ASSIGNMENT QUESTIONS- CREATING CUSTOMER VALUE

1. A typical virus-protection site license costs $4,500 per year for sites of less than 500 machines. Regular
updating of the databases costs around $80 in productivity loss per installed computer per year.
Virus-protection experts estimate that, with current virus-protection software, the probability that a
company will experience exactly one complete system breakdown because of a virus within one year
is 8%. The probability that it will experience exactly two such breakdowns within a year is 3%. The
probability of more than two breakdowns is virtually zero.

A complete system breakdown, which typically lasts one day, would cost (in profits from lost sales)
$40,000 to a retail company with 250 machines and $85,000 to a typical financial services company
with the same number of machines.

Stonewall Software Inc. is about to introduce new virus-protection software called X-TREME. X-
TREME is based on a mutating-virus simulator (MRS), which, according to Stonewall, will
revolutionize the virus-protection landscape. The MRS essentially eliminates the need to update virus
databases. The MRS is extremely powerful and, as a result, increases the probability of detecting
infected files. Researchers at Stonewall estimate that companies equipped with X-TREME have only a
2% probability of experiencing a virus-caused complete system breakdown within a year and a 0%
probability of experiencing more than one such breakdown.

While the price of a X-TREME site license remains to be set, it is estimated that clients who adopt the
software would incur startup costs (excluding the site license) of $50 per machine in installation,
configuration, training, and so on.

Using a one-year horizon and assuming no other costs of virus infection or software, calculate the
economic value of the X-TREME:

a. For a retail company with 250 machines running under existing virus-protection software.
b. For a typical financial services company with 250 machines running under existing
virus-protection software.
How should Stonewall price its software? Explain your pricing strategy.
2. A major cereal manufacturer, Kellogg’s, is looking at how it can use a marketing tool called the multi-
attribute model to assess consumers’ attitudes toward competitive breakfast cereals. It has identified
three consumer profiles and wants to determine which cereals a consumer would select based on
importance weightings of four attributes that are commonly considered when purchasing breakfast
cereals: taste, calories, natural/organic claims, and price. Assume that each of the three profiles rated
the attributes the same on a scale of 1 to 10, with 1 being very poor and 10 being very good.
Consumers rated Cheerios, Post Bran Flakes and Kashi 7 Whole Grain Puffs as follows:

Natural/
Cereal Taste Calories Price
Organic Claims

Cheerios 10 8 6 8

Post Bran Flakes 8 9 8 3

Kashi 7 Whole Grain Puffs 6 8 10 5

However, each profile considered the four attributes to be different in importance. Hungry Hawk
placed a 40% weight on taste, 10% weight on calories, 30% weight on natural/organic claims, and a
20% weight on price. Calorie-Conscious Slimsy is also considering buying breakfast cereal along with
her friend Balanced Balan. While Slimsy is more interested in calories, giving that attribute a weight
of 50%, she weighted taste and natural/organic claims at 20% each and price at 10%. Balan is more
interested in a balance, so he gives 30% importance weights for taste, calories, and natural/organics
claims, and 10% for price. Based on these varying importance weightings, which cereals would each
profile select? Explain your answers and how the multi-attribute model can be used in marketing
initiatives.

Note:

3. Some manufacturers have used retailing as a way to create experiential value that they call
experiential retailing. Consider Mattel’s (https://play.barbie.com/en-us) and Apple
(http://www.apple.com/retail/geniusbar/). Compare and contrast how experiential retailing can
enhance the customer experience and create competitive advantage.

4. Identify two key ways that marketers can engage in social media. What are the advantages and
disadvantages to social media marketing? How can marketers capitalize on social media networks?