Question

. Customer Lifetime Valuation:

. SOTARG Inkjet Printers – A Brief Exercise

.

. Julien Levy – product manager in France and in charge of printers and accessories

.

. Past third quarter figures makes Julien worried he will not hit this year’s annual sales target

.

. Consequence, considers end-of-year promotion in Paris/Greater Paris Region

.

. Approached by Florent Gaspard – managing director of promo plus/ marketing firm

. ​-direct marketing firm in Suresnes

. ​-offered to develop and implement sales promotion campaign to boost end-of-year

. ​sales

. Suggested an in store promotional campaign (10 hypermarkets):

. ​-Carrefour (4 stores)

. ​-Auchan (3 stores)

. ​-Leclerc (2 stores)

. ​-Hyper U (1 store)

. Put one booth at the entrance of each hypermarket during four critical Satruday’s before Christmas

.

. Quote for promo’s plus’s promotion:

. 250/day/booth includes promotional material/remuneration of sales promotion specialist

.

. Julien must make a choice

.

. SOTARGS customer retention rate:

. Four out of five customers continue to use inkjet printer after a full year (4 out of 5 after 12 months)

.

. Many trade up for a more sophisticated printer

.

. After another year only half of the four out of five continue to use inkjet printer (2 out 4 after 24 months)

.

. After three years the remaining stop using

.

. Customer Lifetime Value is three years

.

. 200 pages w/ SOGART 100 Inkjet cartridge – in other words in consumer household last three months

.

. SOGART does not capture replacement cartridges

.

. 15% buy SOGART compatible low cost/recyclable cartridges online or specialty retailer (household typically buys every seventh cartridge from other sources)

.

.

. To boost sales Julien wants to sell promotional bundle during Christmas for 50.43

. ​-1 SOGART inkjet printer (33.45 per unit)

. ​-1 mediabridge hi-speed cable (3.99 per unit)

. ​-1 SOGART black ink cartridge (12.99 per unit)

.

. SOGART higher margins on cartridge (85% profit margin) and cables (80% profit margin) than printer which are sold at a loss at (-40% profit margin)

.

. SOGART forecasts annual 2% increase on products come into affect on January 1

.

. Uses company wide discount rate of 10%

. Case Two Questions and Answers - Please help me answer the question below according to the information listed above.

. c) What could be done to improve the profitability of this direct marketing initiative for SOTARG? In other words, what could SOTARG do to enhance the economic return of acquiring these new customers? Suggest two concrete actions and briefly explain, in 3–4 sentences, how they would impact results. 


Answer 1

	Evalution whether SOTARG should continue with the business or not
a.	Let us assume, Sogart sells 100 units in Nth year	100
		Units
	Products	Year 1	Year 2	Year 3
	Inkjet Printer
	New customers	102	104	106
	Nth year customers	80	81.6	83.232
	(N-1)th year customers	40	41	42
	Total Customers	222	226	231
	No. of cartridges	33	34	35
	No. of cartridges bought from SOGART	29	29	30
	Computation of Cost
	Particulars	Product	Year 1	Year 2	Year 3	Total
	Sales Forecast	Inkjet Printers	7,426	7,574	7,726	22,726
	Cost	Inkjet Printers	(10,396)	(10,604)	(10,816)	(31,817)	Cost % will be Sales - profit
	Sales Forecast	Cartridge	371	378	386	1,135
	Cost	Cartridge	(56)	(57)	(58)	(170)	Cost % will be Sales - profit
	Computation of Total/ Profit Loss	Year 1	Year 2	Year 3	Total
	No. of units	251	256	261	767
	Price per unit	50.43	50.43	50.43	151
	Total Sales	12,635	12,888	13,145	38,668
	Less: Cost	(10,452)	(10,661)	(10,874)	(31,987)
	Gross Profit	2,183	2,227	2,271	6,681
	Disc Rate (in %)	10.00	10.00	10.00
	PV	1,985	1,840	1,706	5,531
	Since, on an overall basis, it seems that SOTARG is making profit, hence we suggest to contuinue with the buisuness.
b.	Promo plus promostion cost
	No. of stores	10
	No. of days	4	( 4 critical saturdays)
	Cost per booth per day	250
	Total Cost	10,000
	Sales Price	50.43
	Computation of average cost	(49.58)	-49.5765
	Gross Profit per unit	0.8535
	No. of units to be sold to recover promotional cost	11,716