Cool Beans is a locally owned coffee shop that competes with two large coffee chains, Planet Euro
Question:
Cool Beans is a locally owned coffee shop that competes with two large coffee chains, Planet Euro and Frothies. Alicia, the owner, is considering two different marketing promotions and thinks that a CLV analysis will help her
decide the best course of action.An average specialty coffee drink sells for $4.34 and has a margin of 81%.One promotion is providing loyalty cards to her regular customers that would give them one free specialty coffee drink
after 10 regular purchases. Alicia estimates that this will increase the frequency of their purchases by 8%.Currently, her customers average buying 2 specialty drinks per week.
The second promotion is targeted at new customers. She would offer a free specialty drink to incoming college freshmen by providing a coupon with their orientation packages. Because of her location near the college, she expects that 300 students will come to Cool Beans for a free trial. Of those, she anticipates that 14% will become regular customers who will purchase at least one specialty drink each week. The cost of printing and distributing the
coupons is $146.
1.What is the dollar margin per specialty drink served?
2.What is the CLV of a customer over the time horizon of one year prior to the introduction of the loyalty program?
3.What would be the CLV of a customer without consideration of the cost of the loyalty program, but with the higher purchase frequency?
4.What would be the cost of the loyalty program?
5.What would be the net incremental value in adding the loyalty program?
6.How many new students does Alicia think will become regular customers?
7.What is the total combined CLV of all these new student customers over the period of a year if Alicia presumes the same purchase rate as her current average customer of 2 specialty drinks per week?
(Note: do not include any impact of the loyalty program.)
8.What is the total cost of the student promotion?
9.What is the net incremental value for the student promotion?
Expert Answer:
Lets break down each question step by step 1 Dollar Margin per Specialty Drink Served Margin Selling ... View the full answer
