Customer Lifetime Value Analysis

Q1)

Less than $50 year 0 year 1 year 2 year 3 year 4 year 5

0 1 2 3 4 5

customers 4657 4046 1918 970 927 820

revenue 148278.9 151464.8 109129.4 71418.95 68788.16 58617.59

Profit (without mailing cost) 62277.13 63615.22 45834.33 29995.96 28891.03 24619.39

mailing cost 3958.45 27942 27942 27942 27942 27942

net profit 58318.68 35673.22 17892.33 2053.959 949.0272 -3322.61

discount 0.1 0.1 0.1 0.1 0.1 0.1

npv profit 58318.68 32430.2 14787.05 1543.17 648.1983 -2063.08

cumulative 58318.68 90748.88 105535.9 107079.1 107727.3 105664.2

customer LTV 12.5228 19.48655 22.66178 22.99315 23.13234 22.68933

Q2)

Greater than $50 year 0 year 1 year 2 year 3 year 4 year 5

0 1 2 3 4 5

customers 3296 2875 1653 866 761 623

revenue 314932.8 334213 182311.3 89091.25 71684.16 65503.62

Profit (without mailing cost) 132271.8 140369.4 76570.73 37418.33 30107.35 27511.52

mailing cost 2801.6 19776 19776 19776 19776 19776

net profit 129470.2 120593.4 56794.73 17642.33 10331.35 7735.52

discount rate 0.1 0.1 0.1 0.1 0.1 0.1

npv profit 129470.2 109630.4 46937.79 13254.94 7056.449 4803.15

cumulative 129470.2 239100.6 286038.4 299293.3 306349.8 311152.9

customer LTV 39.281 72.54265 86.78349 90.80501 92.94592 94.40319

Q3)

Customer Acquisition Cost

Number of Customers 7953

total number of catalogs sent 345782.6

Total Cost 293915.2

Cost/Customer 36.95652

Customers Whose Initial Purchase is > $50:

From the table in Q2 we see that Tuscan is making a profit of $57.44 per customer over a 5-year period. From Exhibit 2 of the case we see that the majority of purchases for this category are made in years 1 and 2. Tuscan may be able to increase per customer profits in this category by maintaining the same mailing frequency (8 catalogs per year) for the first 2 years and then decreasing the frequency (to say 4 per year) in subsequent years thereby decreasing the mailing costs while still maintaining relatively the same response rate from customers. Also we see from exhibit 2 that the number of multiple sales in a year is relatively high which seems to indicate that these may be loyal customers. A referral reward system may be used to incentivise these customers to try and rope in more customers.

Customers Whose