Net-4-You is an Internet Service Provider that charges its 1 million customers $19.95 per month for its service. The company's variable costs are $0.50 per customer per month. In addition, the company spends $0.50 per month per customer, or $6 million annually, on a customer loyalty program designed to retain customers. As a result, the company's monthly customer retention rate was 78.8 percent. Net-4-You has a monthly discount rate of 1 percent.

a. What is the customer lifetime value?

b. Suppose the company wanted to increase its customers' monthly

retention rate and decided to spend an additional $0.20 per month per

customer to upgrade its loyalty program benefits. By how much must

Net-4-You increase its monthly customer retention rate so as not to

reduce customer lifetime value resulting from a lower customer margin.

a. Customer Lifetime Value

Price of Service (per month per customer) _____________

Less:

Variable Cost (per month per customer) _______________

Loyalty Program (per month per customer) ____________ Total Variable Cost (per month per customer) __________________

Customer Margin (per month) __________

Monthly Discount Rate _____________

Monthly Retention Rate ____________

Customer Lifetime Value ___________

M (1/1+i - r)

b.

Old Customer Margin (per month) __________

Increase in Loyalty Program (per customer per month) _____________

New Customer Margin (per month) _______________

Customer Lifetime Value _____________

Monthly discount Rate ________________

Desired Retention Rate ___________________

r = 1 + i - M/CLV