A telecommunications service provider experiencing a customer retention problem approaches you for a consulting job. You have a discussion regarding the possible drivers for their retention problem and some of the issues that arises are; recessionary environment, technological changes, fraud, competition among other factors. They provide you with the following information:

The market size as at the end of 2021 is 100 million subscribers and the growth rate for the market is expected to grow at 1% per year for the next 3 years, 1.5% per year for the subsequent 4 years and then remain constant for the next 3 years.

The market share at the moment is 50% for our client, 30% for company A and 20% for company. The current churn rate (rate at which they are losing subscribers) is 3%. A recessionary environment is expected in the next 4 years and the churn rate is expected to increase in favor of the cheap competitors in the market. This recession will increase the churn rate by 25% every year but at the end of year 4, the churn rate will return to 3%.

The customers lost through churn by our client will be split at the ratio of 60% to company A and 40% to company B.

i). Using excel, model the number of customers that our client, company A and company B will be expected to have over the next 10 years, starting 2022. [6 marks]

To mitigate the effect of churn, the client is hoping to gain a larger proportion of the new customers entering the market. They currently have a share of 50% for the new subscribers that come into the market every year with the competitors A and B having 30% and 20% respectively. On average they receive Ksh 1000 a month for every subscriber and for each of these customers they on average spend Ksh 200 as a cost to maintain them. They aim to have a marketing campaign for the 4 years that will experience recession so as to mitigate the effect of churn. Recession is expected to reduce the income they receive from every customer by 15% every year, for the next 4 years, while their costs are expected to remain the same at Ksh 200. They plan to run an aggressive marketing campaign and the cost of customer acquisition is Ksh 80 per customer and this will increase by 12% every year for the next 4 years. This campaign will increase their market share by 9% every year for the next 4 years.

ii. )Model the revenues of your client for the next 4 years starting 2022. Would you advise them to run this marketing campaign?(4marks)