I'm having trouble figuring out which equations to use to show the loss of revenue when giving discounts. Especially if customers end up canceling service anyway after the three months are up.

Memo 5

To: Marketing Director, Residential Telephone Services

From:Vice President, Residential Telephone Services

Re:Customer Retention

As you are aware, we are continuing to lose customers of our residential VoIP telephone service. According to our recent marketing research report on the topic, many of our customers are dropping due to the expense of maintaining home phone service while also having wireless plans.

I would like your team to consider whether we can take advantage of selective discounting to maintain higher retention. In practice, when customers call to cancel their service, we would offer them a significant discount (25 to 30 percent) off their current rate in order to retain their business. Customers would need to agree to maintain their service for at least three months in order to get the discounted price.

Please put together a short response that states whether you think this plan would increase our economic profits and whether there are any risks that we would lose money due to this plan.