418 AnalyticsProject2
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This document summarizes a proposed marketing campaign for the Corner Convenience Store on the University of Wisconsin - Oshkosh campus. The campaign would offer students a $1 coupon for every $10 they spend at the store during the month of September. Students would have a year to redeem the coupons. The goal is to increase awareness and sales by incentivizing students to shop on campus rather than leaving for other options. Financial metrics like ROI, payback period, NPV, and IRR are positive, suggesting the campaign would be profitable. However, the summary concludes the store's current growth makes the campaign's benefits uncertain and recommends exploring individual product or loyalty promotions instead.
418 AnalyticsProject2
- 1. Marketing Campaign Evaluation UW Oshkosh Corner Convenience Store Marketing Analytics – Fall 2014 Jennifer Eickert, Lauryn Jashinsky, Logan Moore, Madeline Rynkiewicz 10/8/2014
- 2. Introduction The Corner Convenience Store (C-Store) opened in Reeve Memorial Union at the University of Wisconsin – Oshkosh in 2001. It was previously located in Blackhawk and was relocated when Reeve was renovated. The Convenience Store itself is a small, one-stop shop, similar to a gas station convenience store that offers a wide variety of products. It functions as one operation along with the University Books and More, but the two are run on separate accounts. Kathleen Kaltenbach is the director of the entire operation and Thomas Wolf is an Assistant Director who is also the C-StoreManager. Some specific products offerings found at the C-Store are a variety of non-perishable foods, such as; candy, chips, frozen meals, and granola bars. They also offer beverages ranging from energy drinks to juice. While the selection of household good and grooming products is much less, the C-Store also offers shampoo, plastic cutlery, and other dorm room essentials. They have contracts with Pepsi and Cedar Crest, so these brands are featured more heavily and may be promoted more often. The current promotion activities are relatively small in scale, only encompassing a low visibility Facebook page and signs throughout Reeve. However, The C-Store is convenient for students, as it is open Monday through Saturday from 7:30 AM to 10:00 PM and on Sundays from 12:00 PM to 10:00 PM. They accept cash, debit, and Titan dollars for all transactions.
- 3. Being located on campus, the C-Store mainly targets students of UW – Oshkosh and anyone working on campus. Since their customer base is extremely limited, their market share is about 2%. They are directly competing with Blackhawk Commons, Reeve Memorial Dining, and Mi Taza Cafés for business on campus. Students with meal plans have already paid to receive meals at these locations. Other competitors would be nearby gas stations, pharmacies, and grocery stores that are accessible for students with means of transportation. Description of the Marketing Campaign We are proposing that the UWOSH Corner Convenience Store offer students coupons for purchasing products at the store. Students will receive a $1.00 coupon of free store cash for every $10.00 they spend in the store. The marketing campaign will take place for the entire month of September. Students can purchase items anytime during September and receive their coupons. The cash will be redeemable for an entire year, expiring the following September. The Corner Convenience Store will market this campaign through its Facebook page, the UWOSH Facebook and Twitter pages, and through the use of fliers and signs posted throughout the various academic buildings and residence halls. The goal of the promotion is to increase awareness of the store for students and give students an incentive to shop this convenient on-campus store over the alternative of leaving campus to get whatever they may need. We believe that the Corner Convenience Store will benefit from this campaign, because although students have heard of the store, they often forget that it is an option for them to do some shopping. By promoting this campaign, students will become more aware of
- 4. the store and have the option of receiving free store cash if they decide to shop on- campus, instead of off. Additionally, students will have an entire year to use their cash. This will help increase student traffic to the store above and beyond the month the campaign is running each year. Nonfinancial Metrics To better understand the current student awareness of the Corner Convenience Store and predict the growth the marketing campaign will have on the store’s sales, we distributed surveys to 66 UWOSH students. 33 students received survey 1, the control group. 33 students received survey 2, the experimental group whose surveys included a mock representation of our campaign (Please see Appendix 1 & 2 to view the surveys). Our surveys evaluated the awareness of the convenience store and NPS as nonofficial metrics and purchase intention as a financial metric. After analyzing our results, we found that there is 88% awareness for the store. We determined that the NPS score before the promotion was -36%, and the NPS score after the promotion was -27%. The NPS score increased slightly with the promotion, but neither NPS score reflects that the store has highly loyal customers since both values are negative. Financial Metrics Data and Assumptions We were able to collect data from the UW Oshkosh Corner Convenience Store through a meeting with the store manager, Thomas Wolf. He provided us with financial statements to help us generate our ROMI for this marketing campaign. The
