The Customer Experience and Value Creation Chapter 4 O.docx

The Customer Experience
and Value Creation
Chapter 4 Objectives
Life-cycle Cost and customer value creation
Performance and customer value
Measuring perceived value
MBM6
Chapter 4
1
Life-Cycle Cost and Customer Value Creation
In this section we will look at different ways companies can
assess the dollar value they create in customer savings relative

to competitors.
MBM6
Chapter 4
and Value Creation
Southwest Airlines
Total Cost of Purchase
MBM6
Chapter 4
3
Sources of Life-Cycle Cost
MBM6
Chapter 4

4
Life-cycle Cost & Economic Value
MBM6
Chapter 4
Economic Value = Life-cycle cost (competitor)- Life-Cycle
Cost (company)
5
AirCap Total Cost per Shipment
MBM6
Chapter 4
6
Communicating Value

MBM6
Chapter 4
7
Lowering Disposal Costs as
A Source of Value Creation
MBM6
Chapter 4
8
Price-Performance and Customer Value Creation
Performance can also include product features and functions
that do not save money but enhance usage and create customer
value.
MBM6

Chapter 4
and Value Creation
9
Performance vs. Price and Customer Value
Customer Value = Product Price – Fair Price
Data Source: “Digital Cameras,” Consumer Reports (April
2010)
MBM6
Chapter 4
10
Customer Value and Value Map

Canon A590
11
Sport Utility Vehicle Value Map
MBM6
Chapter 4
How would you evaluate the Toyota Highlander value based on
these results?
(Data Source: “Best and Worst New and Used Cars,” Consumer
Reports (2011): 43.)
12
Relative Performance and Customer Value
MBM6

Chapter 3
If the average performance rating of sixty-two printers is 61
according to Consumer Reports, and HP’s performance rating is
73, what is HP’s relative performance rating?
Relative Performance = (73/61)*100= 120.
Product Performance Rating
Average Performance Rating
X 100
Relative Performance =
13
Measuring Perceived Customer Value
Customer perceptions shape assessments of customer value. In
many cases, customers consider more than product performance
when they assess the overall value of a product.
MBM6
Chapter 4
and Value Creation
14

Perceived Customer Value
MBM6
Chapter 4
Perceived Customer Value
= Overall Performance Index (Overall benefits) – Cost of
Purchase Index (cost)
= (Perceived Product Performance + Perceived Service
Performance + Perceived Brand Reputation) – Cost of Purchase
15
Measuring Perceived Product Performance
MBM6
Chapter 4
1
2
3
Advantage: When the business is significantly better (>1 points)

than a competitor, it gets the relative importance points.
Disadvantage: If it is significantly worse (> -1 points), it loses
the relative importance points.
No advantage/disadvantage: Between -1 and +1 no points are
won or lost.
16
Service Quality & Brand Reputation Perceptions Are Indexed
that Same Way
MBM6
Chapter 4
17
Overall Performance
MBM6
Chapter 4

Because each core area of performance could have different
importance to customers, these area are assigned a Relative
Importance.
The overall performance is a weighted average of the relative
advantage and relative importance for the three core areas of
performance.
In this case the overall performance is 123.
Relative Importance x Relative Advantage= Performance score
18
Cost of Purchase
MBM6
Chapter 4
The cost of purchase is rated the same way. However, a higher
rating means a higher cost and a lower rating a lower cost.
For the business its purchase price is 27% higher but service
and repair 10% lower than its three competitors. Overall, their
cost of purchase is 3% higher than competitors.

19
Customer Value Index and Value Map
Perceived Customer Value Index = Overall Performance Index-
the cost of purchase index
20
Customer Value and Profitability
Businesses with higher customer value indexes have been shown
to general higher levels of profitability than businesses with
lower customer value indexes.
MBM6
Chapter 4
21

Identifying Value Drivers and Level of Price Sensitivity Using
Conjoint Analysis
MBM6
Chapter 4
and Value Creation
Conjoint analysis is a tool widely used in marketing to estimate
the relative importance of different factors that influence
people’s decision.
22
Conjoint Analysis: Price-Performance Trade-Offs
Step 1:
Set up two performance features each with 3 levels of
performance and price at 3 price levels.
Step 2:
Rank the 9 options presented from 1 (most preferred) to 9 (least
preferred).
These nine options (generated by conjoint analysis software) are
a representative subset of 27 (3x3x3) combinations.
Step 1 Set-Up
Step 2 Rank Preferences

23
Customer Preferences & Price Sensitivity
Customer Preferences
Which factor is most important?
Across different factors, the larger the range from low score to
high score, the more important that attribute is.
What is the incremental benefit of a large hamburger over an
average size?
Within the same factor, the bigger the jump from a lower score
to a higher score, the more incremental benefits the change will
bring to the customers.
Hamburger Size
Wait Time
Hamburger Price
Small Average Large
1 min. 5min. 10 min.

