BACKGROUND The story of Matt Montsinger starts when he went to his dry cleaner to pick up his dry-cleaning order of 4 dress shirts. When Mr. Montsinger arrived at Wilson's Dry Cleaners, the front desk employees could not find his order. After 6 weeks, the company still could not find Mr. Montsinger's shirts. Matt phoned multiple times, sent 3 letters to the company, and finally sent one directly to the president, Abigail Wilson. In the beginning he was a bit frustrated, but after 6 weeks, Mr. Montsinger was angry. It seemed no one was trying very hard to help him. They all blamed the new computer system. He wanted his shirts, or he wanted to be compensated for the value of his shirts so that he could replace the ones which had been lost. Ms. Wilson did a little digging to determine the best solution to fixing Mr. Montsinger's problem. Her primary objective was to keep this good customer satisfied. She was trying to figure out if spending $30 for a refund and $360 for the shirts was a good solution. Clearly the shirts were lost, and while Ms. Wilson was confident that they would show up eventually, this was not acceptable to Mr. Montsinger. He felt that he had already waited long enough. Key Facts: Wilson Dry Cleaners Wilson's Dry Cleaners has a reputation as a very good community dry cleaner. There is competition in the community, but they seem to have a very loyal following and very good service. The company makes 50% margin on all orders. Recently, they installed a new computer system to streamline and track orders. The system was designed to improve service & wait time in both the drop off and pick up processes. As part of this new system, a decision was made to charge customers for bags in which to put their dirty clothes. Prior to that, customers did not have to pay for these bags. Also, it turned out that the computer system was more difficult to use for the front desk employees and in the early days of the installation, there had not been any employee training. Key Facts: Mr. Montsinger Mr. Montsinger is a loyal customer of Wilson's Dry Cleaners. He spends $30 per week for his and his wife's dry cleaning. Matt and his wife are planning to stay in the community for at least 4 years before they move. He has been so happy with the quality and service that he has recommended Wilson's Dry Cleaners to 10 of his friends, and 5 of them are now customers. These new customers each spend $15.00 per week. Using the approach on Net Present Value and Customer Lifetime Value, answer the following questions. Be sure to use the recorded content from Lecture 3A (see Panopto) Assume Mr. and Mrs. Montsinger spend an average of $30 per week at Wilson's Dry Cleaners. Wilson's makes 50% margin on the Montsinger's purchases. Mr. Montsinger is expected to be a regular customer at Wilson's Dry Cleaners for the next 4 years, before he and his wife move to a different neighborhood. 1. What is the value, in today's dollars, of the Montsinger's business to Wilson's Dry Cleaner? Assume an interest rate of 10%. For purposes of calculation, assume that all the Montsinger's purchases are lumped together at the end of the year. Assume there are exactly 52 weeks in a year. 2. What is the value to Wilson's Dry Cleaners of those referrals, in today's dollars? Assume that because Mr. and Mrs. Montsinger are satisfied customers, they will tell 10 of their close friends about Wilson's Dry Cleaners. Five (5) of those friends become regular customers, spending $15.00 each per week over the next 4 years. 3. Consider the 2 basic options which Abigail Wilson has: a. Wilson's Dry Cleaner could spend $30 to refund Mr. Shelton's order and $360 to replace his shirts. This will satisfy Mr. Montsinger, retain his business, and retain the business of his friends. b. They could also simply ignore Mr. Montsinger, save $390, and wait for the shirts to just show up. What is your recommendation? Why? BACKGROUND The story of Matt Montsinger starts when he went to his dry cleaner to pick up his dry-cleaning order of 4 dress shirts. When Mr. Montsinger arrived at Wilson's Dry Cleaners, the front desk employees could not find his order. After 6 weeks, the company still could not find Mr. Montsinger's shirts. Matt phoned multiple times, sent 3 letters to the company, and finally sent one directly to the president, Abigail Wilson. In the beginning he was a bit frustrated, but after 6 weeks, Mr. Montsinger was angry. It seemed no one was trying very hard to help him. They all blamed the new computer system. He wanted his shirts, or he wanted to be compensated for the value of his shirts so that he could replace the ones which had been lost. Ms. Wilson did a little digging to determine the best solution to fixing Mr. Montsinger's problem. Her primary objective was to keep this good customer satisfied. She was trying to figure out if spending $30 for a refund and $360 for the shirts was a good solution. Clearly the shirts were lost, and while Ms. Wilson was confident that they would show up eventually, this was not acceptable to Mr. Montsinger. He felt that he had already waited long enough. Key Facts: Wilson Dry Cleaners Wilson's Dry Cleaners has a reputation as a very good community dry cleaner. There is competition in the community, but they seem to have a very loyal following and very good service. The company makes 50% margin on all orders. Recently, they installed a new computer system to streamline and track orders. The system was designed to improve service & wait time in both the drop off and pick up processes. As part of this new system, a decision was made to charge customers for bags in which to put their dirty clothes. Prior to that, customers did not have to pay for these bags. Also, it turned out that the computer system was more difficult to use for the front desk employees and in the early days of the installation, there had not been any employee training. Key Facts: Mr. Montsinger Mr. Montsinger is a loyal customer of Wilson's Dry Cleaners. He spends $30 per week for his and his wife's dry cleaning. Matt and his wife are planning to stay in the community for at least 4 years before they move. He has been so happy with the quality and service that he has recommended Wilson's Dry Cleaners to 10 of his friends, and 5 of them are now customers. These new customers each spend $15.00 per week. Using the approach on Net Present Value and Customer Lifetime Value, answer the following questions. Be sure to use the recorded content from Lecture 3A (see Panopto) Assume Mr. and Mrs. Montsinger spend an average of $30 per week at Wilson's Dry Cleaners. Wilson's makes 50% margin on the Montsinger's purchases. Mr. Montsinger is expected to be a regular customer at Wilson's Dry Cleaners for the next 4 years, before he and his wife move to a different neighborhood. 1. What is the value, in today's dollars, of the Montsinger's business to Wilson's Dry Cleaner? Assume an interest rate of 10%. For purposes of calculation, assume that all the Montsinger's purchases are lumped together at the end of the year. Assume there are exactly 52 weeks in a year. 2. What is the value to Wilson's Dry Cleaners of those referrals, in today's dollars? Assume that because Mr. and Mrs. Montsinger are satisfied customers, they will tell 10 of their close friends about Wilson's Dry Cleaners. Five (5) of those friends become regular customers, spending $15.00 each per week over the next 4 years. 3. Consider the 2 basic options which Abigail Wilson has: a. Wilson's Dry Cleaner could spend $30 to refund Mr. Shelton's order and $360 to replace his shirts. This will satisfy Mr. Montsinger, retain his business, and retain the business of his friends. b. They could also simply ignore Mr. Montsinger, save $390, and wait for the shirts to just show up. What is your recommendation? Why