Marketing
posted by Anonymous .
Net4You is an internet service provider that charges its 1 million customers $19.95 per month for its service. The company's variable cost are $0.50 per customer per month. In addition, the company spends $0.50 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. Net4You has a monthly discount rate of 1 percent.
a.) What is the customer lifetime value?
b.) Suppose the company wanted to increase its customers' monthly retention rate and decided to spend an additional $0.20 per month per customer to upgrade its loyalty program benefits. By how much must Net4You increase it's monthly customer retention rate so as not to reduce customer lifetime value resulting from a lower customer margin?
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