24
Relative Performance
MBM6
Chapter 3
Your strategy: everything in the mid range. (What would be the
Value Index of a $2.50 hamburger, with average size and 5
minutes wait time)?
Customer Value Index = Hamburger Size +Wait Time +
Hamburger Price
CVI= .8+.67+.67= 2.14
Strategy A: Pursue the high-end market. (high price for a small
burger, short wait time)
CVI= 0 +.33 +.80= 1.13
Strategy B: Pursue the low-end market. (low price for a big
burger, long wait time)
CVI= 1 +.33 +.80= 2.13
25

Business Rating - Competitor Rating
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Sheet2
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Market-Based Management
MBM6
Chapter 3
Ch 3: Market Demand
Ch 4: Customer Analysis
Ch 5: Market Segmentation
Ch 6: Competitor Analysis
1
Market-Based Management
MBM6
Chapter 3

Chapter 3
Defining Market Space and Estimating Market Potential
Understanding Dynamics of Market Demand and the Product
Lifecycle
Understanding How Market Share is Achieved and Evaluating
Share Strategies
A narrow market definition limits your business opportunities.
You have to see more to sell more.
—Jack Welch, CEO, 1981–2000 General Electric
2
Customer Focus, Customer
Performance, and Profit Impact
Defining Market Space and Estimating Market Potential
MBM6
Chapter 3
In this section we will look at how the greatest threat to a
business’s survival—and a major cause of missed market
opportunities—is a narrow focus on existing product-markets.

3
Narrow vs. Broad Market Definition
MBM6
Chapter 3
Broad Market Definition
Goes beyond existing products and customers
Discovers unserved needs of customers
Includes all substitute products.
Recognizes untapped market potential.
Long-term oriented
Narrow Market Definition
Sticks with existing products and customers
Focuses on the articulated needs of served customers
Confines to a particular product
Results in unfilled market potential.
Short-term oriented
4
Product-Market Structure
MBM6
Chapter 3

5
Market Definitions
MBM6
Chapter 3
A broad market definition is essential for any business in order
to understand and measure market demand, market potential,
and market share.
A narrow market definition, one adopted by design, is not
always a limitation.
Market Share = Sales/Market Demand
6
Market (Demand) Potential
MBM6
Chapter 3

Knowing the maximum number of units that can be consumed
by the defined market (Market Potential) is of great strategic
importance to a business: After a market reaches its full
potential and saturates, new customers will be hard to find.
Personal Computer Market Demand
7
Market Potential (Units vs. dollar values)
MBM6
Chapter 3
Units
Dollars
Consuming units: individuals, families, households, businesses,
or
other purchasing entities.
Buying ceiling: the percentage of consuming units who
can afford to buy your product at an average
price.
Purchase rate: how likely will a consuming unit buy your
product
each year?

8
Estimating Market Potential - PCs
MBM6
Chapter 3
The first step of estimating market potential is to define the
geographical boundaries and the consuming units.
9
Market Development and Potential
MBM6
Chapter 3
MDI: the degree to which the overall market for a product has
been developed
MDI <33 : considerable growth potential
33<MDI<67: moderate growth potential
MDI>67: limited growth potential

MDI begins to level off near 80
10
Understanding Dynamics of Market Demand Throughout the
Product Lifecycle
MBM6
Chapter 3
In this section we will look at how understanding market
demand over time is an important aspect of market planning and
strategy development.
Factors of Market Development
MBM6
Chapter 3
Many new markets and most global markets are well below their
market potentials because large numbers of potential customers
have not yet entered them.

12
Product-Market vs. Product Life Cycle
MBM6
Chapter 3
Generic product-market life cycle: entire product category
Product life cycle: a particular product in the category.
13
Product Life Cycle, Market Demand, and Profits
MBM6
Chapter 3
In the early stages of the product life cycle the net marketing
contribution (NMC) is negative. As the product moves through
the lifecycle, NMC will reach break-even, grow, peak, flatten,
and begin to decline as market demand decreases.
NMC =

Gross profit – Marketing and Sales Expenses
14
PC Life-Cycle Sales and Gross Profit
MBM6
Chapter 3
Profits can vary over the product life cycle.
For PCs, we see continued growth beyond the late growth stage
in both sales revenues and market demand in units.
Slower growth in volume and declining prices will contribute to
lower margins and lower industry gross profits.
This modest decline occurs as the PC market moves from late
growth to the maturity stage.
15

