Sephora - Non traditional marketing & digital media campaign.

Discussion Questions:

1. What are the similarities and differences in the ​Decision Making Process (DMP)​ for Sephora’s
products for customers purchasing​ online versus from physical retail stores​?? What implications
does this have for Sephora's ​Customer Relationship Management (CRM)​?

- ​Decision making​ is the process of making choices by identifying a decision, gathering information,
and assessing alternative resolutions. Using a step-by-step decision-making process can help you
make more deliberate, thoughtful decisions by organizing relevant information and defining
alternatives.

Physical Online

Similarities

- A variety of product lines and functions - Variety

aggregated in one store for
ease/convenience
- HOW TO: Personnel is also on site to
help product try-ons, give advice and
explain different product purposes
- Beauty Insider Program ( perks based
on points)
- HOW TO: Linked to YouTube (great
for how-to videos and had nearly 100
generating over 3mm views, but they
were expensive to produce at $20,000
each
- Beauty Insider Program

Differences: Differences:

- Customers get to try products for free - Cannot try on product

and then become inclined to purchase
→ spontaneous purchase
- Atmosphere → experience, aura, lively
engaging purchasing experience
- Free shipping for orders over $50 and
three free samples with every order →
buy at home
- For regions in the country that did not
have a Sephora store
- Younger customers, trend of smart
phones, convenience and fast access,
provided with expert advice through
Beauty Talk

CRM​:
Online helps maintain customers by:
Implications: online channel design is tailored to target market of young individuals, who also
frequently use the internet for online shopping (overlap). Also enables shipping from certain stores
that have the desired products
Instore:
Implications: In store try ons help maintain customer engage and loyal to Sephora.
- Beauty Insider Program
- Beauty Insider program has over 13 million members, 80% of sales came from BI
 - Spending $250 in a year is enough to upgrade from entry level Beauty Insider to VIB but now
there is a third tier for big beauty spenders: VIB Rouge, which customers unlock by dropping
$1000 in a calendar year
- Rouge Free Subscription for Delivery Service Flash (or $10/month)

2. What are Sephora's USP’s and Brand Equity? What segments is it targeting? How is it positioned?
What changes if any would you recommend?
- Unique Selling Proposition is the differentiating marketing strategy that a brand uses to
differentiate and make itself stand out from other competitors. Sephora is unique in that they
carry prestigious and premium brands that are more upscale than the mass market brands like
Revlon and Maybelline that are found in drug stores and supermarkets. The atmosphere of
Sephora is also unique in that it is trendy and engaging. Sephora encourages its consumers to
try on different products in store before purchasing and they provide professional advice for
customers even if they don’t end up buying anything.

- Brand Equity: The value that derives from consumer perception of the brand name of a
particular product or service, rather than from the product or service itself. ( How customers
perceive the brand name of the company). Customers perceive sephora as a premium brand
with a premium price that is more similar to department stores than everyday supermarkets.
Sephora’s promotions involve offering free samples that come with a purchase rather than
discounting the purchase itself. Their promotion tactics enhance the Brand Equity as a
premium brand because they barely discount their products.
- Sephora is targeting young females between the age of 25-35 (younger hip customers/
professional). This target customer is based on demographic segmentation ( age) and
psychographic segmentation (feeling about cosmetics).

- Positioning
- Sephora’s brand is positioned as a beauty advisor and expert in the premium cosmetic
market. The stylish presence and innovative presence increase customer's’ Share Of
Wallet - ​total spending that a business captures in the products and services that it
offers​ - which makes the brand alive and inspire clients to buy more
- Sephora markets beauty as an affordable luxury, fun and innovative than competitors.
There is always more to buy.

3. Assuming her marketing budget is fixed, what elements of the traditional marketing budget should
Bornstein cut to fund her digital and social media initiatives. In what % proportion should the
freed-up marketing budget be allocated across the digital and social media categories? Why?
Traditional Marketing for Sephora? -
Advertising - newspaper, TV ads.
Non traditional

4. What should Sephora’s strategic goals be for its digital efforts? Why? What metrics would you use
to measure the success of Sephora’s digital efforts?
Digital Media Mission/ Sephora’s goals: Create an ​individualized​ online experience, ​involve​ the
users through engaging conversations through online reviews and ​integrate ​promotions and other
activities into users life’s in an interesting way to avoid nuisance and ​initiate/​ encourage production
of user generated content.
This needs to be done to:
Build strong brand awareness and image. Focus on acquiring new customers, generating social
conversations, and sales leads through digital initiatives.
Deliver a better product by strengthening customer relationship management (CRM), and obtaining
customer feedback. Connect w/ customers in new/meaningful ways. Value of a brand advocate: ​2x the
spend value; will deliver positive reviews and testimonials, positive comments and posts on social
media, make offline recommendations, and will share special offers via social networks.

The Four I’s of Mobile Social Media ·

❖ Individualize​ your activities to take account of user preferences and interests
❖ Involve​ the user through engaging conversations.
❖ Integrate​ your activities into your user's life to avoid being a nuisance.
❖ Initiate​ the creation of user-generated content.

I would measure the success of Sephora’s digital efforts by using Return On Investment which
includes money spent on marketing, advertising, and etc.

Hilton - Customer loyalty, & loyalty programs

1. How can a loyalty program help Hilton Corporate and franchisees manage customers better?
- By providing different tiers of loyalty program it can meet customers needs better…..( silver
VIP, GoldVIP
Loyalty Program:
- Drives collection of valuable data ​(benefits to Hilton)
- The loyalty program creates an incentive for repeat and increase purchases​ ​and it’s more cost
effective.
- The loyalty program tracks purchase history of customers better which enables more tailored
offerings through ​data mining.
- Offers value to the company
- Long term relationships with customers, acquisition and retention of customers
- Increased emotional affiliation through soft and hard rewards
- Customers find the programs motivating and there are rarely signs of saturation
- Revenue and Yield Management
- Can use the reservation systems and customer information for better yield
management → decisions about who gets a room (paying guest or frequent
guest program)
Entire new customers​ by supplementing the core value proposition
Create an ​incentive for repeat and increased purchase
Reduce defection​ when significant equity has accumulated (increased switching costs)
Increase ​emotional affiliation​ through soft and hard rewards
Enable ​better tailored offerings​ through data mining
Overall ​sweeten customers purchase calculus
Can identify and ​communicate with best customers
Track purchase​ history of customers
Provides ​customer reassurance​ of satisfactory experience matching needs, build brand loyalty
Strengthens ​brand​ image
Ownership of customer​ closer to Corporate brand level rather than individual franchisee
Generally ​cost effective​ - return to company in more, markets, segments, relationships, purchases,
higher rack rate etc. exceeds the costs - breakage…
Offers ​value to company​ - acquisition and retention of customers, Long term Relationships

