A Case Study: Attraction or Retention? The company is a regional electrical distributor. Itcurrently has 1,000 customers who buy an averageof $5,000 per year, generating a 50% margin.From experience, the company knows that 20% ofits customers will not return the next year and that it spends an average of $500 to acquire each newcustomer. Given a choice of investing an additional $50,000in a customer acquisition or a retention program,what should the company do? Assume: $50,000 spent on retention reduced churnfrom the present rate of 20% to 15% and $50,000spent on acquisition resulted in 100 newcustomers in year 1. Restrict your analysis to a five year period.

Five Year Payout Scenario 1: New Customer Acquisition Year 1 Year 2 Year 3 Year 4 Year 5Incremental Customers: 100 Purchases: Annual Profits Cumulative Profits:

Scenario 2: Customer Retention Year 1 Year 2 Year 3 Year 4 Year 5 Retained Customers @ 20%: 800 Retained Customers @ 15%: Additional Retained Customers: Incremental Annual Purchases: Annual Profits Cumulative Profits: