3. A subscription food box service, GoldBelly, is planning to launch a new line of boxes. Each month the subscriber will receive (or be able to send) a particular type of food item from the best restaurants around the USA. The four boxes they are going to add are cookie, ice-cream, pie, and cake. It will cost the company about $50,000 to coordinate the boxes, and $125,000 in marketing. The prices and variable costs of the models are: Pcookie = $50, VCcookie = $15; Picecream = $90, VCicecream = $25; Ppie = $65, VCpie = $18; and Pcake= $75, VCcake = $22. They expect to sell the models in the ratio 7:4:5:3, respectively. The total customer base of GoldBelly is 10,400 customers. a. Calculate the breakeven quantity for each model. [4] b. Assume that customers usually by one plan or the other and the probability of staying with GoldBelly from month to month has been 80%, 73%, 64%, and 59% respectively. Assuming a discount rate of 5%, calculate the CLV for customers in each subscription. (Hint: Use the total contribution for each subscription from part (a) as the margin in each case, and remember to subtract the AC.) [4] If Gold Belly has $250,000 to spend on increasing the retention rate in the segment with the highest CLV, what would the retention rate need to increase to, in order to justify spending that amount on retention. (Hint: Number of customers would be the sales mix fraction times the total customer base. Find the new M by subtracting $250,000/number of customers in that segment. Rearranging the CLV formula in terms of r gives the following). [3] New r = (CLV + AC)(1+d) (New M + CLV + AC) d. Suppose that instead of spending on retention, GoldBelly would like to increase the number of customers from its highest CLV segment. It is considering an ad buy for the $250,000, which will be viewed by 2,000 potential customers in that segment. What percent of the targeted customers would need to join in order for the acquisition spending to be worthwhile? Add a sentence to explain what your answer means. [3] Acquisition Spending C. Breakeven Acquisition Rate = CLV e. Again, just looking at the highest CLV segment, suppose that instead of spending the whole $150,000 on the ad buy, GoldBelly decided to spend a portion on ads, and some towards coupons. Of course, not everyone will redeem the coupon, but they expect to gain at least 600 of those customers with an offer of a $10 coupon, or at least 4,500 if they offer a $5 coupon. Assuming that spending the $150,000 on advertising would have brought in 3,000 customers: i. Calculate the new CLV for each option [3]: 1. $150,000 on ads 2. $100,000 on ads and a $10 coupon 3. $115,000 on ads and a $5 coupon (Hint: AC for the ones with coupons will be (Ad spending/number of customers who switched) + coupon. AC is the only change in each case). ii. Calculate the total segment value for those new customers for each option from part (1). (Hint: CLV* number of new customers). [3]