2. (5 points) A catalog retailer is preparing to response to the catalog in a su

Question

2. (5 points) A catalog retailer is preparing to response to the catalog in a subset of their 30,000 customers and sent them a copy of the purchase, spending catalog, which costs $0.55. 970 customers made a an average of $75. The retailer-smargin is 40% (i.e., variable costs are 60%). s test mailing? b. What was the gross profit as a percent of gross sales? What was the return on marketing expenditures (gross profit as a function of marketing costs)? c. d. What was the breakeven for this campaign? The marketer now engages in RFM analysis. They identify that RFM cell 452 had a response rate of 3.10%. e. What is the breakeven index for that group?

Explanation / Answer

a.

Marketing cost = 0.55*30,000 = $16,500

Revenue = 75*970 = $72,750

Margin = 40% of revenue = 0.4*$72,750 = $29,100

Profit = Margin - Cost = 29,100 - 16500 = $12,600

so gross profit is 12,600

b.

Gross profit as % of gross sales = 12600/72,750 = 17.3%

c.

Gross profit as % of marketing cost = 12600/16500 = 76.36%

d.

Breakeven is gross profit = 0

(x is number of customers purchasing)

margin = 0.4*75*x = 30000*0.55

x = 550

so 550 customer was breakeven

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