Reference no: EM132505953
Comcast, Inc. (the cable tv company) is trying to determine the Lifetime Value of its customers. Here are some facts related to Comcast customers:
- A study of historical sales data reveals that the average customer brings in about $2500 of sales revenues each year.
- A study of historical cost data reveals that the average cost to service and retain a customer is about $700 per year.
- Comcast spends about $500 to acquire a new customer, on average.
- Comcast retains approximately 75% of its customers from one year to the next.
- Comcast's discount rate is 7%.
a. Calculate the Lifetime Value of a Comcast customer using the infinite time horizon version of the CLV formula.
b. How does your answer to a. change if year-to-year customer retention drops to 50% (and everything else stays the same)?
c. What is the maximum amount Comcast can spend to acquire a customer and still maintain a positive Customer Lifetime Value (CLV)? (use the original assumptions above and ignore the fact that Comcast currently spends $500 to acquire a customer)
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