Background: KC Steaks KC Steaks is a company that sells and ships gourmet steaks and other perishable food products to customers around the country in sealed containers filled with dry ice to preserve freshness. For twenty years, KC Steaks operated through mail order, but now KC Steaks sells through multiple channels, including nearly one hundred retail stores, telemarketing, and its online e-commerce site. In recent meetings during the strategic planning process for next year, the management team wanted to know how the lifetime value of its customers would be impacted by some proposed changes to its marketing plan in order to increase the acquisition of new customers from two target segments: 'Foodies' and 'Non-Foodies'. KC Steaks is considering the purchase of a list of "foodies from a list broker for $1.50 per name. They are able to obtain a list of 'non-foodies' for free. They intend to send each person on the list a catalog every month for a year. The catalog costs the company $0.40 to produce and $0.25 to mail. Those who do not purchase within one year will be removed from the mailing list. Historically, similar types of 'foodie' lists have generated response rates of approximately 7.5 percentthat is, 7.5 percent of customers who received an unsolicited catalog in this manner eventually made a purchase. KC Steaks has acquired a list of 'non-foodies' for free. The average response rate for 'non-foodies' customers has typically been 5 percent. KC Steaks has also made the following assumptions regarding revenue, costs and retention rates: 1) Foodie customers purchase more frequently than non-foodies. 'Foodies' make three purchases per year with an average order size of $50; non-foodies make one purchase annually with an average order size of $122. 2) 'Foodies' also tend to remain customers longer, with an annual retention rate of 75 percent versus a retention rate of 65 percent for 'non-foodies'. 3) 'Foodies' purchase gourmet products regularly, they tend to purchase slightly less expensive products than their non-foodie counterparts, who view KC Steaks as special-occasion products on which to splurge. As a result, the contribution margin is assumed to be 52% for 'foodies' and 60% for 'non-foodies'. Using the assumptions that have been provided and the Strategic Planning Approach for Estimating LTV, estimate LTV for both segments by completing the Income Statement on the 'KC Steaks LTV Income Statement' tab. Afterward answer the questions on the 'KC Steaks Answers' tab. Question 1: What is LTV in Year 10 for an average 'Foodie' customer? Question 2: What is LTV in Year 10 for an average 'Non-Foodie' customer? Question 3: For each customer segment, how long does it take to recover the initial acquisition costs (what is the break even year?) ? Question 4: What would be the effect to LTV in Year 10 of a 1% improvement in the response rate for 'Non-Foodies' ? Question 5: What would be the effect to LTV in Year 10 of a 10% improvement in the retention rate for 'Foodies'? Background: KC Steaks KC Steaks is a company that sells and ships gourmet steaks and other perishable food products to customers around the country in sealed containers filled with dry ice to preserve freshness. For twenty years, KC Steaks operated through mail order, but now KC Steaks sells through multiple channels, including nearly one hundred retail stores, telemarketing, and its online e-commerce site. In recent meetings during the strategic planning process for next year, the management team wanted to know how the lifetime value of its customers would be impacted by some proposed changes to its marketing plan in order to increase the acquisition of new customers from two target segments: 'Foodies' and 'Non-Foodies'. KC Steaks is considering the purchase of a list of "foodies from a list broker for $1.50 per name. They are able to obtain a list of 'non-foodies' for free. They intend to send each person on the list a catalog every month for a year. The catalog costs the company $0.40 to produce and $0.25 to mail. Those who do not purchase within one year will be removed from the mailing list. Historically, similar types of 'foodie' lists have generated response rates of approximately 7.5 percentthat is, 7.5 percent of customers who received an unsolicited catalog in this manner eventually made a purchase. KC Steaks has acquired a list of 'non-foodies' for free. The average response rate for 'non-foodies' customers has typically been 5 percent. KC Steaks has also made the following assumptions regarding revenue, costs and retention rates: 1) Foodie customers purchase more frequently than non-foodies. 'Foodies' make three purchases per year with an average order size of $50; non-foodies make one purchase annually with an average order size of $122. 2) 'Foodies' also tend to remain customers longer, with an annual retention rate of 75 percent versus a retention rate of 65 percent for 'non-foodies'. 3) 'Foodies' purchase gourmet products regularly, they tend to purchase slightly less expensive products than their non-foodie counterparts, who view KC Steaks as special-occasion products on which to splurge. As a result, the contribution margin is assumed to be 52% for 'foodies' and 60% for 'non-foodies'. Using the assumptions that have been provided and the Strategic Planning Approach for Estimating LTV, estimate LTV for both segments by completing the Income Statement on the 'KC Steaks LTV Income Statement' tab. Afterward answer the questions on the 'KC Steaks Answers' tab. Question 1: What is LTV in Year 10 for an average 'Foodie' customer? Question 2: What is LTV in Year 10 for an average 'Non-Foodie' customer? Question 3: For each customer segment, how long does it take to recover the initial acquisition costs (what is the break even year?) ? Question 4: What would be the effect to LTV in Year 10 of a 1% improvement in the response rate for 'Non-Foodies' ? Question 5: What would be the effect to LTV in Year 10 of a 10% improvement in the retention rate for 'Foodies