Question
Alfred's organic dog food was formulated to provide for the nutritional needs of older pets. The company did not sell through retailers, but shipped directly
Alfred's organic dog food was formulated to provide for the nutritional needs of older pets. The company did not sell through retailers, but shipped directly to consumers. Consumers ordered through the company's web site or called the 1-800 number. An analysis of the company's records showed the patterns for a typical cohort of50customers in the table below. The company's contribution margin on this product was33%of sales after shipping, order processing and other variable non-marketing costs. Each order included a brochure and reorder forms that cost$0.56per shipment. Because the time between orders averaged3months, the company organized their analysis into period of3month duration. Almost no customers ordered after two years from their initial order. Alfred has historically used an annual discount rate of8%to determine CLV.
3 Month Period0123456Customer Orders50241612842Avg $/Order$24$40$31$35$25$20$20
What is the appropriate per period discount rate Alfred should use in his calculations?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started