Question 5 (10 points)

A local dental practice has been approached by Groupon to run a teeth-whitening promotion. The practice consists of a husband and wife team, both dentists. Before committing to the Groupon campaign, they are curious to better understand the value of a new customer. Also, they are unsure how much they should spend to attract new customers and have never tried to calculate the retention rate for the practice. Before moving ahead with a Groupon campaign, they decide to hire a GSU marketing student for a summer internship to look into some of these questions. You assemble the following data, based on an analysis of patient records, treatments, billing and accounting data.

Annual margin dollars from a typical customer: $ 884

Customer retention rate: 75 %

Promotional/communication costs/yr $ 16

Discount rate: 10 %

Customer acquisition cost $ 90

Calculate the expected CLV for a new customer.