Case Study: Customer Lifetime Value
This case exercise was created by Professor John F. Cady specifically for class discussion in M370 ICORE. The data in this case are not representative of any printer manufacturer and should be used only for academic discussion
Peter Pepper’s Printer Promotion Proposal
Peter Pepper is the product manager at Whoyser Products Corporation Technology Products Division. Peter oversees Whoyser low-end printers and related products. After reviewing his sales figures for the first 10 months of 2018, Peter was concerned that he might not hit this year’s annual sales targets for the low-end Whoyser black inkjet printers. These printers were targeted to home users. Because of his concern, he is considering a for printers in a few selected malls in and around Indianapolis.
Peter has been approached by a local entrepreneur, Bobby “Darth” Knight, who ran a direct marketing firm located in Vincennes, IN. Darth has offered his services in developing and implementing a sales promotion campaign to help boost Whoyser’s end-of-year sales. He has suggested a promotional campaign . Darth proposes putting . Darth’s price including all promotional and remuneration of .
Peter is very interested in Darth’s proposal, and is considering it i.
In Whosyer’s printer business, . On average, . In fact, many customers trade up after a while to a more sophisticated laser jet or multifunctional (printer/copier/fax/scanner) printers. But such a trade-up did not benefit Peter directly, as those printer and printer combos fell under a different product manager. .
Consumers of Peter’s typically printed with a Whoyser Star print cartridge. In the targeted consumer household, cartridges . Unfortunately for Peter, Whoyser did not capture all replacement cartridge purchases. from specialists or over the Internet from office supply sellers. As a conservative estimate Peter estimated that .
To boost sales, . , and . In this special promotional packaged configuration, .
Whoyser forecasted for its products in this tough market . . .
In considering Darth Knight’s proposal for the upcoming Christmas season, Peter asked himself the following questions. Please provide the answers for Peter. Submit your answers supported by all calculations in either a “Word” or an “Excel” document in Canvas.
1. What is the lifetime value of a single customer who stays with Whoyser for the full 3 years after his/her purchase of a Whoyser inkjet printer, on promotion, during the Christmas sale?
You will find it easiest to simply calculate the value of the customer for each of the three years separately and sum the series to obtain the answer.
2. Darth’s proposal seems quite expensive to Peter. Peter would like to put some pressure on Vader to commit to a result to be achieved by the end of the promotional campaign just before Christmas. Peter wondered, how many promotional printer packages should Knights kiosk crew sell in the 10 regional malls in order for Whoyser to break-even on the incremental costs. Peter knew from experience that the kiosk crews were unlikely to cannibalize any printer sales from other sources.
Please tell Peter how many incremental printers will have to be sold under current consumer behavior conditions for him to break even on the promotion.
3. Peter also wanted to know what else could be done to improve the profitability of these low-end printers, using the CLV methodology, in addition to the kiosk promotion itself. In other words what actions could Peter influence to enhance the economic return of acquiring these new customers.
Please suggest 2 or 3 ways for Peter to increase the profitability of the promotion.