Net 4 - 4 - You is an Internet Service Provider that charges its 1
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Question:
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' monthly retention rate and decided to spend an additional $.20 per month per customer to upgrade its loyalty program benefits. By how much must Net 4−You increase its monthly customer retention rate so as not to reduce customer lifetime value resulting from a lower customer margin?
Answers
a)85.36$
b)1.5(Decrease from 78.8 to 77.03)
For a the formula used to get the answer is
18.95(1/1+0.01−0.788)=85.36
How do I get the right answer for b?
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ISBN: 978-0133255584
4th Edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura
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