Shannons Brewery continues to grow its customer base but is also concerned with enhancing the loyalty and associated repeat business from its existing customer base. Shannon realizes that it is generally cheaper to maintain a cadre of loyal customers than it is to recruit new customers. To this end, Shannon wants to experiment with a loyalty/rewards program that encourages more frequent visits to the brewhouse along with added consumption per visit. The rewards program, to be implemented next month, consists of an app along with in-store kiosks that will better track customer visits and purchases. The app also will offer rewards based on past purchases per visit and number of visits. Rewards will be in the form of free products and discounts on select products. Email promotion, limited direct mail, social media, and web promotions on its own website and Facebook page will be extensively employed to create buzz and disseminate promotion information.

Q1A) Shannons brewery currently boasts a customer base of 1,750 customers that frequent the brewhouse on average twice per month and spend $32 per visit. Shannon s current variable cost of goods sold is 50% of sales. The customer retention rate per month is 0.82, based on data collected from its website and an analysis of credit card receipts. Its current cost of capital for borrowing and investing is about 12% per year, or 1% per month. What is Shannons approximate CLV for its average customer? Compute your answer to the nearest penny.

Q1B): Assume that Shannons decides to move forward with its loyalty/rewards program. Estimates for the cost per customer are $2.6 per month. Average customer margins, before subtracting off the cost of the loyalty/rewards program, are expected to be $36 per customer per month with a boost in retention to 82% per month. What is the resulting CLV if the annual interest rate for discounting cash flows remains the same as in Q1? Compute your answer to the nearest dollar.