Assessing lifetime value al Affiliation Assessing lifetime value I Analysis and Recommendation The average lifetime value of a customer whose initial purchase is less than $50 As determined, the Lifetime Value of an average newly acquired customer whose initial purchase is less than $50 is $13.36 in the sixth year 2. The average lifetime value of a customer whose initial purchase is $50 or greater As determined, , the Lifetime Value of an average newly acquired customer whose initial purchase is $50 or greater is $58.30 in the sixth year 3. Recommended marketing plans; From these expected Lifetime values, I would recommend that more money should be used in retaining the customers spending more than $50 than those spending less than the $50.
This is because of their higher LVT which would possibly translate into higher expected future profits (Kumar, 2008). 4. The provided time horizon; The assumption of 5 years is a reasonable time horizon to be able to study the behavior of the prospective customers sufficiently. This time horizon is able to provide enough room for the determination of the retention rates, the spending rates, the acquisition rates and even that of the marketing and goods costs so that an appropriate LTV can be found. 5.
Suggestions for other ways to group customers for determining lifetime value according Customer groups/segments are developed based on the customer base and/or the available marketing programs within the organization. Other ways into which groups could be created could be based on other factors including age, spending habits or the product types of the particular firm (Pride, Ferrell, Lukas, Niininen & Schembri, 2015). 6. Additional information that might be helpful for Alicia From the computations, it is notable that customers essentially become profitable in the subsequent years other than that of the acquisition year.
More money should focus thus on increasing retention as opposed to spending it on acquisitions, as retention has got more payoffs (Pride, Ferrell, Lukas, Niininen & Schembri, 2015). . II Preliminary Calculations a) The Acquisition cost Assuming 1,000 prospects are mailed, then the cost to reach each of the prospects would be: (0.85*1000) = 850 The response rate; for every 1000 catalogs sent, 23 new customers would be acquired. The acquisition rate b) The initial Investment per customer c) The yearly Response rate The yearly response rates are different for the segment of the buyers; those whose initial orders are less than $50 and those above $50 dollars; Customers with initial orders of = $50 Years Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Ordering customers 3296 3296 3296 3296 3296 3296 Number of customers - 2875 1653 866 761 623 No.
of orders 3296 3576 2463 1315 1068 837 Yearly response rates (%) - 87.23 50.15 26.27 23.09 18.90 Yearly av. # of orders per ordering customer 1.00 1.24 1.49 1.52 1.40 1.34 d) The yearly average number of orders per ordering customer (As calculated in the table above) e) The Annual development/Retention Cost III Lifetime Value Calculations From the foregoing When compared with the alternative aggregate approach solution($13.38, for customers spending =$50) the aggregate approach solution gives more intuitive results. Reference Kumar, V.
(2008). Customer lifetime value: The path to profitibality. Boston: now Publishers, Inc. Pride, W. M., Ferrell, O. C., Lukas, B. A., Niininen, O., & Schembri, S. (2015). Marketing principles.