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The CEO asks the chief marketing officer to compute customer lifetime value (CLV) for catalog customers and online customers. The following information pertains to the

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The CEO asks the chief marketing officer to compute customer lifetime value (CLV) for catalog customers and online customers. The following information pertains to the company's operations in the online channel: Online Customer 102,500 new online customers were acquired in a year Average customer retentson rate is 63% Average length of the online customer relationship is five years Average online customer spends 554 per purchase Average online customer buys from the online store three times a you Cost of sales is 52% 07. What is Customer Lifetime Value for online customers? You will seed to construct the analysis in space below following the Starbucks example we wed in con which is the formula for CLV Duration of relationship. This problem must be computed using MS Excel points) 07 Customer Lifetime Value The one other assumption of the model is that the firm uses an infinite horizon when it calculates the present value of future cash flows. Although no firm actually has an infi: nite horizon, the consequences of assuming one are discussed in the following section Customer Lifetime Value: The CLV formula multiplies the per-period cash margin (hereafter we will just use the term margin") by a factor that represents the present value of the expected length of the customer relationship: Customer Lifetime Value ($) = Margin ($) Retention Rate (%) 1 + Discount Rate (%) - Retention Rate (%) a Under the assumptions of the model, CLV is a multiple of the margin. The multipli- cative factor represents the present value of the expected length (number of periods) of the customer relationship. When retention equals 0, the customer will never be retained, and the multiplicative factor is zero. When retention equals 1, the customer is always retained, and the firm receives the margin in perpetuity. The present value of the margin in perpetuity turns out to be Margin/Discount Rate. For retention values in between, the CLV formula tells us the appropriate multiplier

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