Question

Moonstruck sells fat-tire bicycles.

An average customer for Moonstruck buys a bicycles every five years and spends $500 every time they buy one. An average customer also spends $250 in parts and service.

An excellent customer buys 8 bicycles in their lifetime and spends $800 every time they buy one. An excellent customer spends $500 in parts and service very year.

The average profit margin for Moonstruck on its bicycles is 25%.

The average profit margin for Moonstruck on service and parts is 50%.

Moonstruck customers buy their first bicycle when they are 30 and ride bicycles until they are 80 years of age.

1. Moonstruck is interested to maximize the Customer Lifetime Value. What are the variables that management can manipulate to try to maximize CLTV, i.e., make CLTV as large as possible?

2. What are the applications of Market Basket Analysis? Give two examples.

Answer 1

1. Customer lifetime value (CLV) basically is the total amount that a customer may spend on a company’s products and services , in the business’ overall lifetime. Moonstruck is aspiring to maximize its CLV. Moonstruck offers fat-tire bicycles, its parts and services to the customers. The management at Moonstruck can manipulate the following variables to maximize the CLV:

· Quality of the bicycles

· Quality of bicycle servicing rendered

· Price of the bicycles

· Benefits associated with the product

· Customer loyalty points

2. The applications of Market Basket Analysis are as follows:

· Analysing the data pertaining to the product purchase history. This will help in identifying the complementary products or the products which are likely to be bought together by the customers like bread and butter, tea and sugar, etc.

· The customer past demand can be analysed using the market basket analysis so as to identify the specific needs of the customer and come up with suggestions for their future purchase orders.