Understanding How Market Share is Achieved and Evaluating
Share Strategies
MBM6
Chapter 3
In this section we will look at how, for a given market and the
market’s potential for development, a business can determine its
best opportunities for sales growth, depending on its potential
to grow share.
16
Market Share Performance Tree
MBM6
Chapter 3
Moving from bottom to top, each stage of the market share
performance tree indicates how the customer respond to a
strategy influences market share. The first step is to identify the
sequence of events that have to take place for a customer
purchase to occur.
45% x 25%

17
Market Share Index vs Actual
MBM6
Chapter 3
Benefits of MSI:
Helps identify the major causes of lost market share opportunity
Provides a mechanism for assessing market share change when
improvement efforts are directed to an area of poor performance
Enables a business to estimate a reasonable potential for its
market share
18
Market Share Potential Index
MBM6
Chapter 3

For each level of the tree, the share performance gap indicates
the extent of lost market share due to the lower customer
response rates.
Establishing a desired level of response at each level of the
performance tree provides a basis for estimating market share
potential.
19
Share Development Index (SDI)
MBM6
Chapter 3
The SDI of 41 means that the business is achieving only 41
percent of its potential market share performance.
Share Development Index (SDI)
= Market Share Index/Share Potential Index
= 10%/24.6% x 100
= 41
Based on share potential index (potential market share) and
market share index (current market share), we can calculate a
share development index (SDI) by using this formula:
Share Development Index (SDI) = market share index/ share
potential index
This share development index tells us the extent to which the
business has achieved its market share performance.

20
MDI vs SDI
MBM6
Chapter 3
By combining the Market Development Index (MDI) with the
Share Development Index (SDI), a business can discover
whether they should focus on market development or share
development or both, depending on the product’s position in the
growth opportunity portfolio.
21
MBM6
Chapter 2
Marketing Metrics and Marketing Profitability
Marketing Metrics are at the core of a market-based business
striving to achieve profitable growth.
Tracking Marketing Performance
to Profit Performance Impact

Understand the importance of marketing metrics
Understand the difference between marketing metrics and
financial metrics
Measure marketing profitability and Marketing ROI
Manage marketing profitability
1
MBM6
Chapter 2
Company Performance
and the Importance of Marketing Metrics
In this section we will look at financial performance and the
role marketing metrics play in providing a broader view of
overall company performance.
2

MBM6
Chapter 2
Company Performance
How would you rate this company’s performance over the last 3
years?
Good, average, or poor?
Gross Profit= Sales Revenue-COGS
3
MBM6
Chapter 2
The Importance of Marketing Metrics
Marketing metrics provide a different view of company
performance. What problems do you see here?
Deteriorating!!
Eroding!!

4
MBM6
Chapter 2
External Market Performance
The market is growing faster than company sales. This means
the company is losing market share, but is likely unaware
without utilizing these market metrics.
5
MBM6
Chapter 2
Profit Impact of a Hold Share Strategy
Managing market share to hold share in a rapidly growing
market would have
yielded the company $41 million in additional profits over the
past 3 years.
Stable

Demand X Share = Revenues
6
The Importance of Marketing Metrics
Analytics: The measurement devices or data used to create
metrics.
Metrics: The specific measures of performance.
For Example: The measurement system used to measure
customer satisfaction is a Marketing
Analytic. A Customer Satisfaction Index of 72 and % Very
Satisfied of 20% are Marketing Metrics.
MBM6
Chapter 2
7
MBM6
Chapter 2
A Well-Balanced Performance Profile

Financial Metrics: These are internal performance metrics.
Marketing Metrics: These are external performance metrics.
Internal View of Performance
External View of Performance
8
MBM6
Chapter 2
Profit Impact of Marketing Metrics
Most marketing metrics have high correlation with profitability.
Businesses that perform well on these marketing performance
metrics are considerably more profitable.
MBM6
Chapter 2
Why are forward-looking performance metrics especially
important?: Future predicting

10
MBM6
Chapter 2
Measuring Marketing Profitability
and Marketing ROI
In this section we will look at how to measure Marketing
Profitability (NMC) and Marketing ROI.
MBM6
Chapter 2
Adding Marketing Profits to Performance
Net Marketing Contribution (measure of marketing profits)=
Gross Profit- Marketing & Sales Expenses)

