Question

In: Finance

You assume college students will mostly purchase cookies. You plan to sell individual cookies in store...

You assume college students will mostly purchase cookies. You plan to sell individual cookies in store for $2 per cookie or $24 per dozen. It costs $2 to make a dozen cookies, and you figure college students will purchase 72 cookies per year each of their four years in school. To be conservative, you assume a 50% retention rate. You think you will spend $0.40 per student per year on retention costs.

For care packages, you plan to charge $30 per dozen cookies and figure parents will purchase 2 care packages per year (once each semester) over the four years the child is in school. You assume a 60% retention rate. Costs to make the cookies are the same as for the college market ($2 per dozen), but there is an additional $1 per dozen in packaging and delivery costs. You think you will spend $0.25 per parent per year on retention costs.

For cakes, you plan to initially offer just one-sized cake for $60. It costs $20 to make the cake. You think clients will be quite loyal and estimate an 80% retention rate with clients purchasing 1 cake in the first year and 3 cakes each subsequent year. You plan to spend $2 per client in retention costs and use a 4-year lifetime to maintain consistency with the other markets.

You plan to spend $100 in upfront marketing costs to acquire new customers. You figure this will come out to about $1 per student for the college market, $5 per client for the parent (care package) market, and $20 per client for the special occasion cake (local) market.

Given these numbers and assuming an 8% discount rate, what is the customer lifetime value of a customer in each target market? Round your answer to the nearest 100th (i.e., use 2 decimal places) and show your work.

Solutions

Expert Solution

Given the information:

Each customer value for Cookie is $212.49, Care is 76.86, Cake is 152.60. Refer the calculation below.



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