MKT 301 Fall 2004

Velo Mobile Telecommunications spends at a cost of $840 per new customer, on average. Each customer incurs $60 in maintenance cost and $30 record-keeping and billing costs annually. Customers can buy into three different plans: 30% of customers buy a premium package at $65 per month; 20% buy the premium package and also add a data plan for a mobile device (laptop, tablet, etc.), for an additional $35, for a total of $100 per month (the "super-premium package"); the remaining customers buy the basic service package at $40 per month. Over time, 75% of customers remain with the company from one year to the next.

1. What is the lifetime value of a super-premium customer (premium package + data plan)?
2. What is the lifetime value of an average customer?
3. If the company currently has one (1) million customers, what is the maximum amount of money it

should be willing to spend to improve its customer retention rate from 75% to 85%?