THE KING-SIZE COMPANY CASE STUDY

Executive summary

King-Size has long used traditional methods such as renting and exchanging names to attract new prospects. The test of a TV commercial shows that the cost of attracting by mail order is greater than the cost of generating prospects by cable networks. Therefore, the company should spend additional promotionalpromotional budget and make marketing efforts to attract potential customers by TV commercials. Moreover, new customers acquired by cable seem to purchase more than the past customers. As the cost to maintain past customers is greater than the cost to acquire new customers, the company should study customer lifetime value and customer lifecycle to make appropriate strategy to develop its business.

Cost of generating new prospects and new customers
• Cost to generate a new prospect by mail order: $6.56 (Appendix 02).
• Cost to generate a new prospect by cable (Appendix 03):
- By the first commercial: $5.65.
- By each additional commercial: $4.90.
• Cost to generate a new customer by mail order under the assumption that a new customer places the 1st order after receiving a full catalogue: $7.26 (Appendix 04).
• Cost to generate a new customer by cable under the same assumption (Appendix 05).
- By the first commercial: $6.35.
- By each additional commercial: $5.60.

Remark:
1. If King-Size continues to run additional commercials, the cost to generate a new prospect will be reduced because it can get discounts for continuous broadcast and eliminate the cost of TV production.
2. The cost to generate a new prospect by mail order is more expensive than the cost to generate a new prospect by cable. This is because many mail receivers are not interested in King-Size’s products so the rate of people asking for the first catalogue over the total number of catalogue is very small. Moreover, the cost of obtaining names is expensive and printing ad did not reach target audience. On the other hand, commercial by cable reaches a very large audience and therefore can motivate many people interested in asking the first catalogue.

Past customers
• Sales per customer: $55.51 (Appendix 04).
• Gross profits per customer: $25.35.
• Cost of catalogue per customer: $6.27.
• Cost of maintaining a customer: $6.54.
As the cost to generate a new customer by cable is less than the cost of maintaining a past customer ($6.35 vs $6.45), King-Size should spend extra promotionalpromotional budget to attract new prospects and new customers when allocating at least the same budget to maintain past customers.

Media strategy
Media effectiveness
The purpose of the TV commercial is to generate new prospects. Therefore, the criterion to measure media effectiveness should be the number of requests generated by each cable network. Because the amounts of money paid to different cable networks are totally different, we can not compare the effectiveness of the five cable networks by comparing the number of requests generated by each network. Instead, we should use the cost per request as a criterion.

According to exhibit 11, the cost per request of CNN-$10 off is the least ($1.11 per request), followed by the cost of CNN ($1.24 per request) and Family ($1.51 per request). Is seems that CNN-$10 gives the best results and ESPN has the worse results among the five networks. However, Family has the highest conversion and generates the highest total sales per media cost. Overall, Family gives the best results, then CNN-$10 and CNN. At a glace, ESPN seems to provide the best results because it has the largest number of request. Taking media cost into account, this network is not economically effective.

Choice of media
 
The exhibit 12 shows that people living in different geographic areas have different interest in watching TV and reading newspapers. People living in suburban prefer reading to watching TV. In contrast, people in towns and rural areas watch TV more than read newspapers. People in urban do not watch much TV and read much newspapers because those people are normally young and busy.

This difference helps King-Size use more effectively media to reach the target audience. King-Size should use printing ads to target suburban people and TV commercials to reach people in town and rural areas. The company should study the lifestyle and habits of urban people to find out the best media to reach them.