**I need help , could you also explain exactly how to work this problem out?**

This case is about an online bookseller, and in contrast to the pet store, this retailer doesnt advertise. It relies primarily on paid placements in search engines, and it obtains customers through their goal-directed searches for particular titles (e.g., old books or price discounts on new books). Say the costs of these placements are a mere $10000 a year and 2000 customers locate the site through the funded search engines, for a per-customer acquisition cost of $5.00. (Gotta love the Internet!).

Customers are notoriously non-loyal to online retailers, especially those providers accessed through search engines or via price comparisons. Thus, retention is a rare thing and each purchase is treated as a new customer. The company has considered various rewards programs but has launched none to date. So retention costs are 50% of acquisition costs.

The bookstore has two segments: The first segment buys rare old books. And it is profitable (on average some $2500). The second segment purchases from this retailer because its prices beat other online bookstores. (On average, the margins are $500).

For the bookstore, the discount-seeking buyers (Price Shoppers) are not loyal: Retention rates are 0.7, 0.5 and 0.4 (over the years). And even the rare-book buyers (Old Book) will do some comparison shopping; so their retention is approximately 0.9, 0.7 and 0.6 over the successive years.

On line book purchasers are likely to buy books on and off through their life time. If customers find the website by age 33, on average, their book-buying life span could easily be thirty years or longer. (But for comparison purposes, lets cap it at four, like in the MobiMed example in the chapter.

1. Work through the numbers. Calculate the final CLV (Show all calculations)
2. What inferences/conclusions can you draw from the numbers calculated regarding customer relationships and their importance?
3. Comment on the managerial implications of these results. What marketing actions would you recommend for this store?

ITEM	TIME 1	TIME 2	TIME 3	TIME 4
Acquisition Cost	$5
Retention Rate Old Book	1.0	0.9	0.7	0.6
Retention Rate Price Shopper	1.0	0.7	0.5	0.4
Cumulative Retention Rate: Old Book
Cumulative Retention Rate: Price Shopper
Retention Cost		$2.5	$2.5	$2.5
Average Customer Contribution: Old Book	$2500	$2500	$2530	$2530
Average Customer Contribution: Price Shopper	$500	$500	$500	$500
Net Contribution: Old Book
Net Contribution: Price Shopper*
Expected Average Contribution: Old Book**
Expected Average Contribution: Price Shopper
Present Value Deflator	1.0	1.07	1.145	1.25
Present Value (7%): Old Book
Present Value (7%): Price Shopper
TOTAL					$

*Net Contribution = (Average Customer Contribution Acquisition Cost or Retention Cost)

**Expected Average Contribution = (Net Contribution x Cumulative Retention Rate)

Use the MobiMed example (Figure 14-4 in your text) to fill the blank cellsin the table above. You need to calculate:

Cumulative retention rates

1. Net contribution amounts
2. Expected average contribution figures
3. Present value figures, and
4. Total CLV amounts for the two segments

Time 2 Time 3 Time 4... Time 1 $55 $20 75% 75% $20 70% 100% $20 65% 34% 52% $100 $150 $200 $250 a. New customer acquisition cost b. Retention costs C. Retention rate d. Cumulative retention (multiply adjacent rates) e. Average customer contributions f. Net contribution = (Contribution e - Acquisition a or - Retention b) g. Expected average contribution of x d) h. Financing finessing, e.g., for discount rate of 0.07, divide each g by (1.074ft - 1)] today's value $45 $45 $130 $97.50 $180 $93.60 $230 $85.00 1.07 $91.12 1.145 $81.75 1.225 $69.39 Final sum: $287.26 abeburg Time 2 Time 3 Time 4... Time 1 $55 $20 75% 75% $20 70% 100% $20 65% 34% 52% $100 $150 $200 $250 a. New customer acquisition cost b. Retention costs C. Retention rate d. Cumulative retention (multiply adjacent rates) e. Average customer contributions f. Net contribution = (Contribution e - Acquisition a or - Retention b) g. Expected average contribution of x d) h. Financing finessing, e.g., for discount rate of 0.07, divide each g by (1.074ft - 1)] today's value $45 $45 $130 $97.50 $180 $93.60 $230 $85.00 1.07 $91.12 1.145 $81.75 1.225 $69.39 Final sum: $287.26 abeburg