12
MBM6
Chapter 2
Operational Income
Operating Income= Sales Revenues- 3 major Expenses (COGS,
SGA Expenses, & Other Operating Expenses)
Marketing & Sales Expenses + G&A Expenses
13
MBM6

Chapter 2
Estimating Marketing & Sales Expenses (% sales)
Data Challenge: Use 75% of SGA as an estimate of MSE
Unfortunately, most companies do not report their Marketing &
Sales Expenses separately in their financial reports except for
the sample of companies above. Based on the data above, 75%
of SGA should be a good estimate when actual marketing &
sales expenses are not reported.
14
MBM6
Chapter 2
Marketing ROI and Marketing ROS
Marketing ROI = Net Marketing Contribution
Marketing & Sales Expenses
Marketing ROS = Net Marketing Contribution
Sales Revenues

15
MBM6
Chapter 2
Marketing Return on Sales (ROS)
= Net Marketing Contribution/Sales X 100%
= $30 million/ $125 million x 100%
= 24%
$125
$100
$75
$50
$25

$0
Sales
$125 mil.
NMC
$30 mil.
This marketing profitability metric tells us what portion of sales
are marketing profits.
NMC is 24% of sales
MBM6
Chapter 2
$125
$100
$75
$50

$25
$0
Sales
$125M
NMC
$30M
NMC is:
NMC = Gross - Marketing &
Profit Sales Exp.
Gross Profit
$48.5M
Mktg. & Sales
Expenses
$18.5M
Marketing Return on Investment (ROI)
= NMC/Mktg & Sales Exp. X 100%
= $30 million/ $18.5 million x 100%
= 162%
In this case, for every $1 invested in Marketing & Sales
Expenses, the company produces $1.62 in marketing profits.
($48.5M) (*$18.5M)

MBM6
Chapter 2
Marketing Profitability & Marketing Profitability Metrics
These two marketing profitability ratio metrics (ROS & ROI)
allow us to compare company performance with any part of the
business…regions, markets, segments, products.
18
MBM6
Chapter 2
Appendix
Operating Income: The amount of profit realized from a
business's operations after taking out operating expenses
Cost of Goods Sold (COGS):
Variable cost: An expense that changes on a pre-unit basis when
production volume increases or decreases, such as the cost of
materials, labor, and packaging.
Manufacturing Overhead: Fixed expenses for a business’s
facilities, equipment, management, and other manufacturing
needs, which do not vary for a given production capacity.
Sales, General, and Administrative (SGA) Expenses:
Marketing& Sales Expenses: Marketing and advertising
expenses, plus costs related to all sales and customer support
services.

General & Administrative Expenses: Costs associated with
managing a business, such as senior manager’s salaries,
professional fees, and office supplies.
Other Operating Expenses:
Research & Development expenses: Costs associated with
improving products and developing new ones.
Taxes and Interest: Income, property, and other taxes, and
interest on borrowing.
19
Satisfied is not good enough. Completely satisfied—that’s a big
deal. A completely satisfied customer is at least three times
more likely to return than one who’s just satisfied.
―Andrew
Taylor, CEO, Enterprise Rent-A-Car
Very Satisfied Customers Drive Profits
Building a customer
focused organization
Measuring customer
performance
Profit impact of customer

retention and customer
loyalty.
Chapter 1
1
Building a Customer-Focused Organization
Chapter 1
In this section we will look at how customer-focused
organizations not only outperform their competition over the
long term by consistently delivering higher levels of customer
satisfaction, they also realize higher profits over the short run.
2
Underwhelming Customers
Little or no customer focus translates into an unfocused
competitive position and minimal customer satisfaction. The
result is a vicious circle of poor performance.

Chapter 1
3
Top Performers Produce Higher Investor Returns
Apple, Southwest Airlines, and Clorox would be a part of the
top performers in the graph above. Their average stock price
index started at 100 and 10 years later was 300. Poor performers
started at 100 and 10 years later were still at 100.
Chapter 1
4
Customer-Focused Organization
Senior Mgmt Leadership
Employee Customer Training
Customer Involvement

Customer Satisfaction
Customer Retention
Customer Loyalty
Customer Experiences
Customer
Solution
s
Customer Complaints
Chapter 1
5
Measuring Customer Performance

Chapter 1
In this section we will look at how companies that use customer
performance metrics are able to identify their unprofitable
customers.
6
Benchmarking Customer Satisfaction
ACSI studies have shown that Customer Satisfaction is a
leading indicator of company
financial performance. The ACSI database reports all
companies by industry.
American Customer Satisfaction Index - University of Michigan
(www.theACSI.org)
Chapter 1

7
Customer Satisfaction
A Key Performance Metric
Chapter 1
To determine the CSI for a sampling of customers, simply
compute the average of the customers’ satisfaction ratings.
Customer satisfaction is a forecast of future revenues and
profits.
Very Dissatisfied
0
Dissatisfied
20
Somewhat
Dissatisfied

40
Somewhat
Satisfied
60
Satisfied
80
Very
Satisfied
100
8
Customer Satisfaction – Wide-Angle View
Chapter 1
De-averaging CSI provides a wide-angle view of customer
satisfaction and allows managers to see more completely the
opportunities for improvement.

