A subscription hair service, WigzMax, is planning to launch a new line of wigs. They intend to hire a celebrity hair stylist to make the new line of four new models: Halle, Nia, Janet, and Toni. WigzMax will spend $10,000 to hire the designer, and $100,000 on marketing. The prices and variable costs of the models are: P_Halle = $250, VC_Halle = $50; P_Nia = $220, VC_Nia = $45; P_Janet = $350, VC_Janet = $75; and P_Toni = $175, VC_Toni = $40. They expect to sell the models in the ratio 4:5:7:3, respectively.

Calculate the breakeven quantity for each model. [2]

Assume that customers who buy certain models dont switch to different wigs, but the probability of staying with WigzMax from year to year has been 75%, 63%, 68%, and 85%. Assuming a discount rate of 8% annually, calculate the CLV for customers in each wig segment. Use the total contribution for each model from part (a) as the (annual) margin in each case. [4]

If WigzMax has $275,000 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. The total customer base of WigzMax is 4,430 customers. (Hint: Use the sales mix and the total customer base to figure out the size of the segment). [3]

Suppose that instead of spending on retention, WigzMax would like to increase the number of customers from its highest CLV segment. It is considering an ad buy for the $275,000, 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]

Suppose that instead of spending the whole $275,000 on the ad buy, WigzMax decided to spend $175,000 on that, and set aside up to $100,000 towards coupons. Of course, not everyone will redeem the coupon, but they expect to recruit at least 500 of those customers with an offer of a $40 coupon, or at least 425 if they offer a $30 coupon. Assuming that spending the $275,000 on advertising would have brought in 400 customers:Calculate the new CLV for each option [3]:

$275,000 on ads

$175,000 on ads and a $40 coupon

$175,000 on ads and a $30 coupon