questions on marketing

In Question Set A, you are a brand manager of an automobile loan company. You have been approached by two banner advertising networks, two search engines, a telemarketing firm, and marketing firm that can place "take1s" with automobile dealers. Take1s are minibrochures about your auto loans that will be on display in automobile dealers. Consumers are encouraged to take one home.

Each media company has told you how much they will charge and how many potential consumers they will reach. For example, Banner Network A will charge you $600,000 and promises 310 million impressions. (One impression is one consumer visiting a webpage that displays the banner, one time.) But you are astute, so you ask other questions such as "What percent of consumers will click through?," "If they click through, what percent with start a loan application?," and "If they start a loan application, what percent will complete it?" The answers to these questions and other questions are given in the table below (and already entered in the spreadsheet). Banner Banner Search Search Dealer Network A Network B Engine C Engine D Telemarketing Take1s Cost quoted by medium $600,000 $400,000 $500,000 $300,000 $200,000 $100,000 Impressions, calls, or 310,000,000 47,000,000 20,000,000 50,000,000 10,000 $1,000,000 take1s Click Through Rate 0.010% 0.020% 3% 1.5% Percent reach potential 70% 1% customer (call or take1) Percent who begin the 15% 25% 7% 2% 40% 10% application Percent who complete if 40% 70% 15% 10% 80% 50% they begin Percent of completes 75% 90% 60% 50% 60% 60% who are approved Percent who buy the auto and accept the 55% 75% 70% 50% 50% 50% loan Revenue per loan (net $850 $1,000 $700 $550 $800 $900 of servicing cost) To analyze these data, first compute the "hit rate," that is the rate at which consumers accept loans given they are exposed to an impression, call, or take1. Then compute the revenue, cost, and profit per impression. You can also compute total revenue, total cost, and total profit for each of the media. For the purpose of Question Set A, we will assume that each medium is independent. (This is clearly not true; we'll relax this assumption in Question Set B.) By "independent," I mean that each medium reaches a separate set of potential consumers. 15.810 Marketing Management 2 Fall 2015 Question Set A 1. In which media should you invest? 2. If you could choose only one medium, which is the best? 3. If you only had $500,000 to spend, how would you allocate your resources? 4. If you only had $1,000,000 to invest, how would you allocate your resources? 5. What is the general principle that enabled you to answer Questions 4 and 5?

More Advanced Managerial Challenge Question Set B relaxes the independence assumption. To focus on the basic concept, we've reduced the options to two banner advertising networks and one search engine. In this more advanced world, banner advertising has a direct effect (click throughs), but it also influences whether or not consumers search for our loan company. The interactions are summarized by the following table. For example, 68% of the consumers who search, do so after seeing no banners from either Banner Network A nor Banner Network B. These consumers click through on the sponsored search advertising at a rate of 1.5%. In addition, 25% of the consumers who search, do so after seeing a banner from Banner Network A. For these consumers the clickthrough rate increases to 2%. Banners Search Engine See See See Banner Banner Banner See no Banner Banner from A & Network A Network B banners from A from B B Percent in each 68% 25% 6% 1% exposure category Cost quoted by $600,000 $400,000 $500,000 medium Search cost allocated $340,000 $125,000 $30,000 $5,000 Impressions 310,000,000 47,000,000 20,000,000 Search impressions 13,600,000 5,000,000 1,200,000 200,000 allocated Click Through Rate 0.010% 0.020% 1.5% 2% 4% 4% Percent who begin 15% 25% 5% 6% 10% 10% the application Percent who complete if they 40% 70% 10% 10% 60% 60% begin Percent of completes 75% 90% 40% 50% 80% 80% who are approved Percent who buy the auto and accept the 55% 75% 50% 50% 75% 75% loan Revenue per loan (net $850 $1,000 $550 $850 $1,000 $1,000

To analyze these data, we repeat the analyses we did for independent media. We do so for situations in which we invest in both banner networks and search. We repeat the calculations for other combinations such as Banner Network A only, plus search. In the companion spreadsheet, I "brute forced" the calculations by simply repeating them. There are other moreefficient ways to do the calculations, that I leave to an advanced analytics course. I also made some assumptions. For example, I assumed that none of the consumers who saw banners would click through had they not seen the banners. Uses these assumptions to answer the questions in Question Set B. However, feel free to use the spreadsheet to explore other assumptions. To complete the spreadsheet, enter the appropriate formulae in the yellow box. These formulae should be similar to those in the independence case. Then copy them to the green cells. You should be able to use the summary at the top of the spreadsheet to answer the following questions. 15.810 Marketing Management 4 Fall 2015 Question Set B 1. Is it better in this example to invest in banners but no search or search but no banners? 2. What is the best strategy? 3. What combination of media gives the highest marginal return? 4. Should you invest in banners without search? 5. Should you invest in search without banners? Additional Questions You should be able to answer these additional questions by simply thinking about the spreadsheets, but feel free to try different percentages to see if you can produce examples.

