# objective 9 1 duration of the relationship is a critical parameter for calculating c 4312091

Objective 9

1) Duration of the relationship is a critical parameter for calculating customer lifetime value.

2) Additional costs to serve and retain the customer in year t is represented in the customer lifetime value equation as ct.

3) Customer lifetime value is the discounted net cash flows from the customer for all of the years that it remains a customer compared to the initial acquisition cost to obtain the lifetime relationship with the customer.

4) What is the customer lifetime value of customer Emma Stone for the first three years of the customer relationship?

 Initial acquisition cost \$700 n = number of years retained 3 r = retention rate for each of the n years retained 0.8 Cost of capital 0.1 M1 Margin from customer in year 1 \$500 M2 Margin from customer in year 2 \$600 M3 Margin from customer in year 3 \$650 c1 cost \$120 c2 cost \$100 c3 cost \$100

A) \$2,080.00

B) \$940.49

C) \$1,380.00

D) \$240.49

5) What is the customer lifetime value of customer W. Harrelson for the first three years of the customer relationship?

 Initial acquisition cost \$2,100 n = number of years retained 3 r = retention rate for each of the n years retained 0.8 Cost of capital 0.1 M1 Margin from customer in year 1 \$1,500 M2 Margin from customer in year 2 \$1,800 M3 Margin from customer in year 3 \$1,950 c1 cost \$360 c2 cost \$300 c3 cost \$300

A) \$825.12

B) \$2,925.12

C) \$6,390.00

D) \$4,190.00

6) Which of the following is not a critical parameter for calculating customer lifetime value?

A) initial acquisition cost

B) revenues

C) profits or losses

D) the duration of the relationship

7) Compute the customer lifetime value of Customer 222 based on the data below for the first six years of the customer relationship. Costs (ct) were incurred to promote customer retention at a rate of 0.8 in years 1 through 6.

Initial acquisition cost \$2,400

n = number of years retained 6

r = retention rate 0.8

Cost of capital 0.1

Mt = margin from customer in year t

M1 \$1,000

M2 1,200

M3 1,300

M4 1,400

M5 1,500

M6 1,600

c1 240

c2 200

c3 200

c4 200

c5 160

c6 160

1