Customer Lifetime Value
Information is one of the key to any successful business in the world. This is why managers around the world are collecting information about their customers’ base than ever before. Then a simple formula is then derived from the value of this information to determine the lifetime value of a customer. This is a case of M&J Jewelry Company. Answer to Question 1: The M&J Jewelry Customer Lifetime Value will be $320. I got this value by dividing the cost of sending the catalog for a year by the response rate, which is $9. 60/3%.
The strategy to increase Customer Lifetime Value in these conditions is to increase the customer rate from one year to next by increasing the discount rate. If strategy is implemented then the company can increase the Customer Lifetime Value in these conditions. Answer to Question 2: Given the choice between a strategy that increases frequency of purchases from 4 to 5 times a year to the one that increases the retention rate from 65 to 75 % (everything else stays the same), I would recommend the strategy to increase the retention rate from 65 to 75%. Reason
If purchase increase frequency from 4 to 5 times a year, profit will increase but this is in the short run. Profit like this should not be the sole focus of the firm. What should concern the company most is the future profit and revenue stream, which is associated with the ongoing satisfaction and retention of their core and profitable customers’ bases. Retaining the right customers over time has a strong impact on the company’s profitability, because the company will be able to maintain or increase their profit streams over the years. Therefore, I will recommend the strategy to increase retention from 65 to 75%.