# Operations Management Homework

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1. What is the best way to increase value the most, given the following information for one customer? Base Case: Perceived benefits \$50 and Price \$10.00
Improvement Option A: Perceived benefits \$65 and Price \$13.00
Improvement Option B: Perceived benefits \$65 and Price \$12.50
Improvement Option C: Perceived benefits \$60 and Price \$12.50

We derive the following (using the formula, value = perceived benefits / price (cost) to the customer): * Base Case: value = (50/10) = 5 * Option A: value = (65/13) = 5 * Option B: value = (65/12.50) = 5.20 * Option C: value = (60/12.50) = 4.80
The option B is the best way to increase value the most (but the cost to the customer is higher, and the perceived benefit as well).
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Use productivity arguments to recommend whether or not to change the current system.
Using the formula:

= 50 / 1 = 50 = 90 / 3 = 30 It is better not to change the system, since a single worker can handle 50 cars per hour (taking orders, assembling them and acting as a cashier), on the other hand, 3 workers (one taking orders, the second assembling them, and the third acting as cashier) would handle 30 cars each. 10. What is the average value of a loyal customer (VLC) in a target market segment if the average purchase price is \$75 per visit, the frequency of repurchase is six times per year, the contribution margin is 10 percent, and the average customer defection rate is 25 percent?

Using the formula: VLC = (P) (RF) (CM) (BLC) VLC = (75) (6) (10%) (1/0.25) VLC = \$180.00 The average value of a loyal customer (VLC) is \$180.00.

12. What is the average defection rate for grocery store shoppers in a local area of a large city if customers spend \$60 per visit, customers shop 52 weeks per year, the grocery store has a 12 percent gross mar- gin, and the value of a loyal customer is estimated at \$2,750 per year? Using the formula: VLC = (P) (RF) (CM) (BLC) 2,750 = (60) (52) (12%) (1/DF) 2,750 = 374.4 (1/DF) 7.345085 = (1/DF) DF = 1/7.345085 DF = 14% The average defection rate for grocery store shoppers is