How would this change the profitability of the program

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Reference no: EM133410532

Question: We project a Loyalty Program would cost $1,603,119 over this period (technically infinite) if we instituted one (Projected Costs Scenario). However, using a 15% discount rate, assume the Loyalty Program (LP) costs an additional $4,809,357 (in addition to the $1,603,119 original cost) over this period because of unforeseen expenditures associated with the program (Over-cost Scenario).

Hint: ROI of LP = [ (Net margins with LP)-(Net margins without LP) / Costs of LP) ]

For instance, if net margins before X and after X (e.g. a marketing initiative) are identical, that means that all additional revenues generated by X have been perfectly absorbed to cover the additional costs of X; return on investment is 0.
Compare the two cost scenarios. How would this change the profitability of the program?

Reference no: EM133410532

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