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How many customers will they expect to acquire per month

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Reference no: EM131017525

Assume the following data is from a keyword ad campaign run at Yahoo by a national transmission repair shop AAAGearFixer. You are consulting with them, and they have told you they are only interested in the possibility of ads that run in the top 3 slots.

Tested Keywords:
Exact phrase: transmission
Exact phrase: transmission repair
Exact phrase: bad gears

Assume that a transmission repair yields a contribution margin (that is, price over marginal cost) of $215. The company tends to ignore repeat business.

Exact phrase

Searches per month

Click Through rate: Position 1

Click Through rate: Position 2

Click Through rate: Position 3

Conversion rate to service following click

transmission

350,000

3.0%

1.0%

0.2%

1%

transmission repair

55,000

5.0%

3.0%

2.0%

2%

bad gears

1,500

20.0%

n.a.

n.a.

5%

Assume data is accurate.  No ads showing on Yahoo for "bad gears" prior to test.

 

Exact phrase

Max High Bid

Position 1

Max High Bid

Position 2

Max High Bid

Position 3

Max High Bid

Position 4

transmission

.75

.57

.56

.52

transmission repair

1.00

.56

.45

.37

bad gears

No bids

No bids

No bids

No bids

Actual prices on December 12, 2006.  Yahoo bidding tool.  Minimum Yahoo bid =.10 for top spot.

Part A: If AAAGearFixer buys the top position for each keyword, how many customers will they expect to acquire per month through this channel?

Part B: If the other bidders do not change their bids, is this the most profitable keyword strategy for AAAGearFixer ?

Part C: Is it a failure of Yahoo's pricing that customer acquisition costs for AAAGearFixer through this online channel seem to be so low relative to customer profitability?

Part D: Assume that adding the "Click to Call" service described in Problem 1 causes an additional 5% of the searchers to place a call and these calls have a 3% conversion rate to new business. Assume the call center can handle 6 calls an hour, regardless of whether the caller becomes a new customer. Due to the skills needed to diagnose a problem, the average wage for the call center worker is $24. Should AAAGearFixer add this feature?

Reference no: EM131017525

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