MARCH 14, Show all work. Write legibly. Total 103 Calculators permitted.

Transcription

1 NAME: AEM 4550: ECONOMICS OF ADVERTISING CORNELL UNIVERSITY PROFESSOR JURA LIAUKONYTE MARCH 14, points = 100% 105 points = 103%! Points: Possible Obtained Show all work. Write legibly. Total 103 Calculators permitted. No computers.

2 1. Search Engine Optimization Campusfood.com is an online ordering system that allows students to place meal orders online from several local restaurants. Campusfood.com charges a certain percentage fee from the restaurants for every order placed through its website. Campusfood.com advertises with online search engines. Suppose that you were given the information in Table 1 about the two keywords that Campusfood.com has purchased. Table 1 Publisher Keyword Click Charges Number of Impressions Number of Clicks Number of Transactions Total Revenue Google "order pizza online Ithaca" $ $4.29 Bing "food delivery Ithaca " $ $8.44 a) (17 points) Calculate the following key metrics of an advertising campaign and fill in the Table 2 on the next page. You have to either (1) show all work so I can see where you got your reported numbers or (2) give formulas for the following metrics (which will be a function of the metrics in Table 1). Cost-per-Click (CPC) Click-Through Rate (CTR) Transaction Conversion Rate (TCR) Net Revenue Return on Ad $ Spent (ROA) Average Revenue per Transaction Probability of Transaction Cost per Transaction

3 Table 2 Publisher Keyword Cost Per Click (CPC) Click Through Rate (CTR) Transaction Conversion Rate (CTR) Net Revenue ROA Average Revenue Per Transaction Probability of Transaction Cost/ Transaction Google "order pizza online Ithaca" Bing "food delivery Ithaca"

4 b) (5 Points) Which metric(s) indicate the relative efficiency of the publisher? What would you recommend to Campusfood.com in terms of their advertising strategy and why? 2. Brand Equity a) (18 points) Calculate the brand equity of the Nokia brand keeping in mind the following simplifications and assumptions: Financial forecast for the next two years is sufficient for the brand equity analysis Discount rate = 10% RBI (Brand Earnings) = 50% of Economic Value Added (EVA) Weighted Average Cost of Capital = 10% Growth rate = 2% Fill in the empty cells in the table on the next page (show work for full credit):

5 NOKIA FINANCIALS (in '000 of $) 2013 Forecast 2014 Forecast Total assets $25,000,000 $30,000,000 WACC Net income $5,000,000 $7,000,000 Economic Value Added (EVA) RBI (Brand Earnings) Discount Factor Discounted Brand Earnings Value until the year 2014 Terminal value Net present value of NOKIA Brand

6 b) (7 points) What factors affect brand strength score (BSS) and how does BSS relate to the discount rate used for the calculation of brand equity? 3. Search Advertising and Google. a) (6 points) What Google platform enables bidding on keywords? Briefly explain how the system works and how ads get placed on search result pages.

7 b) (8 points) What are the differences between Cost-Per-Click (CPC) and Cost per Thousand (CPM)? Where are each of these advertising pricing methods used? What are the advantages and disadvantages of each? c) (4 points) What is click fraud? Where is click fraud most prevalent?

8 4. (7 points) Briefly describe the marketing approach that Procter and Gamble is known for. In what areas (and by doing what) did P&G set a standard that other companies later followed? 5. Advertising Content a) (5 points) What are some of the pros and cons of using humor in advertisements? What does the academic research say about the effectiveness of humor in ads?

9 b) (4 points) What do we know about the use of celebrities in ads from empirical research? 6. Media Planning a) (6 points) What are the stages of selling network advertising time called? What are the relative prices of ads purchased in each of these stages (highest, medium, lowest).

10 b) (4 points) What is a GRP? What is it used for? c) (8 points) Draw and name 2 sales response graphs that we discussed in class. Carefully label X and Y axis. 7. (4 points) What are the four different types of (demand side) advertising views. Briefly explain each of the views

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