- 5. financial statements show that the Corner Convenience store generated about $640,000 in total annual revenue for the school year. We were given the average daily sales on a weekend and the average daily sales on a weekday for the Fall and Spring semester. We then estimated the average monthly revenue for the first 5 months (Fall) to be $60,500 and the average monthly revenue for the last 5 months (Spring) to be $67,800. We adjusted the monthly revenues to account for decreases in revenue during breaks (when students are not on campus regularly). These estimates of the total monthly revenue are used in our base case assumption. From our meeting with the store manager, we were informed that because the store is part of a state institution, most items (such as food and drinks) are tax exempt. Non-food items have the same tax rate as the state which is 5%. Since the store itself is tax exempt and the majority of their product selection is food and drink, we are stating that there is no tax rate. Then we calculated our COGS by dividing the total annual expenditures for the school year, which were about $555,000, by our total annual revenue. Based on this, we estimated the cost of goods sold at 86%. For our projected growth, we estimated it according to our survey results of students that stated how likely they were to purchase anything from the store before and after the promotion. We chose a projected average growth of 12% for the ten month marketing campaign. We are projecting an increase in total revenue for the first month to be 5%. As awareness of the promotion and store increases throughout the school year, we except to see an increase in the growth rate reaching
- 6. a maximum of 14% by the 6 month and remaining constant for the rest of the campaign. Finally, we estimated the monthly marketing costs as the total of the printing costs of 24,000 coupons from Copy This ($360), processing fees for cutting the coupons ($100), flyers to hang around campus ($18) and 6 hours of labor for hanging up the flyers about the promotion and updating the store’s Facebook and Twitter pages at an approximate rate of $7.42/hour. According to our survey, we are estimating a coupon redemption rate of 10% because participants stated they would be more likely to purchase items from the store with this promotion. Taking this redemption rate multiplied by the total number of coupons handed out, we also added $2,400 to the total marketing costs. This marketing cost will only affect the first month due to the fact that we will only be handing out the coupons in the first month but they are effective through the end of the school year. Evaluationof the Marketing Campaign The UW Oshkosh Corner Convenience store marketing campaign (a coupon offering a $1 voucher for future purchases after spending $10) will run for a ten month period that matches the school year. We used the incremental cash flows to determine the Return on the Marketing Investment (ROMI) which was calculated by subtracting the base case cash flows from the upside cash flows. The Payback for the marketing campaign occurs in the 4th month, the Net Present Value (NPV) of the marketing campaign is estimated to be $3,073.53, and the Internal Rate of Return (IRR) is estimated to be 34% (Appendix 3). Based on these three financial metrics
- 7. used to evaluate this marketing campaign, the UW Oshkosh Corner Convenience Store will receive a low, yet still positive, ROMI for this campaign. We conducted a sensitivity analysis on the expected growth rate to further evaluate this marketing campaign. By multiplying the monthly expected growth rate by the growth rate coefficient we can calculate the expected growth rate. In order to maintain a positive NPV, the campaign must have a growth rate of approximately 40% of the assumed growth rate or higher. In addition to the financial metrics used to evaluate this marketing campaign, different non-financial metrics could be used. We can measure take rate according to how many of the 24,000 coupons distributed were redeemed each month. We predicted the coupon redemption rate to be 10% according to our survey results, resulting in 2,400 coupons being redeemed. In addition, by asking customers how likely they would recommend the UW Oshkosh Corner Convenience store to a friend or colleague on a scale of 1-10, they can calculate their Net Promoter Score (NPS). We had an average NPS of -36% before the promotion and a NPS of -27% with the promotion. According to these results, we will not have promoters of the store. Conclusion Although this marketing campaign has shown a slight degree of upside, our group would not recommend it to the Corner Convenience Store. The primary reason being that their recent sales within the past four semesters have been growing at a much larger rate than earlier historical records. This suggests that they may be able
- 8. to continue their success by simply continuing their current operations and promotions, while letting market forces and customer trends dictate their growth. The effort to organize and promote the campaign will not be worth the Corner Convenience Store’s allocation of resources if they can continue to remain profitable anyways. If they are interested in offering a new campaign, they should research the potential upside to individual product promotions, returning customer reward programs, or new customer (freshman) incentives. The rationale behind this is that their inventory frequently sees many new products, which consumers may need to be incentivized to try. Also, since their customer base is cyclical (assuming graduates will never purchase again), it’s important to target incoming students who will have many opportunities to purchase from the Corner Convenience Store. A rewards program may then make them a loyal customer throughout their years at school. The limitations of our suggested campaign may be that it is too broad or non-specific to engage to customers. With additional resources, these more complex promotions should be evaluated as well.
