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Customer Lifetime Value – A Case Study Essay

A Your manager asks you what you think might explain the differences in p, r, and AC between the three groups. What would you say? i Group 1’s higher “p” could be due to the fact that this group of students doesn’t have the meal plan that undergrad students who live on (or close to) campus have. Additionally, some MBA students may have longer classes than the typical undergad student, especially on weekends. The MBA students may be more inclined to buy more food to save and snack on during class sessions.

The retention probability through a certain time “r” is expected to be higher for undergrad students who live on or closer to campus and can easily walk to the sandwich shop. MBA students still have a high retention rate, but following the completion of their MBA program, they’re less likely to drive to Ike’s for food since they commute to school (especially if they have a good sandwich shop from where they commute). Regarding “AC”, the cost to promote Ike’s for people familiar with the area (Group 2) is expected to be lower because the Bay Area natives already have some knowledge of Ike’s.

The “AC” for Groups 1 & 3 are higher because Ike’s must promote their business to people who have most likely never heard of the sandwich shop through ads, Facebook, or coupons. b What do you think could be done to improve CLV for any of the groups? Describe a specific action that can be taken by Redhead and explain how it alters the variables and CLV in the table for one or more groups. ii I expected the CLV for Group 3 to be higher considering the distance from the school. It could be so low due to the meal plan those students might have, but by decreasing the “AC” from 25 to 20, “CLV” will increase from 2. to 7. 5.

The can be done by focusing their advertising efforts aimed at students to strictly on campus efforts. Perhaps they could also utilize social media for free advertising and introduce a “punch card” where after a certain amount of sandwiches bought, the customer can get a free one. This would possibly help increase the retention rate of all groups, especially Group 1 where these MBA students don’t have an on campus meal plan and often look for good food and money saving incentives off campus.

Additionally, if the retention rate for Group 1 went from . 0 to . 825 through the use of the “punch cards” and even coupons for a free drink or chips, the CLV would increase from 7 to 11. 667 – almost putting Group 1 even with Group 2. And if the retention rate for Group 3 went from . 825 to . 85 through the use of the “punch cards” again, the CLV would increase from 2. 5 to 6. 875. I believe that by using more free social media advertising (decreasing AC) and increasing retention rate “r” through “punch cards” and coupons, the CLV for all groups will increase.


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