- Greater Control of Experiences:​ though individual hotels may be operated by different

parties (franchisee, third party, or Hilton) they all enroll in HHonors. If an issue is not taken
care of on the property level, guests can contact Hilton directly through HHonors
- Customization of Experiences:​ with HHonor’s data, Hilton can make experiences more
personalized on both the individual and group level
o ​Benefits to Partners
- Regional relevance to consumers
- Access to partner’s customers (25 airline partners, 30 million members who travel)
- Partnerships keep costs down (broader reward & easier for members to attain)
- Double dipping (complement programs, not compete)
o ​Benefits to Franchisees
- Hilton HHonors:​ access to higher variety of customers, costs comparable or lower than
competitors
- Starwood Preferred Guest:​ increased reimbursement rate for high demand locations,
charged participating locations 20%-100% higher rates on paid stays

o ​Evaluation of loyalty programs

- Airlines: incentivize new customers to stick around given stiff competition
- Credit cards: expectation of rewards increases spending per customer
- Hotels: help retain existing customers and make them feel valued
- Department stores: use popular products to promote lesser-known brands

2. Quantify the economic value of the HHonors program to Hilton? How does the value generated
by the program compare to its cost? What is the strategic value of the loyalty program to Hilton?
- HH membership induces guests to favor Hilton properties with an incremental 1 stay in 5 that
would otherwise have gone to a competitor
- If member properties had not sold these 1.4M incremental rooms, and had not earned the 80%
margin on revenue of​ $158 per night​, they would have earned $158 x 1.4M x.08 = $177M
less in contribution.
- The cost to the member properties was 4.5 cents per dollar of member folio, or $158 x
7.015million x 0.045 =$49.9M therefore the program is a​ profitable traffic builder.

3. How do franchisees view the Hilton loyalty program? If the franchisee had the choice of putting
the Hilton brand or one of the Starwood brands onto its property, how would they assess the value of
doing so?
Franchisee is a person or company that is granted a license to do business under the franchisor's
trademark, trade name, and business model, by the franchisor.
They view the loyalty program as a positive incentive for more customers / “frequent guest” and
increase in revenue.
Franchisor View on Loyalty program was favorable:
“​ They say ​value in a frequent-guest program t​o business, and HHW’s program c​ost was comparable
with or lower than its competitors​. The ​biggest selling point ​was the program’s ability to drive
business​.”

They would access it in these ways!

a. Cost of implementing hilton brand hotel
a. Number of guests brought in
b. “Walking cost” - cost of turning away a customer
c. Extra Revenue from program
d. Post-stay feedback from program guests
e. Alignment of goals/values
f. Amount of support (soft and hard)

Loyalty program 6M’s - framework of HHP

4. What should Hilton do in response to Starwood? Why?

Hilton should:
1. Because Hilton falls short in terms of scale ( the number of rooms), a key differentiator in lodging,
it could focus on ​expanding the services​ provided to each tier member (expansion of relationship -
one of the levers of customer loyalty programs)
- Build partnerships with more service providers to incentivize and reward customer loyalty,
particularly for the travel segment
- Allows Hilton to tap into markets and segments unnoticed by Starwood (similar to the Double
Dipping with airlines)
2. Implement a customer service, training program to ensure that guest experience is of the highest
standards across all Hilton locations
3. Increase franchising (franchisees were attracted to the “road warrior” business, Hilton was one of
the only that provided tailored programs to the travel segment with their airline partnerships) - more
than half of Hilton’s member stays went to competing hotels annually which was linked to Hilton’s
limited size and network
4. While Starwood focuses on extended stay in their loyalty programs which might not be cost
effective in the long run, Hilton can focus on the travel segment, business and leisure, that would
require booking services more frequently and for shorter amounts of time
5. Prioritize customer service and guest experience over points
o ​Invest in Data Analytics:
- Difficult to measure customer characteristics for yield-management algorithm
- Solution: CRM software can help extend CLV by helping management best tailor each
guest’s visit
- Industry-wide issue stemming from franchise model
- Solution: centralize data entry system would help standardize service across locations as scale
increases
o ​Experiential Perks
- Expand the double dipping feature by collaborating with more business in other areas of
leisure activities such as spas, golf courses, restaurants.

Benefits/Risks of Franchisees
Franchising is a strategic partnership:

Franchisor Benefit from establishing a Franchisor cost( con) :

partnership with franchisee :

- Access to local knowledge and - Slower decision making

contacts - franchisee can be located
worldwide and provide franchisor
with specific knowledge to the
region.

- Access to copious entrepreneurial - Cede some control to franchisee

talent

- High ROIC ( ​return on invested - Time and cost selecting franchisee

capital​)

- Fast Growth - much faster than

organic growth

Franchisee benefits: Franchisee cost:

- Get to be your own boss - Bear the risk of failure

- Can save on marketing cost since the - Making upfront financial investment
trademark name is well known and - System is bureaucratic… too many
the franchisor will support with rules.
marketing efforts
P&G Japan: The SK-II Globalization ( international marketing)
Key topic: Standardization versus adaptation of marketing programs in launching products in
different countries.
Skin care product produced and sold in Japan: looking to expand globally.
Key concept: 5 W’s ( Why, when, what, where, with whom ? )
1. What was the marketing business model used by SK-II in Japan and why was it so successful?
How transferable is this model to other countries? What are the facilitators ( Things that help the
launch) and what are the bottlenecks ( things that hinder) in launching in other countries? Why?

USP. ​SK-II positions itself as a “holy water product” in Japan, with an exemplary product
development process that creates premium products that more than satisfy the high expectations of the
demanding Japanese customer, who traditionally harbors the most sophisticated skincare routines than
anyone else in the world.

The marketing business model used by SKII in Japan is a transferable business model.
1a. Marketing Mix
● Product: ​SK-II, high end beauty care products
● Place: ​High-end department store counters staffed by beauty counselors around Japan.
● Price: ​Premium pricing​ ​“significantly above retail price”
● Promotion: ​TV commercials and celebrity endorsements
○ Featuring a well-respected Japanese actress in late 30s ( age).
o​ ​TV advertisement featuring a well-respected Japanese actress in late 30s
o​ ​Replicated this ad campaign for Hong Kong and Taiwan with great success
o​ ​HK and Taiwanese women took fashion cues from their Japanese counterparts, sales rocketed
o​ ​Premium pricing strategy - i.e. SK-II Foaming Massage Cloth ($50 v $7)
o​ ​Performing detailed product performance data for Japanese beauty magazines
o​ ​Use of the Beauty imaging system (BIS)
o​ ​Installed modified BIS at SK-II counters to be used by beauty consultants to boost accuracy and
credibility of their skin diagnosis

The marketing business model used by SKII in Japan is a transferable business model. Define:
Transferability means having a cultural fit in order to expand to different countries.

