The monthly average contribution generated from every Verizon customer is about $30. Currently, Verizon incurs a cost of $800 per customer to acquire them. Based on a recent analysis of their customer data, they have determined that they lose approximately 10% of their customers each year.

1. What is the expected purchasing life of a new customer for Verizon (over an infinite time period)?

2. What will the customer lifetime value be over an infinite time period?

3. What is the survival probability of a newly acquired customer at the end of the 5th year from now?

4. What would be the customer lifetime value at the end of the 5th year?

5. Verizon is contemplating offering customers who switch from other mobile carriers, a free iPhone 6 Pro valued at $999. What would be the new customer lifetime value over an infinite time period?

6. For the next year, assume that the monthly contribution per customer remained the same. However, Verizon was able to increase lifetime value for each customer to $3,200 by reducing their churn rate to 8%.

a. What would be the expected life of a customer acquired by Verizon next year?

b. How much could Verizon afford to spend to acquire a new customer next year?