Homework 2_RFM Analysis hw Spring 2024

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Jun 19, 2024

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Prof. Andrew Gershoff Marketing Management: WP MBA SPRING 2024 page 1 M ARKETING M ANAGEMENT S PRING 2024 HOMEWORK EXERCISE 2 This exercise is to be submitted to Canvas by 11:59 p.m. on Monday, April 8 th 2024. Please submit your answers in an Excel file with the following naming convention: “last_first_c#_rfm” (for example, Andrew_gershoff_c1_rfm) Your submission file should be neatly formatted and contain four tabs, one for each question. This is an individual homework assignment. That means you should complete it on your own. You should not consult with others nor compare answers. In addition to this document there is an Excel workbook (ATX_Outerwear_Market_Rollout_Data.xlsx) containing the data necessary to complete the excercise posted on Canvas. BEHAVIORAL SEGMENTATION AND TARGETING AT ATX OUTERWEAR The marketing director at ATX Outerwear, a small outdoor apparel retailer, is considering reaching out to existing customers in the company’s database to offer customers the opportunity to purchase item s from the company’s Spring 202 4 catalog. The database contains purchase history data for 96,551 customers , including how long since the customer’s last transaction, how frequent the customer purchases (in a window of the last 24 months), and the monetary value of purchases (in a window of the last 24 months). The director is considering mailing the catalog to either the entire database or a subset of customers from the database. The cost of reaching a customer via a catalog mailing is $0.80. She decides to run an experiment to help choose which strategy to pursue. First, she has a database programmer conduct an RFM segmentation based on quintiles of the recency, frequency, and monetary
Prof. Andrew Gershoff Marketing Management: Spring 2024 spend data. This results in each of the 96,551 customers being assigned a 3-digit RFM code between 111 and 555 (see the class notes for more on this approach). She then takes a random sample of about 10% of the database resulting in a sample of 9,565 customers and mails each customer in this sample a catalog. After 4 weeks she observes which customers have made a purchase. The average spend on purchases made is $104. ATX Outerwear earns a 50% profit margin on purchases. The Excel dataset ATX_Outerwear_Market_Rollout_Data.xlsx contains the data for the market test customers (9,565 customers) and the rollout customers (86,947 customers). The market test data contains the customer ID, a binary indicator (labelled “buy”) of whether or not the customer in the test market placed an order, and the RFM code. The rollout data contains the customer ID and the RFM code. Using these data please answer the following questions. 1) What is the overall average buy rate among the market test sample? Provide a neatly formatted bar chart of the average response rate by 3-digit RFM codes for the market test data. 2) Assuming the director decides to mail to all 86,947 customers in the rollout sample. What is a. Total mailing costs? b. Number of customers expected to purchase? c. Total expected profit or loss from this plan? 3) What is the response rate required to break even on the mailing costs? 4) Now consider using the RFM information. If you use the breakeven rate as a guide for sending out catalogs, h ow many of the 86,947 customers ought to be targeted to receive a catalog? 5) If you use the breakeven rate to target a subset of rollout customers, what is a. Total mailing costs? b. Number of customers expected to purchase? c. Total expected profit or loss from this plan? 6) Provide some explanation for why your targeted approach differs from the approach of mailing to all customers.
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