A retail store sells a popular cosmetic called Devine and the store manager was given $140,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $28 per bottle, a contribution margin of 0.30, a customer defection rate of 17 percent, and a repurchase frequency of five times a year. These improvement funds could be used to (a) increase the contribution margin to 0.39 or (b) reduce the customer defection rate to 12 percent or (c) increase the repurchase frequency to six times per year. Assume all other variables remain at the base case level for each of the three improvement options. Use the Excel template VLC to calculate the VLC for each option and summarize your answers using the table below. Round your answers to the nearest cent. (a) (b) (c) Contribution Repurchase Price Margin 0.30 $28 $28 $28 $28 0.39 0.30 0.30 What is the best way to use $140,000 in improvement funds? The best way to use the $140,000 in improvement funds is option (a) ✓ Defection Frequency Rate 5 17% 5 5 6 17% $ $ 12% $ $ 17% VLC in $ 45.91 56.95 52.38 55.09
A retail store sells a popular cosmetic called Devine and the store manager was given $140,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $28 per bottle, a contribution margin of 0.30, a customer defection rate of 17 percent, and a repurchase frequency of five times a year. These improvement funds could be used to (a) increase the contribution margin to 0.39 or (b) reduce the customer defection rate to 12 percent or (c) increase the repurchase frequency to six times per year. Assume all other variables remain at the base case level for each of the three improvement options. Use the Excel template VLC to calculate the VLC for each option and summarize your answers using the table below. Round your answers to the nearest cent. (a) (b) (c) Contribution Repurchase Price Margin 0.30 $28 $28 $28 $28 0.39 0.30 0.30 What is the best way to use $140,000 in improvement funds? The best way to use the $140,000 in improvement funds is option (a) ✓ Defection Frequency Rate 5 17% 5 5 6 17% $ $ 12% $ $ 17% VLC in $ 45.91 56.95 52.38 55.09
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A retail store sells a popular cosmetic called Devine and the store manager was given $140,000 by the corporate office to improve store performance any way
she thinks best. The "base case" information is a price of $28 per bottle, a contribution margin of 0.30, a customer defection rate of 17 percent, and a
repurchase frequency of five times a year. These improvement funds could be used to (a) increase the contribution margin to 0.39 or (b) reduce the customer
defection rate to 12 percent or (c) increase the repurchase frequency to six times per year. Assume all other variables remain at the base case level for each of
the three improvement options.
Use the Excel template VLC to calculate the VLC for each option and summarize your answers using the table below. Round your answers to the nearest cent.
Contribution Repurchase Defection
Margin Frequency Rate
0.30
5
17%
The
0.39
5
17%
0.30
5
12%
6
17% $
(a)
(b)
Price
$28
$28
$28
(c) $28
0.30
What is the best way to use $140,000 in improvement funds?
The best way to use the $140,000 in improvement funds is option (a)
$
VLC in $
45.91
56.95
52.38
55.09
Transcribed Image Text:What is the average value of a loyal customer (VLC) in a target market segment if the average purchase price is $80 per visit, the frequency of repurchase is
every month, the contribution margin is 25 percent, and the average customer defection rate is 24 percent? If a continuous improvement goal is set of a 20
percent defection rate next year and 18 percent two years from now, what are the revised VLCs over their average buying life? Do not round intermediate
calculations. Round your answers to the nearest dollar.
For defection rate = 24%, VLC = $
For defection rate =
20%, VLC = $
For defection rate = 18%, VLC = $
316
300
293
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