(Marketing Qs) SCROLL RIGHT TO READ FULL TEXT

1)

Comcast, Inc. (the cable tv company) is trying to determine the Lifetime Value of its customers.

Here are some facts related to Comcast customers:

- A study of historical sales data reveals that the average customer brings in about $2500 of sales revenues each year.

- A study of historical cost data reveals that the average cost to service and retain a customer is about $700 per year.

- Comcast spends about $500 to acquire a new customer, on average.

- Comcast retains approximately 75% of its customers from one year to the next.

- Comcast's discount rate is 7%.

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a. Calculate the Lifetime Value of a Comcast customer using the infinite time horizon version of the CLV formula.

b. How does your answer to a. change if year-to-year customer retention drops to 50% (and everything else stays the same)?

c. What is the maximum amount Comcast can spend to acquire a customer and still maintain a positive Customer Lifetime Value (CLV)? (use the original assumptions above and ignore the fact that Comcast currently spends $500 to acquire a customer)

2)

Terminix, the pest control company, uses a four-year time horizon to calculate Customer Lifetime Values of its customers.

Here are some facts related to Terminix's Customer Lifetime Value model:

- It costs $100 (on average) to acquire a customer

- Revenues per customer are $400 in year 1 and are expected to increase by 10% each year thereafter.

- Variable costs to service and retain each customer are $100 in the first year and decrease by 5% each year thereafter.

- Terminix uses a discount rate of 7% for its CLV calculations.

a. Fill in the blank blue cells in the table below using the CLV calculation information provided above. Revenue and Variable Cost data have already been provided.

b. Assume instead that Terminix uses the "Margin Multiple" Method to calculate its Customer Lifetime Value. Assuming that Terminix has a year-to-year customer retention rate of 80% and an average Gross Contribution of $368 per customer, calculate (1) the Margin Multiple and (2) the Customer Lifetime Value based on this multiple.

3)

Starbucks launches a social media campaign to promote its new (mythical) line of fresh-baked pastries. Starbucks expects the campaign to generate 4,750,000 units in incremental sales in its first year at a campaign cost of $4 million. Average sales price per fresh-baked pastry is $2.85 and the contribution margin % for the fresh-baked pastries is 40%.

a. Calculate the amount of Contribution the social media campaign for the fresh-baked pastry launch is expected to generate.

b. Calculate the Return on Marketing Investment % (ROMI%) for the social media campaign /fresh-baked pastry launch.

c. Starbuck's corporate policy is to only invest in marketing initiatives that have a 20% ROMI % or higher. Based on this policy, will Starbucks invest in the social media campaign for the fresh pastries launch?

d. Recalculate the expected Contribution you determined in part a. assuming that the campaign/launch will cannibalize the sale of 1,250,000 units of pastries currently being sold at a price of $3.15 and a contribution margin of 35% and lower marketing costs associated with these cannibalized pastry sales by $275,000.

Terminix CLV Calculation Year o Year 1 400 Year 2 440 95 Year 3 480 90 Year 4 520 85 100 Revenues per Customer Variable Cost per Customer Margin per Customer Acquisition Cost per Customer Total Annual Profit / Cost (per Customer) Customer Lifetime Value (per Customer)* *Note: This should be a single number Margin Multiple = Customer Lifetime Value (CLV)= Terminix CLV Calculation Year o Year 1 400 Year 2 440 95 Year 3 480 90 Year 4 520 85 100 Revenues per Customer Variable Cost per Customer Margin per Customer Acquisition Cost per Customer Total Annual Profit / Cost (per Customer) Customer Lifetime Value (per Customer)* *Note: This should be a single number Margin Multiple = Customer Lifetime Value (CLV)=