ABC's marketing team recently submitted a proposal to the CEO to authorize a budget of $900 million to redesign and relaunch its loyalty program. More and more ABC customers are now shopping online and these online shoppers prefer XYZ. To improve ABC customers' loyalty to the store, and thus increase their share of wallet, the marketing team wants to introduce a revamped loyalty program with an attractive cashback provision as well as exciting prizes that can be redeemed with accumulated points. They claim that this will encourage ABC shoppers to spend more money at ABC, both in brick-and-mortar stores as well as online.

ABC had a revenue of $75.3 million in the US in 2019. The financial statement for the US business for the last year is shown below.

2019 Financials for US market (All values in USD Millions)

Sales/Revenue $75,356

Cost of Goods Sold (COGS) $55,523

Depreciation & Amortization Expense $2,474

SG&A Expense $15,631

EBIT $4,202

The ABC retail chain has 1860 stores in the US market. About 100 million householdsabout 78% of the US householdsalready shop at ABC. The marketing team plans to increase the purchase frequency and basket sizes of some less loyal households through the new loyalty program. Based on past shopping data, the marketing team divided ABC households into two groups, high-loyalty households and low-loyalty households. Forty percent of the households were categorized as high-loyalty households with an average 5.2 trips per month and an average spend of $96.15 per trip. The remaining 60 percent of the households were categorized as low-loyalty households with an average 1.6 trips per month and an average spend of $52 per trip. Using market research, the marketing team estimated that they would be able to shift about four hundred thousand customers from the low-loyalty category to the high-loyalty category with the proposed $900 million marketing spend in one year.

a) How many customers will each ABC store have to convert from the low-loyalty category to high-loyalty category to break even on the proposed investment in the loyalty program?

b) ABC has a policy that all marketing investments should break even in one year. Based on the marketing team's conversion estimates, should the CEO approve the investment in the loyalty program?

The answer to this QUANTITATIVE marketing question involves a financial analysis that considers the fixed costs, contribution margin, # of customers that need to be converted from low to high loyalty, and a break-even analysis.

There is NO additional information. This is the EXACT homework problem assigned by the instructor.