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A2 Exercise 1: Record Store Richard is the director of marketing for DiVinyls Collectibles that deals in hard to find new and used records. It is a direct-mail music operation that sells records via...

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A2
Exercise 1: Record Store
Richard is the director of marketing for DiVinyls Collectibles that deals in hard to find new and used records. It is a direct-mail music operation that sells records via mailed catalogs to hard-core audiophiles. He wants to better understand the lifetime value of the customers who buys music from his store so he can determine if he should implement specific marketing initiatives. Richard would like to calculate the 3-year lifetime value of a new cohort of customers he has recently acquired based on the accounting information he has below:
· The average customer spends $450 per purchase.
· The gross margin associated with these sales is 65% (high due to acquisition costs).
· The cost to ship each purchase (a bundle of records and appropriate packaging) is $25.00 that the customer pays. Divinyls Collectibles only accepts checks and money orders; no credit cards are accepted. Orders are place by returning a pre-paid ordering envelop and return postage is included as part of the mailing costs of the monthly catalogs. Thus, no additional expenses and profits are incu
ed with respect to shipping and handling.
· The average audiophile customer buys from the catalogs roughly 8 times a year.
· The average cost of mailing the catalogs is $20 per customer per year.
· With respect to acquisition costs, the response rate for sending catalogs to a new customer base is 2%.
· Customer retention is about 75% from one year to the next.
· The discount rate is 10%.
Please submit the following:
· Please state any additional assumptions necessary and create the CLV model in Excel. Calculate a typical customer’s CLV. [5 point]
· Propose one change (adjusting one or more existing assumptions) that can increase CLV. Create a second model to demonstrate in increase. [5 point]
 
Exercise 2: Blockbuster!
It's 1994, and you are one of the
and managers for Blockbuster Video (remember those?). You are interested in whether a 3‐year marketing campaign centered on extended weekend rentals for "Prefe
ed" clients would be profitable. Based on field tests in select markets, giving Prefe
ed membership customers a weekly coupon for the latest blockbusters seems to increase the number rentals over the weekends if the key titles are adequately stocked.
· The average Prefe
ed customer rents 2 old titles at $1.99 and 1 blockbuster title for $4.99 each week. The data suggest that customers will rent TWO additional blockbuster movies over the weekend when given a $2.00 discount per weekend blockbuster title. Thus, each customer rents on average 2 old titles (at $1.99), 1 blockbuster title during the week (at $4.99), and at least 2 discounted blockbuster titles (at $2.99) over the weekend.
· Each store on average hosts an average of 3,000 Prefe
ed customers from the su
ounding area. Further, these customers are very loyal and retention based on yearly rental records is about 95%. Acquisition cost associated with the Prefe
ed membership is approximately $100 per customer.
· The discount rate for the industry is about 17%. The company’s average gross margin is 34%.
· Costs associated with the Prefe
ed membership customer appreciation program include:
· fixed marketing expenses (weekly direct mailings, local newspaper inserts targeting those with Prefe
ed membership cards, emails, and communication) are about $3,500 per week; and
· fixed marketing cost to continually train employees (high turnover) that is about $200 per week.
 
Please submit the following:
· Identify and list all assumptions necessary and create the CLV model in Excel. [5 points]
· Answer and explain: Is this a good venture? Why or why not? [5 point]
Answered 2 days AfterMar 12, 2022

Solution

Ananya answered on Mar 14 2022
27 Votes
Running Head: MARKETING MANAGEMENT                        1
MARKETING MANAGEMENT                                3
MARKETING MANAGEMENT
Table of Contents
Exercise 1    3
Table 1    3
Table 2    4
Exercise 2    6
Table 1    6
The value of the venture    8
Exercise 1
Table 1
    Customer Lifetime Value (CLV) Model with increased revenue growth assumptions by 5%: assumptions necessary are:
· Average Customer Revenue per purchase
· growth in revenue
· total cost of customer revenue
· Customer purchase frequency in yea
· Growth in purchase frequency
· Customer purchase frequency annual
· Total Customer Revenue per yea
· Gross Margin (%)
· Gross Margin ($ per customer)
· Cost of mailing the catalogues ($ per customer)
· Average Annual profit per custome
· Customer Retention rate
· Churn Rate
· Discount Rate
    Full CLV
    Year
     1
     2
     3
     
     
    
     
     
     
    Average Customer Revenue per purchase
     450
     450
     450
     
    growth in revenue
     -
     0.05
     0.10
     
    total cost of customer revenue
     450
     473
     495
     
     
    
     
     
     
    Customer purchase frequency in yea
     8
     8
     8
     
    Growth in purchase frequency
     -
    10%
    10%
     
    Customer purchase frequency annual
     8
     9
     9
     
     
    
     
     
     
    Total Customer Revenue per yea
     3,600
     4,158
     4,356
     
    Gross Margin (%)
    65%
    65%
    65%
     
    Gross Margin ($ per customer)
     2,340
     2,703
     2,831
    Less
    Cost of mailing the catalogues ($ per customer)
     20
     20
     20
     
    Average Annual profit per custome
     2,320
     2,683
     2,811
     
     
    
     
     
     
    Customer Retention rate
    75%
    75%
    75%
     
    Churn Rate
    25%
    25%
    25%
     
     
    
     
     
     
    Discount Rate
    10%
    10%
    10%
     
     
    
     
     
     
    CLV per Yea
     4,971
     5,749
     6,024
     
    Total CLV
     14,914
     
     
     
    PV Value of CLV
     3,735
     4,319
     4,526
     
    Total PV of CLV
     12,580
     
     
Table 2
    One change to increase CLV: Assumption that Customer revenue per order is increased by 20% each year. the other assumptions are:
· Average Customer Revenue per purchase
· Growth in Average revenue
· Average annual Customer revenue per purchase
· Customer purchase frequency in yea
· Growth in purchase frequency
· Customer...
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