Problem Description
This business statistics assignment addresses pivotal questions surrounding the growth and marketing strategies of Retail Relay. It primarily delves into the calculation of the expected Customer Lifetime Value (CLV), examines the influence of company expansion on CLV, evaluates the effectiveness of promotions (Valpak and Door-Hanger coupons), provides recommendations for refining social media marketing campaigns, and offers insights on Retail Relay's expansion into Richmond, with a focus on the central question of whether it is advisable to proceed with such a move. The assignment comprises various questions and comprehensive solutions:
- Calculating Expected Customer Lifetime Value:
- Table 1: Metrics and Calculations for CLV Calculation
- Probability of 2nd Purchase: 68%
- Probability of 3rd Purchase: 80%
- Impact of Retail Relay's Growth on Customer Lifetime Value:
- Table 2: Factors Influencing CLV with Retail Relay's Growth
- Assessment of Promotions: Valpak vs. Door-Hanger Coupons:
- Table 3: Valpak vs. Door-Hanger Promotion Cost Analysis
- Table 4: Prospect Lifetime Value (PLV) for Promotions
- Investigate the effectiveness of email promotions and social media campaigns.
- Incorporate coupons on social media platforms, like Facebook, to optimize cost-effectiveness.
- Implement promotions that require customer engagement (e.g., "liking" the page or sharing promotions) to increase brand exposure and reduce marketing costs.
- Decision on Richmond Expansion:
Question: What is the expected customer lifetime value of a newly acquired customer at an annual discount rate of 10%?
Solution: To compute the expected customer lifetime value, we employ several key metrics and calculations:
| Metric/Calculation | Value |
|---|---|
| Average Order Size | $3,200 |
| Cost on Per Dollar Revenue Earned | 0.0656 |
| Profit Margin on Product Sales | 15% |
| Rebate for Sales 2 and 3 | Included in Net Margin |
Table 1: We also consider the probability of repeat purchases. Assuming 100 people make their first purchase and applying conditional probabilities:
By converting the 10% annual discount rate into a 3-week discount rate (0.55%), we calculate the present value of each transaction and sum them up to obtain the Customer Lifetime Value (CLV), which is $32.48.
Question: Will the customer lifetime value increase or decrease as Retail Relay grows into a larger company?
Solution: The potential impact of Retail Relay's growth on customer lifetime value is explored by examining the following factors:
| Factor | Expected Influence on CLV |
|---|---|
| Reduced Direct Costs | Increase |
| Reduced Marketing Costs | Increase |
| Reduced Acquisition Costs | Increase |
| Increased Retention Rate | Increase |
| Increase in Sales per Customer | Increase |
As Retail Relay expands, direct costs will decrease, and marketing costs will be optimized due to established branding and word-of-mouth promotion. Acquisition costs can be reduced through better insights and advertising agency assistance. Lower costs make Retail Relay more price competitive, and long-term customer relationships result in higher sales per customer. All these factors indicate an expected increase in CLV.
Question: Is the Valpak promotion worth pursuing at a larger scale? What about door-hanger coupons?
Solution: We assess the two distinct promotions, Valpak and Door-Hanger coupons, by comparing their cost-effectiveness using the following data:
| Promotion Type | Valpak Promotion | Door-Hanger Coupons |
|---|---|---|
| Total Cost | $1,100 | $1,200 |
| New Customers | 58 | 7 |
| Acquisition Cost | $14 per customer | $171 per customer |
| Customer Lifetime Value | $32.48 | $32.50 |
| Lifetime Gain per Customer | $18.68 | -$138.95 |
Our analysis reveals that the Valpak promotion is economically viable, while the Door-Hanger promotion results in a substantial loss for the company.
Additionally, we conducted a Prospect Lifetime Value (PLV) analysis to provide a more comprehensive assessment:
| Promotion Type | Valpak Promotion | Door-Hanger Coupons |
|---|---|---|
| PLV per Prospect | $0.02 | -$0.46 |
| PLV for Prospects (60,000) | $1,171 | $923 |
This further confirms the suitability of the Valpak promotion and the inadvisability of pursuing Door-Hanger coupons.
Recommendations for Social Media Marketing Campaigns:
Question: Should Retail Relay make adjustments to its social media marketing campaign?
Solution: We recommend the following adjustments to the company's social media marketing campaigns:
The goal is to improve CLV by lowering marketing costs and enhancing customer engagement.
Question: Should Retail Relay proceed with the expansion into Richmond?
Solution: We analyze the prospects of expanding into Richmond, considering factors like demographics, economic diversity, and market suitability. We recommend a full city-wide expansion into Richmond, with a particular focus on utilizing social media (e.g., Facebook, Instagram, Pinterest) and Valpak promotions for a quick and successful expansion.
Conclusion
In this sample, we've delved into Retail Relay's strategic journey, where the application of business statistics plays a pivotal role in maximizing Customer Lifetime Value (CLV). We've explored the impact of company growth, assessed the effectiveness of different promotions, and provided valuable recommendations for refining social media marketing campaigns. Moreover, we've evaluated the prospects of Retail Relay's expansion into Richmond. This comprehensive analysis underscores the importance of data-driven decision-making, ensuring a profitable and informed path for Retail Relay in the dynamic world of retail.