Scenario

As the marketing analyst for Better Beans Coffee Company, you recently made a recommendation to management about the best two cities for opening new stores. Management accepted your recommendations and is building stores in those cities now. Your next task is to recommend the optimal advertising mix to your promotions team. This is the mix that will be used to promote each new store when it opens. Using historical data, you have already calculated customer acquisition cost for each of the companys six advertising channels. After some further calculation, you have estimated that lifetime gross margin per customer averages $24. Your promotions team plans to evenly divide their $1.5 million ad budget for each market only among the ad channels with a positive customer lifetime value (CLV). Theyll be closely tracking return on marketing investment (ROMI) of these campaigns and would like an estimate ahead of time.

Questions

1. Refer to the Filtering for Positive Customer Lifetime Value (CLV) data table. Without making any changes to the table, what two advertising channels have positive CLV?

Television and YouTube

Magazines and Google AdWords

Facebook and Google AdWords

Facebook and local radio

Television and magazines

2. After some further analysis, you find that the customer acquisition cost for YouTube is different than you originally calculated. Still referencing the Filtering for Positive Customer Lifetime Value (CLV) data table, now change the customer acquisition cost of YouTube to $20. How does this change the CLV?

CLV goes to zero (or reaches the breakeven point)

CLV turns positive

CLV remains negative

3. Your promotions team plans to evenly divide their $1,500,000 ad budget for each market only among the ad channels with a positive customer lifetime value (CLV). Refer to the Filtering for Positive CLV data table and identify the ad channels you found to have positive CLV (after updating the YouTube customer acquisition cost to $20). Divide the $1,500,000 ad budget evenly between the ad channels with positive CLV input the values in the Ad Budget Allocation data table. Now that you have allocated the advertising budget equally between the ad channels with positive CLV, what is the average return on marketing investment (ROMI) for the $1,500,000 ad campaign in each city?

7%

24%

33%

40%

60%

FILTERING FOR POSITIVE CUSTOMER LIFETIME VALUE (CLV) Advertising Lifetime Gross Customer Customer Channel Margin Per Acquisition Lifetime Customer | Cost Value (CLV) Television 24 $ 25 $ (1) Magazines 24 $ 35 $ (11) Facebook $ 24 $ 15 $ 9 YouTube $ 24 $ 25 $ (1) Google AdWords $ 24 $ 30 $ (6) Local Radio 24 $ 20 $ 4 AD BUDGET ALLOCATION (Note: The ad budget divided equally between channels with positive CLV) Advertising | Allocation of Channel the Ad Budget Television Magazines Facebook YouTube Google AdWords Local Radio TOTAL ROMI RETURN ON MARKETING INVESTMENT (ROMI) Advertising Attributable Campaign Channel Revenue Cost Television Magazines Facebook YouTube Google AdWords $ Local Radio Average ROMI of Campaign $ FILTERING FOR POSITIVE CUSTOMER LIFETIME VALUE (CLV) Advertising Lifetime Gross Customer Customer Channel Margin Per Acquisition Lifetime Customer | Cost Value (CLV) Television 24 $ 25 $ (1) Magazines 24 $ 35 $ (11) Facebook $ 24 $ 15 $ 9 YouTube $ 24 $ 25 $ (1) Google AdWords $ 24 $ 30 $ (6) Local Radio 24 $ 20 $ 4 AD BUDGET ALLOCATION (Note: The ad budget divided equally between channels with positive CLV) Advertising | Allocation of Channel the Ad Budget Television Magazines Facebook YouTube Google AdWords Local Radio TOTAL ROMI RETURN ON MARKETING INVESTMENT (ROMI) Advertising Attributable Campaign Channel Revenue Cost Television Magazines Facebook YouTube Google AdWords $ Local Radio Average ROMI of Campaign $