Assignment:
Net-4-You is an Internet Service Provider that charges its 1 million customers $19.95 per month for its service. The company's variable costs are $.50 per customer per month. In addition, the company spends $.50 per month per customer. or $6 million annually, on a customer loyalty program designed to retain customers. As a result, the company's monthly customer retention rate was 78.8 percent. Net-4-You has a monthly discount rate of 1 percent.
a. What is the customer lifetime value?
b. Suppose the company wanted to increase its customers' loyalty retention rate and decided to spend an additional $.20 per month per customer to upgrade its loyalty program benefits. By how much must Net-4-You increase its monthly customer retention rate so as not to reduce customer lifetime value resulting from a lower customer margin?