Measuring Customer Lifetime Value You own a boutique store in Lahaina in Maui Island, Hawaii. Your store carries topoftheline specialty apparel and fosters a friendly and hospitable environment. You recently attended a marketing conference and listened to several presentations about customer lifetime vafue {CLV}, the total amount a customer will spend from acquisition through the end of a relationship with a brand. You learned that the apparel industry is overhauling to become datadriven and customer-centric. Obtaining the CLV will help you to both decide who to target in advertisement and sales campaigns and assess how effective those campaigns will be at increasing customer value. Consequently, by using CLV metrics, you will be able to segment, prole, and target your customers, understand those customersr characteristics, and pay them more attention to keep them loyal to your business. a Big Cheese PhotovSuperStJodr After returning home, you were interested in nding out your customer lifetime value so that you could develop promotional campaigns to improve your CLV. In order to calculate the CLilIr metric, a speaker at the marketing conference suggested that you use data from your company's books related to four variables. The rst variable is average value ofsales peryear. Your books showed that on average, the average value of sales per year was $50. The second variable is average customer acquisition cost. It includes promotion expenses, sales expenses, and your costs of attracting new customers during the rst year, and it was found to be $400. The third variable, average customer retention rate, consists of the percentage of customers that will most probably buy from your store next year, and it was found to be ?0 percent. The fourth variable, customer retention cost, is the cost of keeping customers loyal to your business, and it was found to be $100. Now that you have all the gures that you need, you take your notes out of your briefcase to check the formula that you learned at the marketing conference. The version of CLV they presented at the conference was: Customer lifetime value = [1 l (1 Average custom er retention rate)] if. [Average value of sales per yea r] - lAverage customer acquisition cost + Average customer retention costj. Using the worksheet below, you will need to input the data and create the formula in the required cell. Replace the variables in the formula above with the appropriate cell. 1 liver-age Customer Retention Rate Average C ustomer Acquisition Cost Average Sales per Year Retention Cost Customer Lifetime Value Customer lifetime value = [1 f 11 - Average customer retention rate\" It (Average value of sales per year] - (Average customer acquisition cost + Average customer retention cost). Using the worksheet below, you will need to input the data and create the formula in the required cell. Replace the variables in the formula above with the appropriate cell. 1 Average Customer Retention Rate Average Customer Acquisition Cost Retention COBI CUS'IOITIEF LlfetllTle Value Average Sales per Year i. For the above data, what is the current CLU? 0 $511 0 $2,000 0 45511 0 $2,100 2. You were unhappy with your current CLV, so you conducted a promotional campaign that included advertisements in local newspapers, magazines, and TV commercials to increase your customer value. The new data show that acquisition cost = $300, retention rate = ?5 percent, retention cost = $150, and customer average value per year = $850. 1W'hat is your new CW"? 0 $3,000 0 $461 0 $2,950 0 $461 3. Your new results still fell a little bit short of meeting your business goals. So, you were motivated to develop one more promotional 3. Your new results still fell a little bit short ofmeeting your business goals. So, you were motivated to develop one more promotional campaign that included several channels of social media. Your updated data show that acquisition cost = $250, retention cost: $200, retention rate = 80 percent, and customer average value per year = $2,500. IIii'Iil'hat is your updated CLV? 0 $12,050 0 $15,020 0 3482 0 $482 4. You were happily surprised with the results. So, you decided to launch a new campaign to provide special attention to and take care ofyour clientele. You invite your customers to a private dinner party at a fancy French hotel restaurant in Lahaina with your products displayed in the background. After a few monthsr you notice that your data show that acquisition cost = $200, retention cost = $100, retention rate = 85 percent, and customer average value per year = $1250. What is your new CLV? 0 38,033 0 $8,033 0 $315 0 3315 5. As a marketing manager, which element of the formula do you think is the most importantto obtaining a higher CLU? 0 customer retention rate 0 customer retention cost 0 customer average value per year 0 customer acquisition cost