Recent Question/Assignment

Last Name First Name Student ID

I. Multiple Choice Questions (30 points)

Please read carefully each of the questions and use your pencil to mark the letter (by filling the corresponding oval completely) on the answer sheet that represents the most appropriate answer in your judgment. There is only one correct answer to each question. Good luck!

N.B.: In the actual test, there will be 30 multiple choice questions. The following are just 6 sample questions.

1 For subjective calibration of a response model, we must rely on judgment calls. The following questions and answers were provided to estimate the intercept (a) and slope (b) in a linear model linking advertising (independent variable) to sales (dependent variable): Q1: What is our current level of advertising and sales? A1: advertising = $8 per capita, sales = 31 units per capita; Q2: What would sales be if we spend $0 in advertising? A2: 15 units per capita; Q3: What would sales be if we cut 50% from our current advertising budget? A3: 23 units per capita. Based on the above data, what values should the intercept (a), slope (b), and R-squared (R2) be?
A. intercept (a=15), slope (b=2), and R-squared (R2=0.9)
B. intercept (a=15), slope (b=2), and R-squared (R2=1.0)
C. intercept (a=2), slope (b=15), and R-squared (R2=1.0)
D. intercept (a=15), slope (b=3), and R-squared (R2=0.9)
E. intercept (a=15), slope (b=3), and R-squared (R2=1.0)

N.B.: This is related to the topic of market response model covered in Chapter 1: The Marketing
Engineering Approach. You need to review the concepts of (1) R-square, (2) price elasticity, (3) Net Profit (before taxes) and Net Marketing Contribution, (4) dynamic or carryover effects. It is also a good idea to review the Week 2: Allegro Smart Sheet Exercise: Maximize net profit using Excel Solver where market share is a function of price, advertising, and selling & distribution effort.

2 The following table computes the net profit (NP) based on market demand (MD, also known as industry sales), market share (MS), unit price (P), unit variable cost (K), fixed marketing expenses (FME) and Fixed operating expenses (FOE or overhead). Note FME is also known as discretionary costs, including costs associated with advertising (AD), sales force and distribution (SD), and marketing research (MR). Which of the following formulas is NOT a correct formula to calculate the net profit (before taxes)?
A. NP = (P-K)*(MD*MS) – FME – FOE
B. NP = (P-K)*Q – FME – FOE, where Q = MD*MS
C. NP = (P-K)*(MD*MS) – (AD+SD+MR) – FOE
D. NP = NMC – FOE, where NMC = Net Marketing Contribution = (P-K)*Q – FME E. NP = (P-K)*(MD*MS) – AD – SD – MR + FOE

Description Notation This Year
Market Demand, in Units MD 2,200,000
Market Share MS 3.00 %
Price per Unit P $250.00
Variable Cost per Unit K $150.00
Gross Margin per Unit (P-K) $100.00
Sales Volume in Units Q=MD*MS 66,000
Sales Revenue P*Q $16,500,000
Gross Contribution Margin (P-K)*Q $6,600,000
Overhead or FOE FOE $3,500,000
Net Contribution Margin (P-K)*Q-FOE $3,100,000
Advertising AD $900,000
Sales Force and Distribution SD $1,000,000
Marketing Research MR $100,000
Fixed Marketing Expenses FME $2,000,000
Net Profit NP $1,100,000

3 Full-factorial designs include all possible combinations of attribute levels. Suppose that a new pizza has 2 price levels ($7 and $9) and 3 types of toppings (pepperoni, sausage, and pineapple).
Which of the following contains the correct full-factorial design?
A. $7 pepperoni, $9 sausage, $7 pineapple; $9 pineapple
B. $9 pepperoni, $7 sausage, $9 sausage, $7 pineapple
C. $7 pepperoni, $7 sausage, $7 pineapple
D. $9 pepperoni, $9 sausage, $9 pineapple
E. $7 pepperoni, $7 sausage, $7 pineapple; $9 pepperoni, $9 sausage, $9 pineapple

N.B.: This is related to the topics covered in Chapter 6: New Product and Service Design. You need to review the concepts of (1) full and fractional factorial designs, (2) GE/McKinsey portfolio model, (3) steps in designing and executing a conjoint study, (4) adjusted market share. It is also a good idea to review the Week 3: Conjoint & Customer Choice Exercise, Case Study 1: Forte Hotel Design and Case Study 4: ABB Electric Segmentation.

