Explain 5-year individual customer clv

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The data below shows the results of a McDonald's Corporation segmentation study. Each column shows the values for a typical customer in each class (constant over the lifetime of the customer). The annual retention probability applies only after the first year. That is, no one defects until after a full year of patronizing McDonalds. PLEASE SEE THE ATTACHMENT for the data inputs needed to solve this problem. Please also solve this problem in excel.

a. Assume that McDonalds' gross margin is 40% and that its (one-time) customer acquisition cost is $50. Further assume that McDonalds uses a discount rate of 11%. What is the 5-year individual customer CLV for each class of customer?

b. Suppose McDonalds is considering an investment of $40 million in their 4,500 company-owned North American stores to improve service quality, and thereby, customer retention. How many customers per store would have to be "converted" from Gold to platinum for the investment to achieve break even after five years (For simplicity, assume all customer "conversions" apply throughout the entire five-year period.).

Reference no: EM132906322

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