Lifetime Value of Customer

The economic value of the existing customers can be calculated by multiplying the customer lifetime value of each segment by the segment’s size and then summing the value of all segments.

After profitability and lifetime values are determined, these measures are included for determining customer decisions for -

During 2010, management revised its estimate of the customer list economic life, and began assigning an amortization period of 15 years to newly acquired national customer lists. Amortization expense for the year ended December 31, 2010, was $3 million. To test the economic lives of the customer lists, the engagement team asked management what the reasoning was for the change in the assumed economic life this year. Management provided a memorandum that discussed the rationale for using the 25-year economic life to amortize the various customer lists, as well as the rationale for the current-year change in management’s estimate of the newly acquired national customer lists lives.

Using all the transactions in the data set, determine the revenue maximizing price for Copa. Here is a step-by-step approach: a) Fit a logit price-response curve to the data using the MLE approach discussed in class. (NOTE: For better numerical precision and to get good results in Excel, use prices in 100s. That is if the quote is $150 per person for a contract, use $1.5 per person in the MLE calculations.) b) Based on the fitted logit curve, what is the price (per person) that maximizes expected revenue per event? What is the expected revenue per transaction for that price? c) Assuming the annual number of inquiries remains the same, what would be the total expected revenue for the company if the price you determined in part (b) is used? How does the annual expected revenue compare to the total revenue earned by Copa in 2007? 2) Analyze the data to determine whether there are multiple price segments. a) What is your segmentation criterion? Explain clearly. b) What is the revenue maximizing price for each segment? What is the expected revenue for each transaction in that segment? (You have to repeat the analysis in part (1) for each of the segments.)

Your company’s solution should follow and be judged by the following criteria. Accurate Profitability, by allocating costs more precisely you will be able to trace and record each customer’s profits and losses. Future Potential of Customers, with a more accurate method of allocating costs and profitability your company will have a greater understanding when making decisions on the future potential of each

Given the use of each resource in the sales fulfillment cycle, determine the profitability of each customer.

The company is profitable. However, management has become concerned about the profitability of the customers in its three customer-size categories—large, medium and small. Different customers demand different levels of support. Management has no basis for identifying customers that generate high profits or to drop those that do not generate enough revenues to cover the expenses to support them. Under the previous accounting system, it wasn't possible to determine the costs of supporting individual customers.

Every company wants to make money and bring in customers, but what about making loyal customers out of them so they continue to come back? How do you even bring in potential new customers and turn them into loyal customers to begin with? The lifetime value of a customer is a predicted value of net profit credited to the total future relationship of a customer. We want to know the financial value of each customer so that we know how much to spend in marketing when looking for new customers and the potential of profits back from the money in advertising spent. The grocery store chain must start looking at customers and how to make them happy and loyal in the long run, as opposed to how to boost sales right now. From the Marketing Management book, a well-known rule states that 80 percent or more of a firm’s profits come from the top 20 percent of its customers. Thus, we want to focus on brining in new customers with successful marketing and turning them into loyal returning customers.

This report based on the study of “Customer Value Marketing” starts with introduction section. We have mentioned the contents of the study in objectives of the report section.

Customer A B C D E F Sales Revenue $600 $4200 $300 $2500 $4900 $700

Next we find the amount contributed from each Customer to the overall general and selling expenses based on the number of cartons ordered by each. The end result leads us to each customers overall profitability.

The below analytical graphs will depict and projects potential sales/gross margins figures from year to year when operational. Overall sales of $70 000. Financial statements (profit/loss, cash flow and balance) have been prepared to depict financial operations for the first month of operation as well as if business was to remain operation for 3 consecutive years.

A customer profitability analysis, when done right, shows the customers that are not only profitable but also those that are

Customers are assets, and their values grow and decline. Segmenting customers based on their lifetime value is a powerful way to target them because marketing mix activities can then aim at enhancing customer value. (Ho, 2006)

It is imperative to satisfy customers and give them an amazing experience at the company. While it cost less to sell to existing customers and companies can increase profit by selling to the same customers; if customers are satisfied, there is more chance they will come back for more services or products. Satisfied customers are a free marketing for the company. However, it is the opposite if customers are dissatisfied. Dissatisfied customer will tell 8 to 10 people about his or her experience (O’Brien, A & Marakas, G. 2004). If by any reason, representatives see that the customer is not satisfy, they should act fast and fix the problem. Furthermore, there is more chance for sale representatives to sell to an existing customer that to a new customer. A good strategy for customer retention is to reward good customers. Companies can easily do