4 Market share simulation in a conjoint study is conducted under the assumption that all participants are aware of the new product and can find it when it comes time to purchase. But realistic predictions of market share must adjust the simulation results to reflect the awareness level and availability factor. Suppose that market shares from conjoint study for two new products (A and B) are 60% and 40%, respectively, and 50% of the target population are aware of A and only 30% are aware of B. The availability levels for A and B are 60% and 50%, respectively. What are the adjusted market shares for A and B?
A. 75% and 25%, respectively B. 60% and 40%, respectively
C. 50% and 50%, respectively
D. 75% and 30%, respectively E. 65% and 35%, respectively 5 Cluster analysis is used to form segments. The following squared distance matrix is computed based on consumers’ average ratings of 10 automobile brands. Two brands with a small distance value are perceived to be more similar than another pair with a larger distance value. Based on the results in the distance matrix, which of the following brands is most likely to be in the same segment as the BMW brand?
A. Porsche
B. Saab C. Chrysler
D. Volvo
E. Mercedes

Brand Luxury Safety Sporty Family Practical
BMW 4 3 5 2 2
Ford 2 3 2 4 5
Infiniti 4 3 3 3 3
Jeep 3 3 2 4 4
Lexus 5 4 3 3 3
Chrysler 1 3 1 5 5
Mercedes 5 4 3 3 2
Saab 3 4 4 3 3
Porsche 4 2 5 1 1
Volvo 2 5 1 5 4
D12 2 0 3 -2 -3
D^2 26 Squared Euclidean Distance
D 5.0990195

Distance BMW Ford Infinit i Jeep Lexus Chrysle r Mercede
s Saab Porsch e Volvo
Ford 26 0
Infiniti 6 10 0
Jeep 18 2 4 0
Lexus 8 16 2 8 0
Chrysler 43 3 21 7 29 0
s 7 21 3 11 1 34 0
Saab 5 11 3 7 5 22 6 0
Porsche 3 39 13 29 17 58 14 14 0
Volvo 37 7 17 7 19 6 22 16 54 0

N.B.: This is related to the topics covered in Chapter 3: Segmentation and Targeting. You need to review the concepts of (1) cluster analysis, (2) discriminant analysis, (3) distance matrix, (4) segmentation phases, and (5) targeting phases. It is also a good idea to review the Week 7:
Segmentation and Classification Exercise, Case Study 2: Conglomerate's New PDA, and Case Study 4: ABB Electric Segmentation.
6 Information provided by perceptual maps can be used for all of the following marketing applications EXCEPT:
A. identifying potential opportunities for positioning new products
B. determining how to overcome product weaknesses
C. deciding whether advertising has been successful in achieving the desired brand positioning
D. determining the impact of pricing on sales revenue for brands which have recently been introduced
E. checking on managers’ views of competitive structure and positioning

N.B.: This is related to the topics covered in Chapter 4: Positioning. You need to review the concepts of (1) percepual map, (2) preference map, (3) joint-space map, (4) uses and limitations of perceptual and preference maps. It is also a good idea to review the Week 10: Positioning Exercise, and Case Study 3: Positioning the Infiniti G20.

II. Short-Answer Questions (70 points)

You will be asked to select and answer 3 out of 4 short-answer questions. In answering these questions, you should be as detailed as you possibly can within the 3-hour final exam period. Use examples where possible to illustrate your point. The actual questions will be similar, but not identical to those listed below.

1 Please explain the concept of market response models including examples. What are the main types of response models?

2 Are marketing decision models the whole answer to or panacea for all marketing problems? Discuss both the advantages and disadvantages of decision models in relation to mental models.

3 Identify and briefly discuss each of the steps in designing and executing a conjoint study.

4 Clearly explain the following three concepts: Segmentation, Targeting, and Positioning. What exactly do they mean and how are they related to each other (i.e., the STP approach) to add value to a firm? Illustrate your answer using relevant examples.

5 Segmentation consists of two phases and targeting consists of three phases. Identify and briefly discuss each of the five phases.