Refer to pro and cons

o​ ​Facilitators:
- ​9 billion world wide prestige skin care market to be captured
- Going into markets with familiarity with demands( UK) and habits of local customers
o​ ​ ​Bottleneck​:
○ Existence of counterfeit/ imitation of prestige products
- Import taxes.

o​ ​Turnaround
- ​P&G SKII Strategy: Aggressive discounting and promotions - led to distributor
disengagement & competitor price war
- Expanded R&D: in-country product development capability, R&D tailored to local needs
 - ​Promoted more product introductions and expansion into beauty products

2. Evaluate the pros and cons of the three options facing Paolo - stay focused and expand in Japan,
launch SK2 in China or launch in UK. For each of these options what marketing mix would you
use? Why? What is the role and responsibility of Paolo as a Global Marketing Manager?

Pros and Cons of the three options

1.​ ​Stay focused in Japan but grow efforts in global expansion
Pros
● Familiarity with demands and habits of local customers
● Large potential market of women beauty products
● Sales could be further expanded beyond traditional offerings
Cons
● Sales growth have slowed down in recent years
● There are existing strong local competitors with comparable innovative capability
● Staying is too conservative - losing potential growth market.
Marketing Mix
·​ ​Go beyond traditional offerings by adding a ​diverse range of offerings including anti-again and
skin-whitening products ​at a ​premium price ​and drive traffic to ​specialty and department stores
through ​TV advertising

2.​ ​Launch SK2 in China ( not the target consumer: (No purchasability)
Pros
● Second largest market in the world
● Extreme growth: beauty segment is growing at 30% to 40% a year
● Transferable business model and similar beauty standards between Japan and China allows
the launch to build off of existing momentum
Cons
● Competitive market with existing big players (Estee Lauder, Lancome, Shiseido)
● Too Costly for consumers (3-month supply costs more than 1-month salary for an average
woman in China).
● Existence of counterfeit/ imitation of prestige products
● registration process of product is too complicated/ lengthy in china
● Attract import duties ( taxes) of 35% to 40%, need to price significantly above retail level
Marketing Mix
● Product: ​SK-II, high end beauty care products
● Place: ​major cities in China such as Shanghai, Beijing and Guangzhou. High-end department
store counters staffed by beauty counselors
3. Launch SK2 in UK ( Not good: high competition, low revenue)
Pros
● Sophisticated group of beauty-conscious consumers already practicing a multistep regimen
● Opportunity of sharing distribution channels with fine-fragrance in UK market
Cons
● Lowest operating income ($8MM, exhibit 13). Need to absorb losses of $1MM to $2MM (
not as profitable as other counties).
 ● High-profile, well-respected competitors (Estee Lauder, Clinique, Lancôme, Chanel)
● High cost of advertisements
● Initial market research was less helpful. Further tests needed ( more time, more $$ needed).
Marketing Mix: ​continue the ​premium pricing strategy ​while further market research is needed to
determine ​range of offerings and promotion channels, as cost of TV advertising is high in
Europe. ​For UK market, there is opportunity to share distribution channels with fine-fragrance
products.

3. What should Paolo’s expansion strategy be in rolling out SK-II? Which country (UK, China, or
some other) should he start with? Why? What should be the sequence of countries he should
target? Why? Can SK-II become a global brand? Why or why not?

Expansion Strategy
o​ ​Immediately enter into the ​Chinese market​: huge growth potential about 30-40%/year
o​ ​Stay in Japan​ and expand market share: adding to the product line can target new segments, such
as with an anti-aging cream and skin-whitening products that will target a younger audience à can also
create customer loyalty
o​ ​Reevaluate plan to move into the ​European market​: European market is highly saturated with
high end brands, so need to decide if PG Japan should continue to target the UK
Ø​ ​Risk and Mitigates
o​ ​Cultural Difference: ​expansion of Japanese brand – different consumers,
distribution channels and competitors in every country
§​ ​Mitigate: leverage technology and analytics to address the misalignment
between supplies and consumer demands
o​ ​Organizational Disruption: ​O2005change, shift from local to global creates
management distraction, where products are led by new people who do not entirely
understand the competitive and trade differences across markets
§​ ​Mitigate: ​successful in the Asian market (particularly HK and Taiwan), use
this knowledge and familiarity which is transferrable to success in China

When deciding which country to invest:

Invest if :
Look at competitive strength HI
- The company has a strength over
competitors ( China - because has
less competitors) SkII can win.
Look at country attractiveness (HI)

Do not invest if:

competitive strength Low
country attractiveness (Low)

Cost and benefit of expanding to different countries ( cultural fit)

 Natureview - Expand beyond Natural food

Two main decisions to make: which yogurt product to expand into? & which distribution channel to
go into?
Options for types of yogurts: ​Expand 8oz into one or two selected supermarket channels.
Expand 32oz nationally. Introduce Multipack into the Natural Foods Channel.
Options for distribution channels: Natural foods channel. Supermarket Channel.
Main issues:
Core consumer & prime prospect
Cannibalization

1.​ E
​ valuate the characteristics and current and future potential of the various channels used

for yogurt sales. Which are more attractive in general and which are more attractive for
Natureview in particular? Why? What expertise is required to be successful in the natural
food channel? The supermarket channel? Why?

- Currently do exclusive in natural foods:

- Growing market at 20%
- But 3% of yogurt sales happen here
- At stagnant growth — need to attract a new investor
- Expanding into supermarkets
- Risk: hurt image! & price premium
- First Mover advantage - first one selling organic products
- Damage the relationship with the natural food channels
- With same size 8oz — breakeven point
- Option 1: 8 oz. yogurt sizes form the majority of yogurt sales, and combined with the
rapid volume growth of organic yogurt, Option One can generate 20% more revenues
over 5 years compared to a 15% increase in Option 3
-

Expand 8oz into one or two Expand 32oz nationally Introduce Multipack into the
selected supermarket Natural Foods Channel
channels

+ Better positioning on the shelf
Most popular by far
Past successes
First mover advantage
Break even in year two
Core users=big users
Long shelf life
High gross margin
Lower market cost b/c popular
Largest market share
Higher value to customer to cost
Fewer competitive offerings in this
Great for kids
Lower market cost
Good test for flavor
Established distribution channels
Sales team was confident they
can achieve distribution for the
two SKUs
 size Financial potential was very
Strong competitive advantage b/c attractive
longer shelf life

- High market spend/slotting Low visibility More R&D cost

Logistics cost $
Highest level of competitive
trade promotion
Require quarterly trade
promotions and a meaningful
marketing budget
Advertising plan would cost
$1.2 million per region per year
SG&A expenses would
increase by $320,00 annually
Damage natural foods
relationship
Damage “all natural” brand
image
Waste Losing market share/first mover
No sample size advantage from supermarkets
Doubt on sales team’s ability to
achieve full national distribution in
12 months
Increase SG&A expense by
$160,000
Damage natural foods relationship
Damage “all natural” brand image
(mitigated by fact that Silk Soy
milk did the same thing and saw no
damage in relationships)

2.​ Should Natureview try to implement an exclusive, selective, or intensive distribution

​

configuration? Why?

