CLV Case Study Summary

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Feb 20, 2024

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MKTG 4600-001 Crayden Dalvit, Devin Healey, Michael Barski, Ezequiel Garcia, Robert Kingston, Trevor Reilly November 8, 2021 Northern Aero Case Study: Customer Lifetime Value Northern Aero is an airline company that was established and is now based in Scandinavia. In 2008, Jannick Jorgensten replaced longtime CMO, David Vlock. Jorgensten was tasked in researching and solving a problem that Northern Aero had been facing. A problem that posed whether or not Northern Aero’s customer loyalty program was creating enough profit to justify the massive expense that it had on their company. This was also a problem of finding Customer Lifetime Value and weighing the impact that expenses from their customer loyalty program was having on their company, and how Northern Aero could make more money from this program. Question 1 The customer lifetime values of each segment have been calculated using the data from the “Current” block of data, with a discount factor of 15%. As you can see, the top 20% Platinum members have the highest customer lifetime value.
Question 2 One key difference relates to the Customer Base Valuation. With a discount rate of 15%, the base is valued as $14,279,572; however, with a 40% discount rate, the valuation is only $8,969,159. Similarly, the discounted net margin and the long-term cumulated margin are significantly lower with this higher discount rate. The main takeaways from this are that when companies use higher discount rates, the future revenues of customers are proportionally less valuable. Question 4 The results provided by the ZENITH consulting team show that a shift toward loyalty program spending that focuses on high-value customers will produce higher gross margins when compared to the gross margins created by inactive members, as well as the bottom 80% of Silver members. Notably, the top 20% of Platinum members produces gross margins of 4410 with just 200 customers. The ‘break-even’ point of the loyalty program for Northern Aero is at the top 20% of Gold members - where the number of customers matches gross margins. After that, gross margins greatly diminish, with the bottom 20% of Silver members only bringing in gross margins of 16.4. Other supporting data shows that 39% of the top 20% of Platinum members will retain their Platinum status for the next year. Moreover, 11% of the bottom 80% of Platinum members will move up into the top 20%, with 33% maintaining their status in the bottom 80%. Conversely, 60% of the bottom 80% of Silver members will lose their status for the next year, ultimately becoming Inactive customers. Moreover, Inactive customers produce gross margins of -2, which means that the bottom 80% of Silver members is not
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