Retail Relays Case

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Retail Relay Case (A)

MARK 70350-02

Customer Relationship Management

Professor Shankar Ganesan

Matt Beck, Bill Brunner, Stephanie Rearick, James Wine

Case: Retail Relays (A) (UV 5738)

1. What is the expected customer lifetime value of a newly acquired customer? Use an annual discount rate of 10%.

The expected customer lifetime value (CLV) for a newly acquired Retail Relay customer varied according to the study conducted. In the pilot study, the CLV was $24.21 while the full study revealed a CLV of $11.44. As the pilot study was more comprehensive in regards to customer buying trends, a good approximation of CLV would be near the $20 mark.
The first step in calculating CLV for both studies was to adjust Retail …show more content…

Therefore, the descriptive statistics provided by the pilot study can be considered significant and methodologically valid.

3. Do you think this value (CLV) is likely to increase or decrease as Retail Relay grows into a larger company?

As any company ramps up operations, the initial investment is likely to negatively impact short term profits. However, it is called an investment because companies are predicting that it will produce greater value in the long run. This is one of the fundamental reasons CLV is not calculated as a static, point in time measure. Companies use a longer-term horizon (typically 3-5 years) to get a better sense of the profitability long-term. Over time, we believe the CLV is likely to increase as the company grows if Retail Relay can improve operational effectiveness through cutting cost and finding ways to capture more loyal customers.
Therefore, the future CLV of a larger Retail Relay is dependent on their operational costs and the customer acquisition strategies they focus on. Larger companies tend to get the benefit of economies of scale. In this case, more customers would decrease the cost of the truck and sorters per customer. Also, as a larger player, Retail Relay may be able to have more negotiating power with suppliers to obtain a margin higher than 15%, or start negotiating with

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