Define: Exclusive is focusing on one channel distribution e.g ( Natural Foods)

Selective - Expanding to one another distribution channel ( e.g natural foods +
supermarket…)
Intense distribution - Broad channel -

Selective -> expand into the supermarket channel (OPTION 1)

- Best financial means (breakeven in year 2). Also we hit the required goal of achieving
20 million in revenue by 2001.
- We attain first mover advantage as being the first Organic/natural yogurt going into
the supermarket channel
- The supermarket channel is characterized by rapid growth (20% growth), a large
yogurt consumer base (97%), and increasing demand for organic products.
- Risk: We might damage relationship with Natural foods channel: This is because
natural foods channel distributors won’t like it when we sell the same product for a
lower price in the Supermarket channel (it might get Natural foods customers to leave
to buy yogurt at lower price)
 - But, this is not entirely true. We saw silksoy milk did the same thing
(transition into the supermarket channel from Natural foods). Silksoymilk still
saw great relationships with Natural foods distributors and great sales in
supermarkets
- Also, customers in natural foods channel go to natural foods to be surrounded
by other organic products (they won’t easily go to supermarkets because of
lower prices)

3.​ ​Evaluate the growth strategies under consideration by Natureview?

What are the opportunities and risks of each of the three options Natureview is considering?
How would you mitigate the risks of each option? What would you recommend? Why? ​What
action plan for implementation of your strategy should the company pursue?

Risks of Option 1:

-
KATE SPADE:

The Current Kate Spade customer:​ professional woman, aged 25-44, annual income of $100,000
plus, and optimistic mindset. Married, highly educated, urban/suburban.
“She is a mindset”
Objective​: expand to a new target market while preserving brand identity and grow sales among their
loyal customer base.
Brand: ​“Kate Spade New York inspires you to lead a more interesting life”
Major issue: ​maintain brand identity

1. Elaborate the STP, USP and marketing mix ( 4P’s) for the KSNY brand
STP​ -​a three-step approach to building a targeted ​marketing​ plan. ​segmentation is separating​ ​the
potential customers into groups by using ​demographic​( age, gender, family size, income..),
psychographic ​( emotions, social class , lifestyle, personality) , ​Geographic​(​ location, nations, states,
cities, urban - rural) and Behavioral ( Benefits, uses, Habits) frameworks.

Segmenting: ​ Use psychographics to segment women who are bold & interesting
characteristics. Wealthy, younger college students, adults that want to feel younger &
cheerful,
Target:​ • 16-24yo women/ 45-49 • Lower disposable income • High desire and awareness of
Kate Spade NY products
Positioning: ​Affordable luxury products • Lifestyle brand • “Interested and Interesting”

USP: Unique Selling Proposition

Kate spade girl - refining brand identity. KSNY inspires women to lead a more interesting
life. Their strong brand voice promised a fashion style that would always be colorful, bold,
playful, clever, spirited, chic, optimistic, graphic, aspirational, and timeless.

2. What brand positioning and marketing mix would you recommend for KSNY? Why?

Brand Position: ‘the KSNY girl is curious, playful, and strong. She is culturally curious, lives
life to the fullest, takes chances and stands out in the crowd.. She is both interested and
interesting.”

Marketing mix:
Product​: shoe, stationery, eyewear, fragrance, beauty, home good collections. Quality and
timelessness; KS handbags were meant to last beyond fast-moving fashion trends. They were
made of high quality materials in bold colors and playful designs to reflect the wearer’s
personal style.
Price:​ affordable luxury
Place​: US department stores, luxury retailers: barneys, NM, Bergdorf Goodman,
Promotion​: digital and social media sites, fb, twitter, instagram, pintrest, yt video, store
displays (refreshed, adding more color to the decor and incorporating a regular schedule of
changing window and merchandise visuals. “Like our girl, these stores stand out in the
crowd.”)
Main characteristics of the brand (listed in their main ads): colorful, bold, playful, clever,
spirited, chic, optimistic, graphic, aspirational, and timeless.

3 What are the pros and cons of KSNY targeting casual women shoppers aged 16-24 versus
older women aged 45-49? Which target segment would you recommend? Why?
- Targeting either group would influence the image that others have on KSNY
- 16-24 pros
- Young, cheerful image
- Will aspire to buy more of this brand
- Will build loyalty and keep on buying this brand
- 16-24 cons
- Might be more price sensitive, not able to afford it
- Older pros
- Not price sensitive
- Once exposed, become loyal
- Older cons
- If targeting older women, the younger people might not want to be associated
with the brand
- Shorter CLV?

4. Should KSNY create a new brand that shares association with the current brand or a
completely separate brand? What other options would you consider? What brand expansion
plan would you recommend and with what marketing mix? Why?

- Dissemination:
- • High risk of brand dilution • Potential to alienate loyal Kate Spade customers
- Freedom of product design
- • Low costs with continued use of nontraditional marketing • Low investment
into development
- Brand development outsourced to partner • Potential investment into
marketing
- Separate Brand
- • Minimal risk of brand dilution for Kate Spade
- Freedom of product design • Potential to dominate in new age segment
- Investment needed to develop new brand
5. Evaluate KSNYs use of social media for marketing? Which platform is most
effective?efficient? In what % proportion would you allocate resources across marketing
media overall and across social media vehicles( Facebook, Twitter, Instagram, and Pinterest)
-
Youtube:
Considering their target market is young women ages 24 - 35 and life a lifestyle of hip, bold,
strong Kate spade uses
5forces:
Barriers to entry, internal rivalry,

i. Skimming vs. penetration

1. Skimming: initial high price, then discount later
2. Penetration: low price to generate lots of sales quickly
a. Leaves money on the table with high-value customers
but is designed to preempt competition

[NON- PRESENTATION CASES]

Aqualisa​: ( shower head - new product the quartz - the product is easy to implement.
Plumblems are averse to innovation, so they are hesitant to use it.
How to market this product - Direct, developers, plumbers…
Main key: Majority of consumers rely on plumbers for advice.
Target plumbers who work in wealthy areas - targeting wealthy clients and
CLV - is higher for plumbers than the customer because plumbers will buy various shower
head.
Class Topics:
Marketing mix -
Introducing new products - STP, USP, Distribution channel (Plumbers, direct to consumers…
). BCG portfolio (
3. What role does the Quartz shower play in Aqualisa’s product portfolio? Why is
the Aqualisa Quartz shower not selling? What are the main problems?

The Quartz is a breakthrough shower technology as a result of Aqualisa investment in R&D.

