Module 2B. CRC & CAC

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Southern New Hampshire University *

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618

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Marketing

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Jan 9, 2024

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Module 2B. Acquisition and Retention A. Customer Acquisition Cost (CAC) Customer acquisition refers to the process of gaining new customers for a business. By calculating customer acquisition cost (CAC) we can determine the amount of money needed to acquire a new customer. Using this metric tool can help evaluate the effectiveness of marketing and sales strategies. “Customer acquisition and customer retention are two metrics used mainly to determine the return on investment (ROI) for efforts to monetize consumers” (Customer Acquisition Costs Vs. Retention Costs | Optimove, 2023). In this paper, we will be calculating the CAC along with other metrics to help understand all expenses associated with sales, advertising, and marketing strategies costs related to customer acquisition to improve profitability and revenues. Total CAC = Total Marketing Spend ∧ Total Sales Spend ¿ of New Customers ¿ CAC = $ 724.5 B 120 B = $ 6.04 After calculating CAC it can be determined that on average Starbucks spends $6.04 dollars to acquire 120 billion customers. This calculation is based using 70% of total annual marketing expenses of $1,035 billion dollars, and 30% is used on retention efforts which will be discussed in the next section. B. Customer Retention Cost (CRC) Customer retention cost measures the cost of retaining customers over a certain period of time. This can refer to marketing efforts established such as loyalty programs (Starbucks App),

customer service, and ongoing marketing strategies to communicate with the audience and increase customer retention rates. “Knowing your CRC gives you an upper hand in evaluating the profitability and sustainability of your product or company’s pricing model. When you know how much you spend on your paying customers, you can easily decide how to price your products and features and what discounts to offer” (U. C. Team, 2023). TotalCosts Attributed C RC = ¿ RetentionPrograms ¿ ActiveCustomersduring the period CRC = $ 310.5 B 207 B = $ 1.50 After calculating the customer retention cost of Starbucks, it can be determined that the company on average spends $1.5 to retain existing paying customers. C. Product Acquisition Cost The company is currently strategizing to implement a new seasonal drink for the upcoming summer of 2023. The new product proposal will consist of launching the latest tropical Pineapple Coconut Iced tea beverage. In this section, we will calculate the projected product acquisition cost for the first year. To calculate product acquisition cost, we’ll need to calculate a fair percentage of tea drinkers. To calculate the potential customers that will be acquired in the first year, I used the total revenue for beverages in 2019. According to Business Quant in 2019 the total beverage revenue was $15.94 billion dollars and multiplied by the marketing percentage spent which was 4%. To calculate marketing expenses in the USA, I utilized the following formula: Global Marketing Expenses = $ 1,035 B $ 25,876 B = 4 %

Projected Marketing Expense = 15.94 Bx 2% = $ 318.80 B The total Beverage revenue gained in 2019 by Starbucks was $15.94 billion. I used 2% to calculate U.S. projected beverage consumption and multiply it by $15.94 billions which resulted in $318.80 billions. To calculate the potential number of customers acquired I used the following formula: CAC = 120 B $ 25,876 B x 100 = 46% Projected New Customers = $ 15.94 B x 46% = 73.324 B This means that Starbucks acquired .46 customers for every dollar earned, by multiplying this number by the total beverage revenue it gave me 73.324 billion. This is the number of projected new customers acquired in the first year of the product launch. To calculate product acquisition cost, I divided the projected marketing expense by the projected new customers acquired by the product launch. Product AcquisitionCost = $ 318.80 B $ 73.324 B = $ 4.35 D. Recommendations Based on the findings after calculating customer acquisition cost, customer retention cost, and product acquisition cost it can be determined that Starbucks is currently doing a good job with its marketing strategies and efforts to retain customers while keeping the expenses low. Based on calculations it takes Starbucks $6.04 to keep customers repurchasing their products which it’s a reasonable price. Most of the drinks offered by Starbucks have a price range between $4.00 to $6.41 dollars. Compared to competitors Starbucks sources only high-quality and ethically grown coffees. Every

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company is different but a good way to compare CAC and CRC is through lifetime value calculations. For example, Amazon's customer acquisition cost is $25 but the average customer lifetime for its prime subscribers it's $2,283 which is very high. Compared to other companies major companies like Tesla, Apple, and Ikea the marketing expenses of Starbucks are quite low. Additionally, compared to the acquisition rate, which in this case is $1.50, the customer retention rate is typically much lower. The $4.35 acquisition rate for the new product is also quite low and falls within the same ballpark as the CAC and the C

References Customer Acquisition Costs vs. Retention Costs | Optimove. (2023, March 26). Optimove. https://www.optimove.com/resources/learning-center/customer-acquisition-vs- retention-costs Team, U. C. (2023, January 20). Customer Retention Cost: What Is It, How To Calculate & Reduce It. Thoughts About Product Adoption, User Onboarding and Good UX | Userpilot Blog. https://userpilot.com/blog/customer-retention-cost/ Surve, H. (2022). Starbucks’ Revenue Breakdown by Product (2018-2022). Business Quant. https://businessquant.com/starbucks-revenue-by-product

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