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Dan is an Operations Manager at a retail organisation. He is keen to understand more about the types of customers his organisation serves and has therefore devised new KPIs (key performance Indicators) with a customer-centric focus. He is particularly keen to understand which customer segments are providing the organisation with the highest ROI (return on investment). Which customer-centric performance measure should Dan look to introduce?
Customer Lifetime Value (CLV) measures the total amount a customer is expected to spend over their lifetime with a company, helping identify the most profitable customer segments.
Other KPIs are not suitable for Dan's needs:
Churn Rate: Measures customer loss over time.
Net Promoter Score: Measures customer satisfaction and loyalty.
Customer Retention Rate: Focuses on how many customers stay with the company but does not indicate ROI.
For more insights on CLV, visit: Customer Lifetime Value - WallStreetMojo
(See LO 2.2, p.97)
Which of the following are contract pricing arrangements used to control costs? Select ALL that apply.
Fixed price: The supplier cannot change the price, ensuring cost control.
Use of price index: Prices can only change based on an agreed index, preventing arbitrary cost increases.
Gain-share agreement: The supplier is incentivized to save costs as they share in the profits, reducing the likelihood of overcharging.
Open book: The buyer has full visibility of the supplier's pricing, preventing overcharging.
Variable price (D) is incorrect because it allows the supplier to change prices freely, making cost control difficult. (See p.199)
Andrea is the Chief Financial Officer at Big Corporation and is completing a Variance Analysis. She has reviewed the production costs of creating item B, and this month's costs show a variance to budget of -200. What does this mean?
A negative variance to budget means that the company spent 200 less than expected, which is a positive outcome. While it may seem counterintuitive, a negative variance in this context indicates cost savings rather than overspending. Option D is incorrect because the organisation has saved 200, not gained it. (See p.198)
XYZ Ltd is a retail organisation selling various hair care products. The marketing team is reviewing sales figures from the past year and wants to determine which products should receive extra marketing.
One product has low market share but exists in a high-growth market.
According to the Boston Consultancy Group (BCG) Matrix, which category does this product fall under?
Problem Child (also called Question Mark) refers to a product with low market share in a high-growth market.
BCG Matrix Categories:
Dog Low market share, low market growth
Cash Cow High market share, low market growth
Star High market share, high market growth
Problem Child (Question Mark) Low market share, high market growth
Exam Tip: The BCG Matrix is frequently tested. Be aware that 'Problem Child' is sometimes called 'Question Mark' in other versions of the matrix!
(See LO 2.3, p.130)
Maxi Ltd is a medium-sized manufacturing organisation in the automotive industry that creates engines for cars. It has traditionally worked well with its suppliers, with strong relationships and regular meetings. There are currently around 15 suppliers who provide parts to Maxi Ltd.
Due to changing customer demands, Maxi Ltd will, from next month, modify the manufacturing of some of its products. Product X is being made more environmentally friendly, with output of CO2 being reduced by 32%. The product will take longer to produce, but there will be no additional cost to customers for this.
Maxi ltd are considering outsourcing the manufacturing of Product Y as it is not a product which is routinely ordered by customers. This will allow Maxi Ltd to focus on other products which generate higher revenues for the company. The concern within the Board of Directors is that if demand increases for this product, an outsourced company may not be able to cope with higher numbers of orders.
Product Z is an extremely popular item and oftentimes Maxi Ltd does not have the capacity to fulfil all orders. Consideration has been given to increasing the size of the factory, but this has been discarded as risky as demand is not guaranteed. The product has been available on the marketplace for a short amount of time and sales are continuing to increase, but the company believes this will soon plateau. To deal with current demand, the marketing team is working on campaigns to invite customers to make orders for this product at certain times of the year when product X is not being created in the factory. This means resources can be reallocated to the creation of product Z.
What area of the product lifecycle is product Z in?
Product Z has been available for a short amount of time, and sales are still increasing. Since the demand is growing but has not yet stabilized, it is in the growth stage of the product lifecycle. (LO 2.2)