There are two models: Quartz Standard and Quartz Pumped. The Quartz Standard was
designed for consumers who did not need a pump. The Quartz are the highest priced Aqualisa
products, selling at €850 for the standard and €1,080 for the pumped. The customer for the
Quartz are wealthy individuals who want great style, stabilized temperatures, reliable
pressure, simplicity, and durability. A major value proposition that the Quartz brought was
that the shower could be started with a press of a button, which would release pressurized
water at the consumer’s set temperature level. Thus, the Quartz was ideal for families with
kids who needed to be safe from extremely hot temperatures, as well as for the elderly who
found it difficult to turn old shower handles. The Quartz was also ideal for working and busy
professionals who wanted to get their shower started at the press of a button, and step into the
shower knowing that the water would be at their set temperature.
The key differentiators of the Quartz compared to Aqualisa’s other product lines are the
higher price, easier and faster installation, technology components, and no requirement of
excavating properties.

Consumers (wealthy, shopping at showrooms + plumber recommendations)

Pain Points Quartz Value Proposition

-Great style -Easy-to-use (press of a button)

-Stable water pressure
-Simple to use
-Reliable temperatures
-Long lasting and durable
-Didn’t want a huge box
(computer) installed in or near
their shower
-Light indicating that the temperature was ready
-Efficient and reliable pressure and temperature
-Safe for kids, easy for Elderly to use
-Processor was located away from the shower (no
excavation)
- Short installation period of half a day (very
convenient)
-Allowing customers to adapt to leading technology
(show factor)

Plumbers (shopping at trade shops)

Pain Points Value Proposition

-Reliable and durable
-Did not want shower to break
down or require servicing
-Easy to install
-Familiar with design
-Refrained from using innovative
technologies in showers
-Wanted to become experts on
one shower brand
-Easy to install since there was no need for
excavation
-Fast installation times at only ½ day instead of the
typical 2days
-So easy that their apprentices could install for them
-Easy to adapt to
The Quartz is facing issues with gaining trust from plumbers. Plumbers are a key influence
for over 73% of shower installations in the U.K., meaning that plumbers are primarily
selecting showers for consumers (Exhibit 4). The Quartz is not being adopted by plumbers
for two reasons:
1.​ ​Plumbers don’t want to switch shower brands or products that already work. Plumbers
build a lot of trust in their shower products since they need to ensure the highest reliability in
what they do.
2.​ ​Plumbers do not want to use innovative products that are technically heavy. From
previous experiences, plumbers lost trust in using new technology showers. Plumbers
associate technology in showers with unreliability.
Furthermore, it was difficult marketing the Quartz to other customers looking for premium
showers without damaging the product specifications of other Aqualisa products.
Price could also be a problem attracting some of the “premium” consumers since the Quartz
sells for over 200 Euros more than the closest Aqualisa products, the Aquastream
thermostatic and Aquaforce. Although the Quartz is aimed at the premium users, premium
users may be price sensitive when selecting shower heads that have not been proven to be of
high reliable performance.

5. Recommendation and Strategy

Strategy Pros Cons

Targeting -Consumers have low brand awareness -Costly: 3-4 million euros
Consumers for premium showers, meaning that over 2 years
Directly Aqualisa would not have as much -High risk with no guarantee
difficulty competing with Hansgrohe of providing successful
(room for growth) results
-Aqualisa could leverage the lower -Target less than 27% of
installation time of ½ day to market sales since plumbers
convince too consumers. Also a form of influence most of the
cost saving since plumbers charge by shower product decisions.
hour.
 Targeting -electric showers preformed successfully -Selling a premium product
Do-It-Yourse in this channel, thus, the Quartz could be in DIY could lead to a
lfers offered as a premium product in the deteriorating brand for
electric shower category. Aqualisa, and lower the
-Can leverage distributors since it has value for the Quartz (brand
Gainsborough brand here diffusion)
-Gainsborough current sells
at 70% of DIY outlets. This
could cannibalize some
sales.
-DIY customers will be
averse to paying a high
price
-Aqualisa would have to be
realistic with its price in
DIY, thus lowering the
value
-Little feeling of exclusivity

Targeting -Demanded that plumbers get familiar -Lag time to reach

Developers with Quartz installation consumers
-Large-volume channel -Hard sell to developers
-Quartz is made for easy integration for since they are looking for
current bathroom developments cheaper alternatives – must
sell at a discount
-Segment has only 15%
sales

Recommendation
I think that it’s best for Aqualisa not to focus on the options listed above. The main
reason for this, while also factoring in the cons for each option, is that the market for showers
is dominated by plumber selections. In the market for mixed showers, consumers only
selected their shower 27% of the time, whereas 73% (1 - 27%) of the time plumbers had
some influence in recommending a shower (4). Furthermore, plumbers dominate the market
for installations making up 54% of total shower installations, followed by installation by
showrooms with 20% (5). Clearly, Aqualisa should strength its relationship with plumbers
since the data points to plumbers as the key players in selecting showers. A huge problem for
this strategy is that plumbers that are very loyal to their shower brands and products, meaning
that it will be difficult for Aqualisa to acquire new plumbers.
STP - Segmentation: ​Segment plumbers into two categories, one for plumbers working with
wealthy clientele and regions, and the other for developers contracting plumbers. This way,
Aqualisa can approach its marketing and partnerships in specific ways.
 Targeting: ​Aqualisa should target the 10,000 master plumbers, especially those who
normally perform work for wealthier clients. Not only do these plumbers represent 73% of
the shower installation market, but also their work can be passed down and influenced to
up-and-coming plumbers. Aqualisa should also target developers who are in need of creating
high end bathrooms, thus, forcing plumbers under contract to install the Quartz (or a
developer version).
Positioning – ​Aqualisa should position the Quartz as a premium shower for customers who
care about performance, style, easy-of use, and experience, all while making the plumbers’
job easier and quicker. There should be an emphasis on premium quality since Aqualisa
should not have to degrade its other products in order to prove the Quartz; the price should
reflect the performance.
Marketing Mix – ​Perform traditional marketing in trade shops, where most plumbers shop
for products. Use direct sales efforts to convince current plumbers using the Aqualisa brand
to try the new Quartz product. To minimize cannibalizing or damaging other Aqualisa
products, Aqualisa can market this product as the most premium offering, meaning that it’s
designed for those who are willing to pay for the brilliant features. Aqualisa could partner
with trade shops to provide classes to teach plumbers how to use Quartz. Also, it can provide
documentation and easy-to-follow guides for plumbers to follow, thereby shortening the
learning curve of adopting a new product. If plumbers consider the Quartz as a faulty
liability, Aqualisa may consider marketing longer warranties to back the product, at least in
the short-term. To engage developers, Aqualisa should use direct sales efforts and market the
easy and fast installation of the quartz. Aqualisa might have to consider offering the Quartz at
a discounted price to developers.