1. Can it be the case in which you invest in a banner advertising network with low clickthrough rates if it dramatically increases the click through on subsequent search? 2. Suppose you could bargain on the price quotes. How can you use the spreadsheets, especially the spreadsheet in which media interact, to bargain with the media representatives? 3. What assumptions are built into the spreadsheets? How would you test the veracity of these assumptions? 4. If you could not get the relevant percentages from the media companies, how would you obtain them?

1. (a) Outline THREE key features of an oligopolistic market and state ONE example of an oligopolistic market in Ireland. (20 marks)

(b) With the aid of ONE clearly labelled diagram: (i) Explain the shape of the demand curve facing a firm in oligopoly. (ii) Explain the relationship between this demand curve and the firm's marginal revenue curve. (iii) Explain the long run equilibrium position of this firm. (40 marks) (c) Explain THREE methods by which firms in oligopolistic markets may collude. (15 marks) [75marks] 2. (a) Define (i) price elasticity of demand and (ii) cross elasticity of demand. In each case, state the formula by which it is measured. (20 marks) (b) When the price of Good X is 27, the quantity demanded of Good Y is 1,200 units. When the price of Good X falls to 23 (the price of Good Y unchanged) the quantity demanded of Good Y falls to 800 units. (i) Using the cross elasticity of demand formula, calculate the cross elasticity of demand for Good Y. Show all your workings. (ii) Is Good Y a substitute for or complement to Good X? Explain your choice. (25 marks) (c) A firm has the following price elasticities of demand for two goods, Good X and Good Y: Good X ..... 2.0 Good Y ..... 0.5 What changes, if any, should the firm make in the selling price of each of the goods to increase overall revenue. Explain your answer. (30 marks) [75 marks] Page 5 of 7 3. (a) (i) State and explain FOUR factors which affect a consumer's demand schedule, other than the price of a good itself. (ii) Explain the economic rationale for assuming that a person's demand curve for a normal good slopes downward. (30 marks) (b) For something to be considered an economic good, it must possess certain characteristics. State and explain THREE of these characteristics. (20 marks) (c) A consumer spends all income on two goods, Good A and Good B. Both goods are normal goods but they are not complementary goods. The price of Good A is reduced and the price of Good B remains unchanged. The consumer continues to spend all income on the two goods. Distinguish between the substitution effect and the income effect of the price reduction in Good A. (25 marks) [75 marks] 4. (a) Define each of the following: (i) Supply price of a factor of production. (ii) Transfer earnings. (iii) Economic Rent. (20 marks) (b) A principal factor influencing the demand for labour by an individual firm is the Marginal Revenue Productivity of Labour (MRP). (i) Explain what is meant by the underlined term. (ii) Discuss the factors, other than MRP, which influence the demand for labour by an individual firm. (30 marks) (c) The diagram below represents the supply curve of labour to a particular firm. Supply Curve Wage rate

Supply of Labour Explain the effect which each of the following developments may have on this supply curve. Illustrate each answer by means of a diagram. (i) The workers shift their preference towards increased leisure time. (ii) The workers' trade union negotiates a minimum wage. (25 marks) [75 marks] Page 6 of 7 5. (a) Discuss the ways in which money can contribute to the smooth working of an economy. (20 marks) (b) Explain the likely economic effects if: (i) the supply of money grows at a faster rate than a country's production of goods and services (ii) the supply of money grows at a slower rate than a country's production of goods and services. (20 marks) (c) (i) Explain what is meant by the term price inflation. (ii) Name the main index used to measure price inflation in the Irish economy. (iii) Outline the economic consequences of a rise in the rate of price inflation in Ireland. (35 marks) [75 marks] 6. (a) Explain the following terms and show the relationship which exists between both: (i) Gross Domestic Product at Factor Cost (ii) Gross National Product at Market Prices. (20 marks) (b) Outline the effects which each of the following could have on the level of GNP at Market Prices. (i) a RISE in the general level of VAT; (ii) a REDUCTION in subsidies to first-time house buyers. Explain your answer in each case. (20 marks) (c) Discuss the positive and negative economic consequences which a fall in the level of economic growth (GNP) may have on the Irish economy. (35 marks) [75 marks] Page 7 of 7 7. (a) Discuss the economic effects which the recent rise in Ireland's population may have on the Irish economy. (25 marks) (b) Outline the effects which a rise in the level of unemployment in Ireland may have on: (i) Government current finances. (ii) The Balance of Payments (Current Account). (iii) Price Inflation. (20 marks) (c) Immigration replaced high levels of emigration during the 'Celtic Tiger' period. (i) Discuss THREE reasons why the trend has changed from emigration to immigration in Ireland. (ii) Discuss the economic consequences (positive and negative) for a country experiencing increased immigration. (30 marks) [75 marks] 8. (a) Explain how specialisation and the division of labour promotes globalisation/international trade. (20 marks) (b) The World Trade Organisation (WTO) aims to reduce trade barriers between countries. (i) Outline THREE possible economic advantages of free trade. (ii) Explain THREE economic reasons why countries may impose barriers to restrict trade. (iii) State and explain TWO methods of restricting free trade. (35 marks) (c) Adam Smith, author of 'The Wealth of Nations' (1776), explained the reasons for and benefits of free trade. Outline FOUR other areas in which he made contributions to economic thought.