Bbva compass marketing resource allocation case solution

BBVA Compass Assignment (30 points) Read the BBVA Compass case and using the information provided in the case and in this assignment answer all the questions below. 1. List all the steps involved in the customer acquisition journey for display and search ad acquisition. (6 points) 2. What is the acquisition cost of a customer acquired through display ads? (6 points) 3. What is the acquisition cost of a customer acquired through search ads? (6 points) 4. Should BBVA stop using either display or search ads? Why or why not? Use data or information from the case to defend your answer. (2 points) 5. Assume that the average banking customer has a CLV of $800 and a lifetime of 5 years as stated by Sottosanti on page 3. The cost to acquire a customer is $100 and the discount factor is 8%. What is the expected annual margin from this customer? (2 points) 6. Using the annual margin calculated in 5 and the discount factor and the acquisition cost given in 5, calculate the CLV of a customer acquired via a branch. Use the retention rate provided in the case for traditional bank customers. (3 points) 7. If BBVA wants the CLV of a customer acquired via display ad to equate to the CLV of a customer acquired via a branch, what is the annual margin needed from a display ad customer? Assume the same discount rate as before. (3 points) 8. How would you allocate the budget to off and online acquisition methods? Explain your answer. (2 points) Tips: 1) Develop an argument. Have a clear argument or strategy. 2) Know your audience and the purpose of your writing. 3) Simplify your writing. don't write sentences are wordy and way too long. Keep things simple. 4) Refer back to the evidence and facts in the case. 1 CLV Sample Problems Michelle is the director of marketing for M&J Jewelry, a direct-mail jewelry business that sells high-end costume jewelry via monthly catalogs. She wants to better understand the lifetime value of the customers who buy jewelry from M&J so that she can determine whether she should implement specific marketing initiatives aimed at increasing the retention rate of some portion of her customer base. She asks the head of her accounting department for some data to support her CLV analysis and he gives her the following information: ▪ ▪ ▪ ▪ ▪ ▪ ▪ The average catalog customer spends $250 per purchase. The margin on a sale is 40%. The average customer buys from the catalog 4 times per year. The average annual cost of mailing the catalogs is $9.60 per prospect per year. The response rate for the catalog (i.e. the rate of customer acquisition) is 2%. The retention rate is 65% year over year. Our normal annual discount factor is 10%. 1. What is the cost of customer acquisition (assume that acquisition occurs BEFORE any transaction actually occurs)? 2. What is the annual margin for a customer? 3. What is the expected lifetime of a customer? 4. Calculate the CLV of a customer assuming no annual discount factor. 5. Calculate the CLV of a customer including the discount factor. 6. As a marketer, what could you do to improve the CLV of a customer? 2 1. AC = ($9.60 per prospect per year) / (2% response rate) = $9.60 / .02 = $480 Another way to think about this is that it would take 100 prospects to acquire 2 customers (or 50 prospects to acquire 1 customer), so: $9.60 X 50 = 480 2. Once a customer, average sale is $250, margin is 40%, average orders per year = 4 Margin per transaction = (Selling Price) * (%margin) = $250 * .40 = $100 Margin per year = (margin / transaction ) * (transactions / year) = $100 * 4 = $400 3. Retention rate = 65% Churn rate = 1 – RR = 35% Lifetime = 1 / CR = 2.857 years 4. CLV = m/CR – AC CLV = $400/ (.35) - $480 CLV = $662.86 5. CLV = m * [(1+i) / (i+CR)] – AC CLV = $400 * [(1.1) / (.45)] - $480 CLV = $497.78 6. There are numerous appropriate responses. Any specific tactics that would increase the amount spent per purchase, the number of purchase occasions, the response rate to mailings or reduce the churn rate are all acceptable answers. 3 In the early 2000’s, Rosewood Hotels and Resorts was a privately held company that owned 12 hotels worldwide, each marketed under a unique name. Rosewood’s key competence was to create unique, one of a kind properties in the ultra-luxury residential style that differentiated it from other chain like luxury competitors (e.g., Four Seasons, etc). By 2006, the ultra-luxury hotel market was getting increasingly competitive. Customer did not make a connection between Rosewood properties and were increasingly identifying with other strong hotel brands such as Four Seasons, Ritz Carlton, among others. Marketing research suggested that although there is a niche of very sophisticated customer who value distinctiveness, the majority of customers are attracted to the corporate branded version of luxury. The marketing team was considering a corporate branding campaign which would have the objective of connecting all 12 hotel properties with the brand “Rosewood Hotel and Resorts.” Marketing research had indicated that such corporate brand campaign would increase annual retention rates from 55% to 65%. However, the corporate branding campaign would cost approximately $5M annually.