APPLE
BCG, Digital Hub, Brand Architecture.
Apple is a branded house.

When you release a problem - starts with problem child. If it is not

Apple Inc

Q2. Explain and evaluate Apple’s branding architecture and product portfolio including the roles
of iMac, iPod, iPhone, iPad, Apple TV, Apple Pay, Apple Watch? ( 12 points)

1) Apple’s branding architecture with their current product portfolio can be seen as hybrid. Even
though it is intuitive to connect all these products to the parent brand Apple Inc, some products
can stand alone with their own “sub brand.” For example, those that directly have the name
“Apple” in the product name, such as Apple TV, Apple Pay, and Apple Watch, are using more
of a ​Branded House​ approach were the perception of the products connect to the quality and
reliability that we expect from an Apple Inc product. On the other hand, the iMac, iPhone, iPad,
and iPod, are more of a ​House of Brands​ were they each have their specific characteristics
that carry their own likeability and standards.
2) By using the BCG Product Portfolio Mix framework, we can define the portfolio roles of each
product:
 a) iMac: Problem Child: ​The worldwide market share for iMac is also reflected in the low
but growing PC manufacturer market share of 6.4% in 2014 for Apple. Additionally, as
the popularity of Apple Inc increases, we can expect this original product to have a high
growth rate as well.

b) iPhone: Cash Cow: ​It is the 2nd most popular smartphone in 2014 with 14.8% market
share worldwide. However, even with its features and uniform unmatchable design, by
2014 the market share was found at a decline, so the growth will continue but at a
slower rate. (low growth, high market share)

c) iPad: Star!​ It maintained the lead at 27.6% market share and has potential high growth
rate as it advances into the enterprise sector and iPad mini version. There is potential
to grow as customers find more uses for the iPad beyond its initial and primary
consumption of content to creation of educational or professional content.

d) iPod: Dog: ​Even with its initial simplicity and popularity, the iPod’s main function can
be found in other electronic devices that are more convenient to carry today. So the
market share and growth rate are both low.

e) Apple TV: Dog: ​It is a niche product with limited growth and low market share as the
TV market is highly saturated and most TVs can connect to computers to browse the
web.

f) Apple Pay: Star! ​It has already accounted for 2/3rds of mobile payments at the
participating retailers which means 66% relative market share. With its dozens of
retailers that accept Apple Pay and increasing use of smartphones (iPhones in
particular), we see mobile payments growing at a high rate in upcoming years.

g) ​Apple Watch: Problem Child: ​The competition is high and Apple Watch was entering
relatively late into the category, thus holding low market share. However, the growth
rate is high as it carries the brand name of Apple’s popularity and reliability.

3) The digital hub strategy and reveal any links between products (e.g., cross-selling
opportunities, cannibalization, etc.)
a) How they products are connected to the mac
b) This product portfolio as we can see contains all the categories in the matrix that
shows the balance within Apple Inc’s products. The Stars in the portfolio, Apple
Pay and iPad, have a guaranteed future in the market in upcoming years as they
are popular in the market already and also seek to expand their usability and
attractiveness and thus Apple Inc must invest in them. The Problem Children,
Apple Watch and iMac, could either become Stars or Dogs depending on how
their marketing or investment is strategized. However and fortunately, we see
growth in Apple Inc’s popularity that can help these problem children become
stars. The iPhone Cash Cow is clearly making money but there might not be
future growth as it is an established product with selected features. We could
potentially shift it to a Star, yet we do not want the products in our portfolios to be
too close to each other to cannibalize or too far so a competitor fills into that Cash
Cow position. Lastly, the Dogs, iPod and Apple TV, are now obsolete or
unsuccessful given the time that has passed or the competitive field they are in.
We should get rid of them to focus on the growth of Problem Children products in
the portfolio.

4) Apple’s marketing mix strategies over PLC for:

