Question

T-mobile would like to increase spending to acquire customers. Jessica, the head of marketing department, knows that 20% of customers leave company every year based on data and simulation. She does not want to overspend so she decide to acquire customers whose CLV equals or exceeds $5000. If Karly is expected to bring $2000 annual margin, the company should not spend more than ___________________ to acquire her as a new customer. Assume that the company's discount rate is 20% per year. Group of answer choices A. $500 B. $800 C. $1000 D. $1200 E. $1500

Answer 1

Answer:

C. $1000

Explanation:

Given that;

20% of customers leave company every year

Jessica  decide to acquire customers whose CLV equals or exceeds $5000

If Karly is expected to bring $2000 annual margin

assuming  that the company's discount rate is 20% /year =0.2/ year

The objective is to determine the amount the company will  spend to acquire her (i,e Karly) as a new customer.

The amount the company will spend to acquire her as a new customer is :

= amount of CLV  × discount rate

= $5000 × 0.2

= $1000

Thus, the company should not spend more than   $1000    to acquire her as a new customer