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: $P_{\text{c}\text{o}\text{o}\text{k}\text{i}\text{e}}=$$$50,V{C}_{\text{c}\text{o}\text{o}\text{k}\text{i}\text{e}}=$$$15$;$P_{\text{i}\text{c}\text{e}\text{c}\text{r}\text{e}\text{a}\text{m}}=$$$90,V{C}_{\text{i}\text{c}\text{e}\text{c}\text{r}\text{e}\text{a}\text{m}}=$$$25$;

$P_{\text{p}\text{i}\text{e}}=$$$65,V{C}_{\text{p}\text{i}\text{e}}=$$$18$; and $P_{\text{c}\text{a}\text{k}\text{e}}=$$$75,V{C}_{\text{c}\text{a}\text{k}\text{e}}=$$$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$.)[4]$

c$.$ If GoldBelly 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,\frac{000}{?}$ number of customers in

that segment. Rearranging the CLV formula in terms of $r$ gives the following$).[3]$

New $r=\frac{(CLV+AC)(1+d)}{(NewM+CLV+AC)}$

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. $[3]$

Breakeven Acquisition Rate $=\frac{\text{A}\text{c}\text{q}\text{u}\text{i}\text{s}\text{i}\text{t}\text{i}\text{o}\text{n}\text{S}\text{p}\text{e}\text{n}\text{d}\text{i}\text{n}\text{g}}{CLV}$

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 $[3]$:

$$150,000$ on ads

$$100,000$ on ads and a $$10$ coupon

$$115,000$ on ads and a $$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 $($i$).($Hint: CLV $*$ number of new customers$).[3]$