 a) iPod
Introduction
● Product: focus on simplicity, ● Product: works with
really easy to use, could
only sync to Mac
● Price: $296 net sale per unit
sold
● Place: consumer electronic
stores
● Promotion: part of the
digital hub strategy
b) iPhone
Introduction
● Product: iPod with touch
controls, revolutionary
mobile phone, and
breakthrough internet
communications device all
in one
● Price: $580 net sales per
unit sold
● Place: CE stores, through
partnerships with AT&T
network
● Promotion: Reinvent the
phone, digital hub strategy
BMW:
Marketing mix: 4Ps
Non-traditional marketing
6Ms - Mission, Message, Measurement , Market, Money, Media
1​.Strategic Role & Significance
Growth Maturity Decline
● Product: different ● Product: same, but
innovative iTunes more simple, too simple now, so
software & iTunes compacted, easier to introduction of
Music Store use designs (iPod iPhone that
● Price: around same Nano) integrated digital
but declining as unit ● Price: $167 net sale music would
sales increase per unit sold at cannibalize
● Place: connection to highest unit sales of ● Price: $159
iTunes store 54 million iPods ● Place: same
pay-per-song basis. ● Place: same ● Promotion: same
At CE stores, but ● Promotion: same
also use of Mac and
Windows PCs.
● Promotion: same
Growth Maturity (current) Decline
● Product: same but ● Product: bigger, ● Not yet!
thinner, faster, more lighter, more ● Still maturing as new
intelligent, new form applications, Siri features arise and
factors, 3G network voice command customer loyalty is
● Price: carriers responder high
provided subsidy for ● Price: currently 2014
pricing model. $603
● Place: CE stores, ● Place: same, Apple
network stores, App Store, online
(unlocked) ● Promotion: capture
● Promotion: same but the clean, uniform,
better, advertising and sophisticated
look (vs varied
Android designs),
direct sales
representatives at
Apple Store,
customer service,
sales promotions
with other electronics
like earphones
The strategic ​role of the Z3 Launch was to expand the BMW’s brand globally and
increase volume sales.​ BMW took this role by launching a new stylish car and changing the
manufacturing plant from Germany to the United States for the production of the Z3. This
launch was significant in multiple ways. First, it helped people to associate the quality of the
BMW’s product to the company itself rather than the manufacturing in Germany. Secondly,
the Z3 launch helped rejuvenate BMW’s product line by repositioning their brand from
“yuppie Status Symbol” to their preferred “Ultimate Driving Machine.” This launch
ultimately helped BMW to become a pioneer in the sports car industry and gain competitive
advantage by being the first to develop a luxury style sports car model.
2. The Product placement in Golden Eye Movie:
This was a brilliant decision as it allowed BMW to promote their Z3 to a mass audience and
more specifically reach foreign customers and young generations who are usually harder to
reach. The ​mission ​for this partnership was to reach a mass audience but attract a niche
segment of adventurous and thrill seeking individuals who identify with the character, James
Bond. The message was delivered by placing the Z3 in the movie for a few seconds and for
viewers to relate the image of James Bond, a “handsome, sexy, wealthy, resourceful and
adventurous [individual], “with the Z3 model. Additionally, the movie had a huge opening
success of $26.2 million, meaning that it gave a great amount of promotion to the Z3 (Exhibit
11). Another benefit was that BMW did not have to pay any monetary fees to incorporate the
Z3 into the movie. Ultimately, this partnership created a lot of media buzz and acted as teaser
to generate customer anticipation.
Neiman Marcus:
This advertising technique was intended to attract a niche set of customers through a sales
promotion tactic. By advertising a limited edition James Bond car in the catalog, BMW is
encouraging people to purchase the Z3 fast. This strategy had huge success as it generated
over 6000 bookings for a limited amount of 100 cars. In addition, the strategy mainly targeted
the psychographics segments of a potential customer by particularly attracting individuals
who admired James Bond and wished to live his lifestyle. This was a unique selling
proposition as it incentivized people to preorder.
BMW Internet Site:
This marketing element was a huge hit (literally). It was impactful because it was innovative
and allowed customers to personalize their dream car by using the “build your own Roadster”
feature on the website. This advertising communication also generated buzz by building
excitement, anticipation and awareness towards the Z3. With this addition to the website the
hit per day tripled from 35,000 to 125,000 hits. Additionally, BMW also benefitted from the
free advertising that Apple gave by showcasing the Build your own BMW module in their
own advertising platform. Ultimately, reaching broader awareness to individuals who care
about quality and technology. Press launch in Central Park: Press launch in Central Park:
This nontraditional product launch resulted in extensive coverage in both broadcast and print
news companies. This event allowed representatives from media companies to capture and
feel the Z3 for the first time. The results were very favorable, various media companies wrote
reviews in print promoting the car’s low price and quality. This strategy was positive since it
increased awareness through media advertisement.
Jay Leno and Radio DJ program:
These two channels allowed the BMW’s advertisement to reach different segments of
individuals who might not have otherwise been exposed to the Z3 model. The amount of
success of this strategy can be seen in the high levels of word of mouth generated.
Dealer Promotions:
This method was more personalized since they had to convince the dealers both verbally and
with actions that the Z3 will have huge success. BMW took an innovative approach by
providing dealers with invitations for their clients to the GoldenEye film screening. The
mission for this action was to generate dealer motivation and cooperation.
Integrated Performance
After individually analyzing the marketing communications I can conclude that the mix
communication advertising campaign was relatively successful in providing awareness to the
Z3 launch and BMW brand. Each marketing segment supported in the effort of reaching mass
and niche audiences. Additionally, majority of the techniques reported high amounts of
persuasive publicity via word of mouth, printed reviews and different channels. In terms of
monetary fees, BMW spent less using nontraditional marketing techniques and received
higher impact per dollar spent. Overall, BMW benefitted from the press coverage and the
combination of non-traditional advertising campaigns to create their niche customer base for
the Z3 launch and a global brand for BMW.
● Word of mouth ( Organic marketing - cost effective) - Non Traditional
● New target market.
● Anslysisng

NUMERICAL
DROPBOX

Question 2:
2a. What are the advantages and risks of using the Freemium model for Dropbox?
Dropbox's primary strategy to obtain new users and gain revenue is through their
"Freemium Pricing Strategy." A Freemium Pricing Strategy is a method where a company
provides a service or good to customers for free, but charges their more advanced service at a
premium rate. For example, Dropbox provides 2GB cloud storage space for free and gives the
option for users to obtain 50 GB for $9.99 per month or $99 a year. The basic, free service
attracts millions of new users who are introduced to Dropbox. Despite its free service,
Overall, the CEO and founder of Dropbox, Drew Houston, introduced the "Freemium Pricing
Strategy" as a starting catalyst to incentivize and expand the Dropbox market to consumer.
Users satisfied with Dropbox would then recommend the service to family, friends, and
co-workers, providing free storage to both parties.
Advantages Risks
 ● Dropbox is able to obtain a large user base
○ 2 millionth user in October 2009 (pg.
9)
● Able to obtain more Publicity (users and
investors)
● Able to obtain revenue from paying users
○ “implied a $10 million to $15 million
annual revenue run rate in mid-2010
(pg.9)
● The Freemium Pricing provides an incentive
mechanism that helps dropbox with its
customer acquisition
● Allow customers/ potential customers to try
out Dropbox products cost-free and service
risk-free
● With many users through the Freemium
Model, Dropbox company as a whole looks
better, which can increase investors interest,
which can increase their market share
● Long-term wise, Dropbox is able to build
brand image and establish customer habit
**Note, ** means assumption and/or facts pulled from the case
● Dropbox has many free users, but their
paying users is significantly less
● Low conversion rate from “free user” to
“premium user”
● Unwillingness of users to pay, taking
advantage of Dropbox while incurring cost
to the company
○ Users can take advantage of the
increased storaged by
recommending the product to their
friends of friends
○ This will lead to an increase in
Dropbox’s operating cost
■ Have to purchase more
servers and maintain them
● Carry the cost of supporting free users
● High competition for the cloud storage
market, which makes Dropbox less
profitability sustainable
○ Users can turn to Dropbox
competitors, Google, Apple,
Amazon
● The revenue for Dropbox is volatile, which
could be a red flag for venture capital
investors, high risk
● Value of Dropbox could be overestimated
● Risk of low user conversion rate and loss
of customers

2b. On the average how many free users can a Paying User support?
**Math is based on figures from 2010.
**We make the assumption that the Average Revenue from Paying Users are based on the
figures from pg. 9
Annual average revenue per paid user:
**”Implied (since it is not specified) a $10 million to $15 million annual revenue run
rate in mid-2010”
**From this, we can get the weighted average annual revenue of:
($10,000,000 + $15,000,000)/2 = $12,500,000
Which is $125/ year
**On pg. 9 of the case study, we learn that the cost per free user is $0.11/ per free user
**On pg. 9 of the case study, we learn that the cost per user is $3.18/per paid user
**Assume that the 2.5% (average of 2-3%) of users convert to the paid product

Annual variable cost per free user:

One Free Person Cost= 0.11/months (pg.11) x 12 = $1.32/ per person
**Based on the assumption above, we assume customers pay $125/ year.

Annual variable cost per paid user:

**We also assume Dropbox incurs the cost of $38.16 ($3.18/ per paid user x 12)

Contribution Margin= $125.00- $38.16= $86.84

Contribution Margin Per Paying Customer= $86.84
$86.84/ $1.32 = 65.78 (66 people), meaning that ​1​ person paying supports ​66 ​free users

2c. With its levels of Fixed and Variable Costs (of supporting Free and Paying Users)
and Average Revenue from Paying Users, how much Profit or Loss is Dropbox making
per year? Assume $150k fixed cost per employee.

