mkt 618 2-1 homework

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Apr 3, 2024

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Running Head: ACQUISITION AND RETENTION 2-1 Homework: Acquisition and Retention Apple Real-Time Language Translation Earbuds Jordan Sadler Southern New Hampshire University MKT 618: Marketing Analytics Professor Chellberg

Running Head: ACQUISITION AND RETENTION Customer Acquisition Cost Customer acquisition cost (CAC) is defined as the cost that is related to acquiring a new customer. It specifically refers to the resources and costs that are incurred to gain that additional customer. The customer acquisition cost can be calculated by dividing the marketing expense that is dedicated to acquisition by the total number of new customers (Corporate Finance Institute, 2023). For Apple, their marketing expenses are $16,705 million and they have acquired 462 million customers. So, to calculate Apple’s customer acquisition cost at their initial 6% marketing spend, the formula would be ($16,705,000*.06) / 462,000,000 giving us the acquisition cost of $0.0021. But we will be increasing our marketing spend and using 70%, so the new formula would be ($16,705,000*.70)/462,000,000 giving us the acquisition cost of $0.0253. This means that at a 70% marketing spend, it will cost Apple $0.0253 per new customer that is acquired. Customer Retention Cost Customer retention cost (CRC) is defined as the total cost of retaining a customer. This should include all of the costs that are associated with retaining a customer such as customer service, marketing efforts, professional services, or any other teams or tools that are used to retain an existing customer. When it comes to calculating customer retention cost, the biggest challenge is determining which costs should be associated with customer retention (What Is Customer Retention Cost?, n.d.). For the purposes of our assignment, we will be calculating customer retention cost by taking the remaining marketing budget and dividing it by the number of retained customers. Since we used 70% of our marketing spend on customer acquisition, the remaining 30% will go towards customer retention. To calculate the 30% that will be used for our remaining marketing budget, we will take ($16,705,000*.30) giving us a remaining

Running Head: ACQUISITION AND RETENTION marketing budget of $5,011,500. We will then take the remaining marketing budget and divide that by the number of retained customers for Apple, which is 1.4 billion. So our final formula to find our retention cost is ($5,011,500/1,400,000,000) giving us a total retention cost of $0.0035. This means that it will cost Apple $0.0035 to retain each of their customers. Being able to measure and track customer retention cost is just as important as measuring customer acquisition cost. Customer retention can serve as an indicator for customer satisfaction and growth within a business. The more customers that a business is able to retain, the more profitability they will be able to bring in. A small increase in customer retention can lead to a large increase in profitability for a business (What Is Customer Retention Cost?, n.d.). Product Acquisition Cost These new earbuds from Apple will be used for real-time language translation, and they will be priced at $279.99. Apple earbuds are typically priced between $129 and $249 dependent upon the model and design. These new earbuds will be priced slightly higher since these are such a useful product for consumers all around the world and Apple products are typically priced at a premium because of the Apple brand name. The earbuds will only be available in white, since that is the only color that Apple uses for their line of earbuds. The target market for this product is international travelers that will be traveling to destinations where different languages are spoken. Apples largest regional market in regard to sales is the United States, which brought in over $50 billion in net sales in the first quarter of the 2023 fiscal year. The companies other largest markets following behind the United States is Europe, China, Japan, and Asia Pacific, which brought their total net sales to over $119 billion by the first quarter of 2024 (Apple Sales

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Running Head: ACQUISITION AND RETENTION by Country, n.d.). Although those sales numbers are not all attributed to their line of earbuds, Apple’s line of earbuds do account for a large number of their sales and are incredibly profitable. Since the launch of Apple’s Airpods, they have dominated the market and have become the most popular earbuds in several markets. Studies have found that Apple earbuds accounted for 26% of wireless headphone sales and revenue since the Airpods release, which is more than any other competitor in the market (Richter, 2017). Apple’s earbuds unit sales peaked in 2020 where they sold 114 million units, and in 2022 alone, it is reported that Apple’s earbuds brought in $14.5 billion in revenue, which shows that it is a major part of their business and is incredibly profitable (Kombo, 2023). For the launch of Apple’s new earbuds, they will be available worldwide when purchased online, and we will start by launching them in-store in their most popular regions, which are the United States, China, Japan, and Asia Pacific. To determine how many new customers will be acquired in year 1, we will start by researching the rate of international travelers. Global international travel totaled just under 1.3 billion travelers in 2023. In 2022, the United States saw over 50 million international visitors and Europe saw 265 million international visitors. In 2023, China saw 26 million international visitors, Japan saw 2 million international visitors, and Asia Pacific saw 93 million international visitors (International Tourist Arrivals Worldwide 1950- 2023, n.d.). This brings our total international travelers in the past two years to 386 million across the regions that we will be working in. Since Apple holds about 26% of market share in the wireless headphones industry, we will assume that they will be able to acquire 26% of the 386 million international travelers to their selected regions. This means that they will be able to acquire 100.36 million new customers in the first year. And since Apple’s earbuds brought in $14.5 billion in revenue in 2022, we will

Running Head: ACQUISITION AND RETENTION use 2.5% of that for their marketing spending, giving us $362.5 million to market this new product. And to find the acquisition cost for this new product, we will divide the marketing cost by the number of new customers. The formula will be ($362,500,000/100,360,000) giving us an acquisition cost of $3.61. This means it will cost Apple $3.61 to acquire each new customer for this new product. Recommendations Apple’s current customer acquisition cost is $0.0253, and the acquisition cost for this new product is $3.61 which is substantially higher. Even though the acquisition cost for this new product is higher than their typical acquisition cost, that is to be expected since this is a brand new product for them. It will be worth it for them to spend the extra money to acquire customers for this new product as long as they are able to retain them, since they do have a fairly low customer retention cost at $0.0035. I would recommend that Apple focus most of their efforts on retaining their new customers once they have acquired them. They should offer extended support to consumers since this product will have features that are brand new to Apple and their customers. Even though the cost of acquiring customers will be high, if they are able to retain these customers, they should be able to recoup their initial losses with later sales and profitability growth.

Running Head: ACQUISITION AND RETENTION References Corporate Finance Institute. (2023). Customer Acquisition Cost (CAC) . Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/accounting/customer- acquisition-cost-cac/ What is Customer Retention Cost? (n.d.). Finmark. https://finmark.com/glossary/customer- retention-cost/ Apple Sales by Country . (n.d.). Statista. https://www.statista.com/statistics/382175/quarterly- revenue-of-apple-by-geograhical-region/#:~:text=Apple Richter, F. (2017, January 13). Apple Takes the Wireless Headphone Market by Storm . Statista Infographics; Statista. https://www.statista.com/chart/7561/wireless-headphone-market- share/ Kombo, S. (2023, August 30). Apple AirPods Revenue Dwarfs That of Tech Giants . Techweez. https://techweez.com/2023/08/30/apple-airpods-revenue-tech-giants/ International tourist arrivals worldwide 1950-2023 . (n.d.). Statista. Retrieved March 11, 2024, from https://www.statista.com/statistics/209334/total-number-of-international-tourist- arrivals/#:~:text=How%20many%20people%20travel%20every%20year?%20In

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