Question

You own a business similar to Starbucks and are in the process of analyzing two of your customers, Natasha and Boris, and how each of them impacts your business. In particular, Natasha buys 14 lattes each week and also buys 7 breakfasts per week at your business. The price of each latte is $4 and she spends $8 on each breakfast. She will likely continue to do this for the next 27 years. Boris buys 14 lattes each week and also buys 7 breakfasts per week at your business. He also spends $8 on each breakfast. He will likely continue to do this for the next 9 years.

Natasha’s lifetime value at your business is equal to ____________________.
Compared to Boris, Natasha falls into the ____________________ relationship group.
Boris’s approximate lifetime value at your business is equal to ____________________.
Compared to Natasha, Boris falls into the ____________________ relationship group.

Answer 1

Ans) Let us list down the

For Natasha

Lattes brought per week A= 14

Breakfast brought per week B = 7

Cost of Latte C= $4

Cost of breakfast D=$8

Total amount spent at your business per week

TC=A*C + B*D -------------Eq. 1

Substitute values of A,B,C & D in Eq. 1

TC = 14*4 + 7*8

TC = $112

Natasha is likely to do this for 27 years (52 weeks per year)

So Natasha's lifetime value at your business is equal to

TV = TC*52*27 -----------Eq. 2

Substitute the value of TC in Eq. 2

TV=112*52*27

TV =$157248

For Boris

Lattes brought per week A= 14

Breakfast brought per week B = 7

Cost of Latte C= $4

Cost of breakfast D=$8

Total amount spent at your business per week

TC=A*C + B*D -------------Eq. 3

Substitute values of A,B,C & D in Eq. 3

TC = 14*4 + 7*8

TC = $112

Boris is likely to do this for 9 years (52 weeks per year)

So Boris's lifetime value at your business is equal to

TV = TC*52*9 -----------Eq. 4

Substitute the value of TC in Eq. 4

TV=112*52*9

TV =$52416

So

Natasha's lifetime value at your business is equal to $157248

Compared to Boris, Natasha falls into the True friend relationship group

Boris's approximate lifetime value at your business is equal to $52416

Compared to Natasha, Boris falls into the Butterflies relationship group

Rational for grouping

Customer relationship groups are of 4 types

Strangers are customers that are not for the long term and profit from them is also low

Butterflies are customers that are not for the long term but profit from them is high

Barnacles are customers that are for the long term but profit from them is low

True friends are customers that are for the long term and profit from them is also high.

So from above

Natasha falls into the True friend's group and Boris falls into the butterflies group (Because weekly business value is the same but the loyalty of them is different)

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