 100% (QA)

First step using all the information given set up the excel sheet To get the new customer value multiply the network sizes by the social influence and to get the diminishing network size per year subt... View the full answer