6 An office supplies chain store (OfficeStar) is designing a store format and wants to better understand consumers' preferences for various types of office supplies stores. Qualitative research has identified four product attributes as salient: (1) Location, (2) Office supplies, (3) Furniture, and (4) Computers. The attribute of Furniture has two levels, each of the remaining attributes contains three levels, as shown in the table. The table also shows the partworth values from conjoint analysis for two persons: David and Jane.

Parthworths from Conjoint Analysis Output
Attributes Levels David Jane
Location Less than 2 miles 46 26
Within 2-5 miles 3 18
Within 5-10 miles 0 0
Office supplies Very large assortment 15 51
Large assortment 10 26
Limited assortment 0 0
Furniture Office furniture 6 0
No furniture 0 12
Computers No computers 0 11
Software only 1 8
Software and computers 33 0

a. Based on the attributes and levels information, how many possible alternative products can be offered?

b. Based on the part-worth information for the two individuals, interpret the conjoint analysis results. Determine which product offering based on these attributes is most preferred for each person.

c. Evaluate the following two product offerings and identify the more preferred offering for each person.

i. Store A: Location (Less than 2 miles), Office supplies (Large assortment), Furniture (Office furniture), and Computers (Software and computers).
ii. Store B: Location (Within 2-5 miles), Office supplies (Very large assortment), Furniture (No furniture), and Computers (No computers).

d. Calculate the market share of Store A and Store B using the share of utility rule (Hint: You need the information in c above to answer this question). Explain this choice rule in relation to the maximum utility rule.

e. Finally, discuss briefly the strengths and limitations of this traditional conjoint analysis approach.

7 Your job is to interpret the following segmentation (cluster analysis) and discriminant analysis output.

Segmentation and Discriminant Analysis Results
Size / Cluster Overall Cluster 1 Cluster 2 Cluster 3
Number of observations 40 18 14 8
Proportion 100% 45% 35% 20%

Segmentation variable / Cluster Overall Cluster 1 Cluster 2 Cluster 3
Variety of choice 7.53 9.11 ** 6.93 5 *
Electronics 4.57 6.06 ** 2.79 * 4.38
Furniture 3.45 5.78 ** 1.43 * 1.75
Quality of service 4.00 2.39 3.50 8.50 **
Low prices 5.05 3.67 8.29 ** 2.50 *
Return policy 4.50 3.17 6.29 ** 4.38
Note: ** Green color, * Red color

Discriminant variable / Cluster Overall Cluster 1 Cluster 2 Cluster 3
Age 40.525 44.222 ** 30.929 * 49 ***
Income (000's) 42.50 48.33 32.14 47.50
Professional 47.5% 33.3% 50.0% 75.0%

Discriminant variable / Function Function 1 Function 2
Age 0.910 0.013
Income (000's) 0.696 0.336
Professional 0.068 -0.771
Variance explained 71.36 28.64
Cumulative variance explained 71.36 100
Significance level 0.000 0.042

Actual / Predicted cluster Cluster 1 Cluster 2 Cluster 3
Cluster 1 10 3 5
Cluster 2 0 13 1
Cluster 3 2 2 4

Specifically, please answer the questions below:

a. Which cluster is the largest segment and which is the smallest segment?

b. How the three clusters (segments) differ from one another in terms of segmentation variable mean values?

c. Which discriminant variable has the largest influence in predicting the cluster membership?

d. What is the Hit Rate? Is this discriminant model acceptable? Relatively speaking, which cluster does this model predict best?

8 Your job is to interpret the following positioing analysis output.

Dimensions / Items 1 2 3
Total variance explained 0.669 0.308 0.023
Cumulative variance explained 0.669 0.977 1.000

Dimensions / Attributes 1 2
Large choice 0.8155 -0.5551
Low prices -0.8922 -0.4034
Service quality 0.9989 0.0039
Product quality 0.864 0.3506
Convenience -0.2452 0.9583

Specifically, please answer the questions below:

a. Which dimension is more important? Why?

b. What does each dimension mean? Give a proper label for each dimension.

c. How OfficeStar is perceived by the market in terms of each of the attributes?

d. Who is the main competitor for OfficeStar?

e. This is a joint-space map (combining perceptual and preference maps). Discuss the strengths and weaknesses of such perceptual maps.