Your company sells a subscription box service and you have…
Your company sells a subscription box service and you have decided to use the concept of customer lifetime value to contemplate your marketing expenditures both for acquiring a new customer as well as retaining current customers. Your marketing research team has presented you with the following information, all based on the typical customer of your primary target market: Average customer revenue per month = $29 Average customer costs per month = $9 (this includes all variable costs of products, shipping, etc.) Average initial customer lifetime is 8 months Note that for the typical customer type, the majority fall into the 7- to 9-month range. In other words, the distribution has a fairly tight standard deviation. Also, it is a fairly normal distribution with no skewness and there are no outlier groups that would sway the mean to either direction. Thus, the 8 month average is a rigorous metric. Current cost to acquire a new customer = $100 Additional cost to maintain a customer beyond the 8-month average = $14/month This is accomplished by offering a reduced monthly price, from $29/month to only $15/month All other monthly variable costs remain the same. The average additional time is another 12 months of patronage. Questions to answer: What is the initial Customer Lifetime Value for an 8-month customer, not considering the acquisition cost? What is the net initial Customer Lifetime Value for an 8-month customer, including the acquisition cost? What is the net monthly value of the typical customer for each month of “maintenance mode”? What is the net Customer Lifetime Value for an entire 20-month customer (with the final 12 months in “maintenance mode’)? What are the pros and cons of maintaining a customer for that additional 12 months? Is it worth it to maintain the customer or is it better to just get new customers? What is your rationale?
Read Details