Question 1. Shureido is one of the top-rated brands of karate gis (uniforms) worldwide. The company plans to launch three new gis of different cuts and weights. The Kumite gi is lighter weight and the coolest of the three. The Kata model will be medium weight for a good "snap" and cut looser than the Kumite gi. The Advanced is the heavy-weight model with loudest snap, but less breathable than the Kata gi. Shureido expects to sell the Kumite, Kata, Advanced gis in the ratio 9:7:5 respectively. The prices of the gis will be $120, $185, and $240, and have variable costs of $45, $60, and $75, respectively. They plan to spend $400,000 in design and $1,000,000 in promotion to acquire 20,000 new customers.

a.Calculate the breakeven quantities for each gi model. [3]

b.Assume the replacement cycle for gis is roughly a year, and the probability that these customers repurchase from Shureido the following year is 78%, 83%, 90% respectively, and the discount rate is 5% annually.Calculate the CLV for customers in each segment. (Hint: M = total contribution for each segment from part a.AC = FC/total number of customers) (Note: Just use the same AC for each segment) [6]

c.Suppose the company is considering mailing out a $20 birthday coupon to encourage loyalty. What is the minimum retention rate for each segment required to maintain the same CLV found in part b (hint: New M = Old M - RS). [3]

d.If the company is considering spending $2.3M next year targeted to an audience of 6,000 customers on a single segment, what would be the breakeven acquisition rate for each segment to justify spending $2.3M. How many customers does that work out to? (hint: Number of customers = BAR x targeted audience). [2]

e. Assume that Shureido spent the $2.3M on an ad campaign and it was able to gain a total of 3,250 new customers. The company also gave a discount of $15 off the first order for this new batch of customers. Please calculate the CLV for each of the segments in this new batch. Assume that the first AC is now a sunk cost paid off by the first batch. (Hint: Start with CLVs from part b and subtract AC. New batch AC = ad cost per customer + first-time discount - original AC). [6]