Customer Lifetime Value Analysis
due Wednesday, 19 SEP, 11:59 PM (Week 4)
Bonnie and Clyde Smith are school teachers who own a small farm near the edge of their town. They sell a variety of vegetables from a roadside stand on their property during the Summer and early Fall. One of the items that they sell is corn.
Bonnie and Clyde disagree about whether or not they should be giving customers a "baker's dozen", or thirteen ears of corn, for the price of twelve. Bonnie, who is in charge of running the roadside stand, thinks that it is a friendly gesture to give customers a baker's dozen for the price of twelve ears. Clyde, who takes care of maintaining the fields and equipment, was furious when he found that Bonnie had been giving away product that he had worked so hard to produce.
Bonnie sells corn for $6/doz. at the start of the corn season, dropping the price to $3/doz. by mid-season, and finally to $2.50/doz. by the end of the growing season. Her prices are determined by what are the customary prices of other growers in the area; higher prices would cause her to lose customers, and lower prices would cut into profits without gaining new customers. Bonnie believes that when she started giving a baker's dozen to corn customers at the start of the season, those customers tended to return to her stand within a week and ultimately to become appreciative, loyal, weekly customers throughout the rest of the season.
Clyde was not happy when he discoverd that Bonnie had been including an extra ear of corn for no additional charge. Clyde estimated that the cost of growing each ear of corn was twenty cents. From his perspective, selling a baker's dozen at the end of the season resulted in a needless financial loss. He told Bonnie that he'd rather let the corn rot in the field than to waste fuel to harvest and deliver it to the stand if it meant revenues lower than the cost to produce. This not only strained the couple's business relationship, it has strained their marriage.
Bonnie and Clyde know that you are a business student. They have asked for your advice. Write a professional memo that settles this dispute of whether to include an extra ear with the purchase of a standard dozen at customary standard dozen prices. Your analysis MUST assess the lifetime value of a customer.
Your memo of about a page in length must include the following format, not necessarily with any sort of headings:
Note that "memo," is used here to mean a brief report; don't include "to" and "from" lines and such. (Your name IS required to be at the top of your submission; you will be penalized by two letter grades for not doing so.) Appropriate length of the report body is about one single-spaced page. It is not appropriate to include a cover page with a professional business memo. All calculations for numbers that are derived from given case information must be clearly shown in your report (either in the body or as an attachment that is referenced). Your submission must be in one single word processed (.doc or .pdf) file inclusive of attachments; attachments are strongly discouraged. If you submit more than one document file, I will open only the first document and will assign a score based on whatever is in that document only. If you submit a document that does not immediately open in MS Word (or Adobe if PDF) because it has no file extension or submit a document that is not formatted to fit properly on 8.5x11 inch paper (e.g., a business report written using Excel rather than Word), I will assign a score of zero. Failure to include your name at the top of the document will result in a two letter grade penalty.
While you are encouraged to collaborate with other members of the class (on the Blackboard forum and on your own) when thinking about how to do calculations and how to resolve various issues in the case, the written report that you submit must be your own work. Note that this is a marketing report, so a report that concludes on a numeric calculation is inadequate.