While these results summarized how customers reacted to different e-mail frequencies, they did not show which e-mail frequency would be the most profitable for Pentathlon. To answer this question Quintero needed to calculate the LTV for consumers in each of the four e-mail frequency conditions. This would require making a few assumptions about costs, discounting, and attrition. 1. The cost of goods sold was 60%. 2. Pentathlon used an interest rate of 1% per month for calculations that required monthly discounting. 3. To be conservative, consumers who switched from the subscribed to the unsubscribed group would be assumed to switch at the beginning of the month.

Case Questions 1. Calculate the 6-month LTV for each of the four tested e-mail frequencies. 2. What e-mail frequency should Pentathlon adopt? What economic forces make the chosen frequency better than the alternatives? 3. What e-mail frequency would you recommend if you considered a longer time horizon? Why? Make your argument without formally extending the LTV calculation. 4. Discuss at least two limitations of the current test. How would you improve on each?

The Results At the end of the 6-month test, Quintero received a spreadsheet with the following information from her team:

1"e$mail"per"week Month&1 Month&2 Month&3 Month&4 Month&5 Month&6

Subscriber&attrition&for&promotional&e:mails 2.0% 3.1% 1.9% 3.1% 2.4% 2.4%

Average&revenue&of&subscribed&customer $1.05 $1.02 $0.83 $1.27 $0.86 $0.98

Average&revenue&of&unsubscribed&customer $0.87 $0.73 $0.64 $0.54 $0.50 $0.51

2"e$mails"per"week Month&1 Month&2 Month&3 Month&4 Month&5 Month&6

Subscriber&attrition&for&promotional&e:mails 3.6% 3.9% 3.0% 3.3% 4.1% 2.5%

Average&revenue&of&subscribed&customer $1.35 $1.47 $1.34 $1.65 $1.17 $1.08

Average&revenue&of&unsubscribed&customer $0.95 $0.78 $0.63 $0.52 $0.50 $0.48

3"e$mails"per"week Month&1 Month&2 Month&3 Month&4 Month&5 Month&6

Subscriber&attrition&for&promotional&e:mails 7.5% 8.3% 11.8% 11.2% 9.8% 8.8%

Average&revenue&of&subscribed&customer $1.51 $1.51 $1.42 $1.39 $1.28 $1.43

Average&revenue&of&unsubscribed&customer $1.02 $0.83 $0.80 $0.55 $0.68 $0.59

4"e$mails"per"week Month&1 Month&2 Month&3 Month&4 Month&5 Month&6

Subscriber&attrition&for&promotional&e:mails 15.4% 21.0% 23.2% 16.5% 15.9% 12.4%

Average&revenue&of&subscribed&customer $1.45 $1.34 $1.21 $1.53 $1.58 $1.54

Average&revenue&of&unsubscribed&customer $0.89 $0.75 $0.66 $0.75 $0.70 $0.48

"Subscriber&attrition&for&promotional&e:mails" Reports&the&percentage&of&test&customers&who&were&subscribed&to&promotional e:mails&at&the&beginning&of&the&month&who&unsubscribed&during&the&month

"Average&revenue&of&subscribed&customer" Reports&the&average&monthly&revenue&for&test&customers&who&were& susbscribed&to&promotional&e:mails&during&some&or&all&of&that&month*

"Average&revenue&of&unsubscribed&customer" Reports&the&average&monthly&revenue&for&test&customers&who&were susbscribed&to&promotional&e:mails&during&some&or&all&of&that&month* *

&Since&some&customers&were&subscribed/unsubscribed&during&only&part&of&a& month,&average&monthly&revenue&are&calculated&by&determining&average&daily& revenues&for&subscribed/unsubscribed&customers&and&extrapolating&them&to&a& full&month.&