Calculate the change in average customer lifetime value clv


A retailer is considering offering a new program that will give specialized incentives to select customers with the intent of gaining more loyalty from the customers. Although the new service does not have an upfront cost for the retailer, estimates suggest offering the new service will increase the average monthly revenue per customer from $50 to $55. It will also increase the average monthly costs per customer from $10 to $15. The retailer expects that offering the new service will increase annual retention rates from 60% to 70%. Assuming a constant annual profit margin, retention rate, and discount rate over time, calculate the change in average customer lifetime value (CLV) with the new service using a 10% discount rate. Based only on the change in average CLV, should the retailer offer the new service?

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Operation Management: Calculate the change in average customer lifetime value clv
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