- 9. Appendix 1
- 10. Appendix 2
- 11. Appendix 3 ROMI Corner Convenience Store Sept Oct Nov Dec Jan Feb Mar Apr May June Base Case Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Total Revenues 63,500.00$ 69,000.00$ 65,000.00$ 55,000.00$ 50,000.00$ 85,500.00$ 72,500.00$ 70,000.00$ 60,000.00$ 51,000.00$ COGS (54,896.41)$ (59,651.21)$ (56,193.17)$ (47,548.07)$ (43,225.52)$ (73,915.63)$ (62,677.00)$ (60,515.72)$ (51,870.62)$ (44,090.03)$ EBIT 8,603.59$ 9,348.79$ 8,806.83$ 7,451.93$ 6,774.48$ 11,584.37$ 9,823.00$ 9,484.28$ 8,129.38$ 6,909.97$ Taxes -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Base Case Cash Flow 8,603.59$ 9,348.79$ 8,806.83$ 7,451.93$ 6,774.48$ 11,584.37$ 9,823.00$ 9,484.28$ 8,129.38$ 6,909.97$ Upside Groth Rate Coeff. Marginal Upside Growth rate 5% 7% 9% 11% 13% 14% 14% 14% 14% 14% 100% Projected Growth Rate 5.00% 7.00% 9.00% 11.00% 13.00% 14.00% 14.00% 14.00% 14.00% 14.00% Total Revenues 66,675.00$ 73,830.00$ 70,850.00$ 61,050.00$ 56,500.00$ 97,470.00$ 82,650.00$ 79,800.00$ 68,400.00$ 58,140.00$ COGS (57,641.23)$ (63,826.80)$ (61,250.56)$ (52,778.36)$ (48,844.83)$ (84,263.82)$ (71,451.78)$ (68,987.92)$ (59,132.51)$ (50,262.63)$ Marketing Costs (2,922.52)$ -$ -$ -$ -$ -$ -$ -$ -$ -$ EBIT 6,111.25$ 10,003.20$ 9,599.44$ 8,271.64$ 7,655.17$ 13,206.18$ 11,198.22$ 10,812.08$ 9,267.49$ 7,877.37$ Taxes -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Upside Cash Flow 6,111.25$ 10,003.20$ 9,599.44$ 8,271.64$ 7,655.17$ 13,206.18$ 11,198.22$ 10,812.08$ 9,267.49$ 7,877.37$ Incremental Cash Flow (2,492.34)$ 654.42$ 792.61$ 819.71$ 880.68$ 1,621.81$ 1,375.22$ 1,327.80$ 1,138.11$ 967.40$ (2,492.34)$ (1,837.93)$ (1,045.31)$ (225.60)$ 655.08$ 2,276.90$ 3,652.12$ 4,979.91$ 6,118.03$ 7,085.42$ Payback NPV $3,073.53 IRR 34% Discount Rate 10% Sensitivity Analysis Tax Rate 0% Growth Rate COGS 86% $3,073.53 Marketing Costs 100% 3,073.53$ Printing Costs (24,000 coupons) (360.00)$ 90% 2,500.50$ Cutting Cost (100.00)$ 80% 1,927.46$ Coupon Redemption Rate 10% 70% 1,354.42$ Coupon Redemption Expense (2,400)$ 60% 781.39$ Flyers (200) (18.00)$ 50% 208.35$ Labor (6hrs. at $7.42/hr) (44.52)$ 40% (364.69)$ TOTAL (2,922.52)$ 30% (937.72)$ 20% (1,510.76)$ 10% (2,083.80)$ 0% (2,656.84)$ Payback in the middle of the 4th month