Free Case Study On Marketing
Finance is the name of accumulating and utilizing the funds at a place from wherein the likelihood of earning would be on a higher place or notion. Computing the acquisition cost is one of the most sophisticated concepts that come under the field of finance. Theoretically, the cost related to the acquisition of customers or a company is known as Acquisition Cost. In this part of the analysis, computation of acquiring single new customer for Calyx and Corolla (C&C) is required.
The case study confirms that most of the revenue of C&C has been generated through mailing the catalogs to the potential as well as existing customers. In the last year, the company mailed approximately 15 million catalogues to their customers. The bifurcation of mailed catalogues by C&C last year to the customers is classified below:
Out of 15 million catalogues, 12 million of catalogues have been mailed to rented mailing list, while 2 million of them have been mailed to the prior customers. The yield of the customers that became the final customers of C&C is as follows
It means that C&C has a cumulative yield of 6.5% in terms of having these three mailings for the customers. The total production and marketing cost of a catalogue is 0.54$, and for 15 million catalogues, the total cost incurred by the company is $ 8.1 million. According to the current yield, C&C has the ability to make 975,000 customers in a year. Therefore the cost of acquiring a single customer for C&C will be
Total Cost Incurred by the company = $ 0.54 * 15 Million = $ 8.1 Million
Total Customers to Catalogues = 15 Million * 6.50% = 975,000
Cost to Acquire a Single Customer = $ 8,100,000 / 975,000 = $ 8.31
Computation of Customer Lifetime Value
Customer Lifetime value (CLV) is a marketing concept that analyzes the life time value of the user to predict the net profit attributed with the fiduciary relationship of the customers. The computation of customer life time value of C&C is mentioned below
All of the aforementioned figures have been found from the case study of the company; however there is some information that exclusively based on the assumption. Number of customers at the beginning of the year has been computed according to this formula
Revenue last year = $ 1,000,000 / Cost to Acquire Single Customer (8.31$) = 120,337
Orders per year and Average order size per customer have been supposed that on average each customer place 2 orders in a single year, and every order has an average value of 80$. Discount rate has been assumed to be 10% through which the net present value (NPV) of the project has been computed.
Customer Life Time Value in $ = Net Present Value / Total Number of Customers
= $ 78,785,691 / 1,083,303 = $ 73
There are certain benefits associated with each of the segments discussed in the case study.
Romantic Gift Segments: The Company will gain high amount of execution of orders during some specific dates, like February 14th, Easter and others. The amount of revenue will be very high in certain seasons in comparison with the entire year.
Home Décor Segment: Home décor is one of the hobbies of the women, and the benefits will be very high because of the decoration necessity for each day.
Weddings and Funeral Segments: the amount of benefits related to this particular segment is also high, but it is not as high as the home décor.
Continuous expansion and innovation is extremely important for the sake of an organization, and it is equally applied over C&C as well. Productivity is an important element that is associated with the companies for which they work extremely hard to accomplish. There are three different segments that are considered as effective for C&C, in order to have their productivity and sustainability in the industry potentially. The three segments are
Romantic Gift Segments
Home Décor Segments
Wedding & Funeral Segments
Considering the fact that the company has to select a single segment for their expansion, going with Home Décor Segment would comparatively a powerful point for C&C. The rationale behind choosing this particular segment is clear, which is the amount of customers directly proportionate with this particular segment. According to the case study, this particular segment consists mostly on women who have ample knowledge related to flowers and buy flowers on a regular basis. The frequency of buying of flowers in this particular segment is comparatively higher than two other segments because of every day necessity, therefore it will comparatively a benefit for the company as compared to the incurred cost.
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