Running head: RETAIL RELAY 1
Retail Relay Analysis
1. What is the expected customer lifetime value of a newly acquired customer? Use an
account discount rate of 10%
Below is the formula provided by the textbook to ca
...
Running head: RETAIL RELAY 1
Retail Relay Analysis
1. What is the expected customer lifetime value of a newly acquired customer? Use an
account discount rate of 10%
Below is the formula provided by the textbook to calculate CLV:
rt is the probability that an individual will make purchases on at least t occasions given that he
or she has made one purchase. For the first purchase occasion, rt = 1.
Mt is the dollar contribution margin of a shopping basket at purchase occasion t, adjusted for
distribution costs and coupon-redemption expenses.
i is the relevant discount rate between any two purchase occasions. Because the average
interpurchase time in this data is about three weeks, the relevant discount rate can be
approximated by dividing the annual rate by about 17. More accurately, the annual rate (a) can
be converted to the three-week rate using:
i = (1+a)1/17.33 - 1
i = (1+0.10) 1/17.33 - 1 = 0.0055
RETAIL RELAY 2
CLV of newly acquired customer (pilot study) CLV of newly acquired customer (pilot study)
i = 0.0055 i = 0.0055
rt = 69.70% rt = 54.86%
Mt = $62.28 Mt = $56.71
t = 2 t = 2
CLV = $42.06 CLV = $30.94
Total CLV for second occasion pilot study:
= $49.51 + $42.06 = $91.57
Total CLV for second occasion full study:
= $46.71 + $30.94 = $77.65
The expected customer lifetime value (CLV) of a newly acquired customer can be
calculated by using the information from the second purchase occasion as this would be the point
where the customer returns and can be classified as a repeat buyer. After the second point of
purchase, we see that the transition probabilities of for each occasion starts increasing for the full
study, until t = 18; afterwards the percentages fluctuate.
Please see the embedded excel for all calculations done for both the full study and pilot study.
The excel shows the CLV at every purchase occasion up to the 30th occasion provided by the case
study. Please note that total CLV30 for the pilot study = $1872.33 and the total CLV30 for the full
study = $1687.88.
Embedded Excel:
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