marketing metrics

A local dental practice has been approached by Groupon to run a teeth-whitening promotion. The practice consists of a husband and wife team, both dentists. Before committing to the Groupon campaign, they are curious to better understand the value of a new customer. Also, they are unsure how much they should spend to attract new customers and have never tried to calculate the retention rate for the practice. Before moving ahead with a Groupon campaign, they decide to hire a GSU marketing student for a summer internship to look into some of these questions. You assemble the following data, based on an analysis of patient records, treatments, billing and accounting data. Annual margin dollars from a typical customer: $865 Customer retention rate: 72% Promotional/communication costs/yr $16 Discount rate: 11% Customer acquisition cost $90 You have recently been asked by your boss to come up with an estimate of customer lifetime value for your firm's typical customer. Your firm sells high-end road and mountain bikes and related accessories. Customer contact is primarily on-line, through catalogs, targeted mailings, targeted e-mails and the occasional telephone call. After some digging around, and asking a lot of questions, you've been able to assemble the following information for a typical customer: Average order: $496 Frequency of orders: 1.3 /year Average margin: 56% markup on retail Customer retention rate: 72% Promotional/communication costs/yr $33 Your discount rate: 11% Customer acquisition cost $349 Calculate the expected customer lifetime value for a new cutomer, rounded to the nearest dollar. Your Answer: Your firm sells high-end road and mountain bikes and related accessories. The following information is available to estimate customer lifetime value for a new customer: Average order: $507 Frequency of orders: 1.7/ year Average margin: 60% markup on retail Customer retention rate: 58% Promotional/communication costs/yr $48 Your discount rate: 11% Customer acquisition cost $175 What is the maximum amount your firm can afford to spend to increase customer retention from 58% to 80% ? Report your answer rounded to the nearest dollar. To answer the question, calculate CLV at the higher retention rate and subtract the CLV at the lower retention rate. The difference will be the maximum amount the company can afford to spend to increase customer retention