Question

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53. 4M ANALYTICS: Direct Mail Advertising Performance Tires plans to engage in direct mail advertis- ing. It is currently in negotiations to purchase a mailing list of the names of people who bought sports cars within the last three years. The owner of the mailing list claims that sales generated by contacting names on the list will more than pay for the cost of using the list. (Typically, a company will not sell its list of contacts, but rather pro- vides the mailing services. For example, the owner of the list would handle addressing and mailing catalogs.) Before it is willing to pay the asking price of $3 per name, the company obtains a sample of 225 names and addresses from the list in order to run a small experiment. It sends a promotional mailing to each of these customers. The data for this exercise show the gross dollar value of the orders produced by this experimental mailing. The com- pany makes a profit of 20% of the gross dollar value of a sale. For example, an order for $100 produces $20 in profit. Should the company agree to the asking price?

Answer 1

Answer: Doing an hypothesis test with the sample will help us make inference about the mailer's list population, that is these 225 members response will be an indication on the whole lot of mailer's list as hypothesis test is backed by statistical theories Hypothesis will be HO: Mean profit of using the 225 samples is equal to mean profit of the existing marketing strategy H1: Mean profit of using the 225 samples is greater than mean profit of the existing marketing strategy i.e. HO:M1 = 42 Vs H1:ul > M2