Eastern Motors Auto Dealership wanted to estimate the average CLV over a 5 year time horizon of
Question:
Eastern Motors Auto Dealership wanted to estimate the average CLV over a 5 year time horizon of a customer who purchases a new vehicle. The average vehicle sells for $24,400 and has a margin of 10%. Based on historical averages, 70% of people buying a new vehicle at Eastern will return for service 9 times over the next 5 years. Though it varies considerably, Eastern generates approximately $132 in margin on each service visit after accounting for parts and direct labor costs.
What would be the value of a service loyalty program that increased the average number of visits by 2 (over 5 years) and increased the probability that a new vehicle purchaser would return for service by 5 percentage points (e.g. from 75% to 80%) on a per customer basis?
Expert Answer:
To calculate the value of the service loyalty program we can first find the current CLV and then com... View the full answer