Dropbox’s Revenues
**Math is based on figures from 2010. According to the case study, in April 2010, Dropbox
had 4 million users (pg.8)
**We make the assumption that the Average Revenue from Paying Users are based on the
figures from (pg. 9)
**”Implied a $10 million to $15 million annual revenue run rate in mid-2010”
**From this, we can get the weighted average annual revenue of:
($10,000,000 + $15,000,000)/2 = $12,500,000
Which is $125/ year
**Assume that the 2.5% (average of 2-3%) of users convert to the paid product
● Revenue: $10/ month x 12 months x 4 million users x 2.5% paying users = ​$12
million
○ Revenue assumption made: from pg. 9 $10/ month

Dropbox’s Variable and Fixed Cost

**​ # of employees= 25 (given from case study pg.9)
** $150k/ employee (assumption given in question)
Variable Cost: (# Total Users) * ​(% of free users * storage & bandwidth cost for free users
+ % of paid users * storage & bandwidth cost for paid users)​= ​4 million users x (97.5% free
users x ($0.11/months x 12)) + (2.5% paying users x ($3.18/months x 12 )) = $8.964 million,
$9 million (rounded)
Fixed Cost: ​25 Full Time Employees x $150= ​$3.75 million
Total Cost: $9 million + $3.75 million = $12.75 million

Gross Profit/Loss:
Gross Profit/Loss Equation: Revenues- Expenses= $12 million Revenue - $12.75 million
Expenses (Total Cost)= ​-$0.75 million loss
Question 4:
4a. What is your estimate of non-discounted Customer Lifetime Value (CLV) for
Dropbox?
**Average Customer Lifetime Value= 1/x
**x= Annual Attrition Rate
**According to Exhibit 8, the annual attrition rate is 20%
● Non-discounted Customer Lifetime Value​: 1/.20= ​5 years

**Annual paid contribution per paid user * 1/(1-retention rate)

**Annual paid contribution per paid user * ​5 years
**We make the assumption that the Average Revenue from Paying Users is $125/ year and
Dropbox incurs $38.16 in storage costs ($3.18/month x 12), so the contribution per paying
customer is $125- $38.16 = $86.84
Non discounted LTV of Paying Customer​ = $86.84 x 5 years = ​$434.20

Customer Acquisition Cost (CAC) = cost of supporting x free users for each paying customer
(x= the free: paid conversion rate).

Cost of supporting 39 free users:

**From the case, we learn that 2-3% of users convert to being paid users (the average would
be 2.5%, meaning that free users make up 97.5%) so:
**97.5%/ 2.5%= 39 free users per paid user
**The cost for supporting free users are:
**39 x ($0.11/ mo. x 12) = $51.48

Non Discounted CAC = Cost of supporting 39 free users * average customer lifetime (5
years) = $51.48 x 5 years= ​$257.40

Non discounted 5 year LTV​= $434.20 - $257.40 = ​$176.80

For Carbonite?
**Factors we have to consider for Carbonite is that they rely on paid marketing and provides
their own data centers (vs Dropbox who relies on the Freemium Pricing Strategy to acquire
new users and Amazon s3 for its data centers)
**Figures based on Exhibit 8
**For 2010 during the beginning of the year, Dropbox made a gross profit of ​$9.236 million
**Customers Beginning in 2010: 590K
**Customers Ending in 2010 (6 months): 782K
**Average Customers during the period: (590K + 782K)/ 2= ​686K
● Contribution per customer is 6 months= Gross Profit/Average customers in the
period= $9.236 million/ 686K = $13.46
 ● Contribution per customer​ = $13.46 x 2 = $26.92

Non-discounted LTV of Paid Customer before subtracting CAC = Annual paid

contribution per paid user * average customer lifetime = $26.92 x 5 years = ​$134.6

**From exhibit 8, we see that the cost for sales and marketing spending is $16.464M
**We make the assumption that all of sales and marketing is spent on customer
acquisition
**We also see that customers acquired during the period is (782K-590K= 192K)
**so ​Non-discounted customer acquisition cost (CAC)​= Total cost of sales & marketing /
# customers acquired= $16.464 M/192 K = ​$85

Non-discounted 5 year LTV = Non-discounted LTV of Paid Customer before

subtracting CAC – Non-discounted CAC = $134.6 - $85 = $49.6

Assume Paying and Free Users stay with Dropbox or Carbonite for 5 years. What
measures do you suggest to increase CLV for Dropbox?

In order to increase customer lifetime value, Dropbox could work on increasing their
customer retention rate​. By increasing their customers, this will increase Dropbox’s CLV.
Dropbox could approach this through three ways: implementing suggestions made from
Votebox and enhancing their products (adding value to the products), working on increasing
customer satisfaction, and implementing pricing programs that ensure long-term
commitment, such as:
● OLD PRICING: “50 GB Dropbox for $9.99 ​a month or $99 ​a year​; a 100 GB option
for $19.99 per ​month​ or $199 ​per year​”
● NEW PRICING w/ LONG-TERM COMMITMENT: “50 GB Dropbox for $12 for
three months or $110 for ​a year and a half; ​a 100 GB option for $22 per ​three months
or $210 for a ​year and a half​.
A second way to increase customer lifetime value is that Dropbox could work on
monetization from Paying Customers. Dropbox could do this by expanding the profit margin
they receive from their users, which is also known as increasing their ARPPU, Average
Revenue Per Paying User. Dropbox could achieve this through raising the price of their
products, reducing variable cost (finding a better supplier for their storage), and up-selling
their products and/or multi-selling other complementary products.
A third way to increase customer lifetime value is that Dropbox could work on
increasing the total volume of customers and/ or ​reducing customer acquisition cost​. In the
case, we read that users satisfied with Dropbox would then recommend the service to family,
friends, and co-workers, providing free storage to both parties. Dropbox could implement
more strategies similar to this to garner new users, potential users who are willing to pay.
Dropbox could also reduce their acquisition cost (AC) through three ways: refining their
target market, streamlining the sales process, and removing barriers to purchase their service.
These methods would overall reduce acquisition cost and increase Dropbox’s CLV.
A fourth method to increase customer lifetime value is that Dropbox could ​reduce
their cost of capital ​within the 5 years. As I mentioned with reducing variable cost, Dropbox
could find different measures to reduce their cost of capital, such as finding better borrowing
rates and/ or having access to low interest capital. This could overall increase the lifetime
value.
Lastly, in order to increase customer lifetime value, Dropbox could work on their
conversion rate​. For example, Dropbox could provide more incentivisation for users to switch
from their “free” product line to their “premium” product line by allowing users access to
premium features for three months (similar to Spotify’s Freemium model). Dropbox could
start gaining more revenues from free users by adding advertisement on their website or offer
users no advertisement by switching to premium. This method could possibly increase the
conversion rate and add value to Dropbox’s CLV.