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A company named Nyopoly uses its Name-Your-Own-Price (NYOP) website to sell a variety of high- quality merchandise, including clothing, shoes, jewelry, and handbags. Nyopoly
A company named Nyopoly uses its Name-Your-Own-Price (NYOP) website to sell a variety of high- quality merchandise, including clothing, shoes, jewelry, and handbags. Nyopoly has found that there is a lot of diversity across customers regarding their frequency of visits, bid levels, and retention rates. As a result, they have divided customers into five distinct segments: Bargain Hunters, Browsers, Bling Magnets, Gift Givers, and Sophisticates. The table below gives the expected annual monetary purchases (S), margin (%) and retention rate (%). Note, revenue is earned only on active customers (i.e., those who are retained from one year to the next). Annual Purchases Margin Earned Retention Rate Bargain Hunters $100 60% 30% Browsers $50 Gift Givers $100 Bling Magnets $150 Sophisticates $300 30% 45% 35% 30% 50% 60% 70% 60% 1) Use the Excel spreadsheet "CLV.xlsx" to calculate the expected Customer Lifetime Value for a representative customer from each of the five segments. For these calculations, use a 5-year time horizon and a 5% annual discount rate. (a) What is the Customer Lifetime Value for a Bargain Hunter? (.4 point) (b) What is the Customer Lifetime Value for a Browser? (.4 point) (c) What is the Customer Lifetime Value for a Gift Giver? (.4 point) (d) What is the Customer Lifetime Value for a Bling Magnet? (.4 point) (e) What is the Customer Lifetime Value for a Sophisticate? (.4 point) 2) Customers from some segments are more difficult to attract than others. The expected cost of obtaining a Bargain Hunter is $90. The expected cost of obtaining a Bling Magnet is $30. The expected cost of obtaining a Browser is $50. The expected cost of obtaining a Gift Giver is $75. The expected cost of obtaining a Sophisticate is $250. (a) For which customer segments does the CLV (calculated in question 1) exceed the acquisition cost? (1 point) (b) Once acquisition costs are accounted for, which segment is the most profitable one for Nyopoly (in terms of Net Present Value)? (1 point) 3) Suppose Nyopoly is considering an extensive promotional campaign. This campaign will cost $60,000 and is expected to attract 500 new customers, which consists of 200 Bargain Hunters, 50 Bling Magnets, 150 Browsers, 25 Gift Givers and 75 Sophisticates. After incorporating information from Question (1), do you recommend that Nyopoly implement this promotional campaign? Explain your answer (including a discussion of the short-term (i.e., by the end of the first year) versus long-term (i.e., by the end of the fifth year) effects of this promotion). Please show all the steps and calculations to receive full credit. (1 point)
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