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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
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 catalog channel Catalog Customers -95,000 new catalog customers were acquired in a year - Average length of the catalog customer relationship is four years - The average catalog customer spends $80 per purchase I - The average catalog customer only buys from the catalog twice a year - Cost of sales is 55% - Retention rate is 40% Q6. What is Customer Lifetime Value for catalog customers? You will need to construct the analysis in space below following the Starbucks example we used in class, which is the formula for CLV- Duration of relationship. This problem must be computed using MS Excel. (5 points) the margin present Customer Lifetime Value: The CLV formula multiplies the per-period cash (hereafter we will just use the term margin) by a factor that represents value of the expected length of the customer relationship: Retention Rate (%) Customer Lifetime Value ($) = Margin ($) + Discount Rate (%) - Retention Rate (%) 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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