CLV
CLV
4. Rajkumar has been fired from XLRI and has purchased a Pizza Van to serve students instead.
He is trying to give a discount to the customers who buy more. Specifically, he is
a. Saying that 1 pizza = $13 and two pizzas $10. Because, Rajkumar is operating on XLRI
Property, he has to share 50% of the revenue with XLRI and his profit margin is 50%.
b. Since he is also an analytics professor, he makes the following estimates
i. 65% to 85% of customers taking this deal are new customers
ii. 30% to 42% of customers will spend an amount in excess of $26, i.e. the deal
size
iii. Those who spend in excess of $26 will spend on an average between $3 and
$17 beyond 26.
iv. Between 10% and 30% of new customers will return.
v. Average annual profit generated by a new customer is between $20 to $40
vi. Average annual retention Rate for new customers generated by this scheme
is between 55% to 85%
5. General Motors has approached you to decide whether or not to give a $1000 discount this
year to buyers of Chevy Malibus. The information that you have collected for the base year
is
a. Year 1 price : $20000
b. Year 1 cost : $ 16000
c. Each year 30% of the market buys a Malibu or a car from the competition
d. 70% of people who last bought a Malibu will make their next purchase a Malibu
e. 25% of people who last bought a Competitor’s Product will buy a Malibu
f. Inflation rate is 5% on both costs as well as price
g. Currently 50% of the Market is loyal to Malibu and 50% is loyal to Competition
h. Profits are accrued at the beginning of the year and is discounted at the rate of 10%
each year
Now, you have been approached with the request of deciding whether or not to give $1000 to
the year-1 customers. You are an expert and have realized the following due to the discount.
a. The % of market buying a Malibu or a car from competition will increase anywhere
between 2% to 10%
b. The fraction of loyal customers who will make their next purchase in year-1 will increase
between 5% to 15%
c. The fraction of non-loyal customers who will make their next purchase in year-1 a
Malibu will increase between 6% to 13%.
Your job is Assuming a 30 year-planning Horizon should you give a $1000 discount?
6. Assume Royal Bank of Canada has only 3 segments of customers based on age: (1) 20 to 35
years old, (2) 36 to 60 years old, and (3) 61 to 75 years old. The distribution of the average
annual customer profitability in dollars for each of the segment is given in the table 1. What
is the CLTV of the niece if the bank estimates that she is in the 30 th percentile for current
profitability? The case says that she is 23 years old. Use a discount rate of 8% and use the
method described on page 12 of the case. Assume that there is an attrition rate of 5% each
year.
20 -250 0 300
50 0 900 1700
60 50 1100 2000