Question
Walmart's Customer Relations Management (CRM) team recently submitted a proposal to the CMO William White to authorize a budget of $2.3 billion to redesign and
Walmart's Customer Relations Management (CRM) team recently submitted a proposal to the CMO William White to authorize a budget of $2.3 billion to redesign and relaunch its loyalty program. More and more Walmart customers are now shopping online and these online shoppers prefer Amazon. To improve Walmart customers' loyalty to the store and thus increase their share of wallet, the CRM team wants to introduce a revamped loyalty program with an attractive cashback provision as well as exciting prizes that can be redeemed with accumulated points. They claim that this will encourage Walmart shoppers to spend more money at Walmart, both in brick-and-mortar stores as well as online.
Walmart had a revenue of $523.7 billion in the US in 2020. The financial statement for the US business for the last year is shown below.
2020 Financials for US market (All values USD Millions.) | |
Sales/Revenue | $ 523,694 |
Cost of Goods Sold (COGS) | $ 392,771 |
Depreciation & Amortization Expense | $ 10,987 |
SG&A Expense | $ 107,891 |
EBIT | $ 21,468 |
The retail chain has 4750 stores in the US market. About 100 million householdsabout 78% of the US householdsalready shop at Walmart. The CRM team plans to increase the purchase frequency and basket sizes of some less loyal households through the new loyalty program. Based on past shopping data, the CRM team divided Walmart households into two groups, high-loyalty households and low-loyalty households. Forty five percent of the households were categorized as high loyalty households with an average 5.2 trips per month and an average spend of $96 per trip. The remaining 55 percent of the households were categorized as low loyalty households with an average 1.6 trips per month and an average spend of $47 per trip. Using market research, the CRM team estimated that they would be able to shift about 1.9 million customers from the low-loyalty category to the high-loyalty category with the proposed marketing spend in one year.
a) How many customers will each Walmart store have to convert from the low loyalty category to high loyalty category to breakeven on the proposed investment in the loyalty program?
b) White believes that all marketing investments should breakeven in one year. Based on the CRM team's conversion estimates, should White approve the investment in the loyalty program?
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