Cool Beans is a locally owned coffee shop that competes with two large coffee chains, PlanetEuro and Frothies. Alicia, the owner, is considering two different marketing promotions and thinks that CLV analysis will help her decide the best course of action. An average specialty coffee drink sells for $4.08 and has a margin of 74%. One promotion is providing loyalty cards to her regular customers that would give them one free specialty coffee drink after 10 regular purchases. Alicia estimates that this will increase the frequency of their purchases by 8%. Currently, her customers average buying 2 specialty drinks per week. The second promotion is targeted at new customers. She would offer a free specialty drink to incoming college freshmen by providing a coupon with their orientation packages. Because of her location near the college, she expects that 550 students will come to Cool Beans for a free trial. Of those, she anticipates that 16% will become regular customers who will purchase at least one specialty drink each week. The cost of printing and distributing the coupons is $136. What is the CLV of a customer over the time horizon of one year prior to introduction of the loyalty program? What would be the cost of the loyalty program? How many new students does Alicia think will become regular customers? What is the total cost of the student promotion?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Cool Beans is a locally owned coffee shop that competes with two large coffee chains, PlanetEuro and Frothies. Alicia, the owner, is considering two different marketing promotions and thinks that CLV analysis will help her decide the best course of action. An average specialty coffee drink sells for $4.08 and has a margin of 74%. One promotion is providing loyalty cards to her regular customers that would give them one free specialty coffee drink after 10 regular purchases. Alicia estimates that this will increase the frequency of their purchases by 8%. Currently, her customers average buying 2 specialty drinks per week.

The second promotion is targeted at new customers. She would offer a free specialty drink to incoming college freshmen by providing a coupon with their orientation packages. Because of her location near the college, she expects that 550 students will come to Cool Beans for a free trial. Of those, she anticipates that 16% will become regular customers who will purchase at least one specialty drink each week. The cost of printing and distributing the coupons is $136.

What is the CLV of a customer over the time horizon of one year prior to introduction of the loyalty program? What would be the cost of the loyalty program?
How many new students does Alicia think will become regular customers?
What is the total cost of the student promotion?

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