9
Profit Impact of Very Satisfied Customers
“Very satisfied” customers not only buy more, they often buy
higher-margin products and services, which results in a higher
percent margin on total sales.
De-averaging CSI is critical to understanding customer
profitability
Chapter 1

10
Complaint Behavior and Retention
Each year, the business above loses 22,400 customers who are
dissatisfied, but do not complain.
Dissatisfied customers often do not complain, but they do walk
away and they do talk.
Chapter 1
11
Profitability of Satisfied Customers

Chapter 1
When we chart customer profitability against customer
satisfaction, we see that the “very satisfied” customers are the
ones who drive profitability.
12
Managing the Customer
Experience with Twitter
Alaska Air uses twitter as a channel to promote new fares/routes
and to field customer service issues. Their twitter page is a mix
of responses to customers, promotions, and warnings of weather
delays.
Chapter 1

13
Estimating Customer Retention
Chapter 1
To estimate retention rates, businesses can use a customer
survey as outlined above.
How likely are you to buy this product or brand again on your
next purchase?
14
NetFlix Customer Retention
The Customer Life increases exponentially with increases in
Customer Retention.

Chapter 1
15
Customer Lifetime Value
The lifetime value using a 10% discount rate is $111.70, the net
present value of the customer cash flow over 5 years.
The average credit card customer for this company has a
customer life of 5 years. It costs the company $51 to acquire a
new customer and by year 5 they produce $55 in customer
profit.

Chapter 1
16
Customer Performance and Profit Impact
Profit impact of
customer retention
and customer loyalty.
Chapter 1
In this section we will look at how loyal customers have a
longer customer history, are more committed to the company
brand, buy more, and are more likely to recommend the brand to
others.

17
Assessing Customer Loyalty
Loyal customers have a long customer history, buy at an above-
average purchase amount, have a high desire to repurchase,
have strong product preferences for the company’s products and
would recommend the company’s products to friends, relatives,
and co-workers.
Chapter 1
18
Managing Customer Loyalty

Loyal Customers – High performance in all five aspects of
customer loyalty
Repeat Customers – Great customers that buy often but score
lower on purchase amount, product preference, and customer
recommendation.
Captive Customers – Have a long customer history and average
purchase amount but would leave if they could, as they are
dissatisfied captive customers.
New Customers – Score low on all aspects of customer loyalty
as they do not yet have the customer history to assess their
customer loyalty.
Unprofitable Customers – Score low on all aspects of customer
loyalty.
Chapter 1
19

and Customer Loyalty
Customer Loyalty Scores and Customer Lifetime Value are
closely correlated.
Chapter 1
20
Of Win-Back Customers
The “second lifetime value” of a win-back customer has a net
present value almost 3x higher than the average lifetime value
of an entirely new customer.
Chapter 1

The return of a former customer is a lost opportunity that has
reappeared— a second chance to develop a loyal customer.
21
Customer Loyalty & Customer Profitability
Loyal customers play an important role in company
profitability.
Chapter 1

463 Marketing Management: Chapter 4
· How would the company’s customer value change if it raised
its repair time rating from 5 to 7 (other things remain the
same)?
Step 1: calculation of difference score (business rating – A/B/C)
A
B
C
Repair time
7-7=0
7-6=1
7-5=2
Step 2: Assignment of importance scores
A
B
C
Advantage

Repair time
0
0
60
60/3 = 20
Thus: customer value = 100+ 20+10= 130
· What would be the value impact of improving the ease-of-use
product benefit from 4 to 6 (other things remain the same)?
Would this improve perceived customer value more than
addressing the repair time benefit problem in the previous
question?
Step 1: Ease of use: difference score (business rating – A/B/C)
A
B
C
Repair time
6-6=0
6-7=-1
6-6=0
Assignment of importance scores

A
B
C
Advantage
Repair time
0
0
0
0/3 = 0
Thus: customer value = 100+ 27+20= 147
Setup
Performance Factor
Low
Mid
High
Taste Quality
Poor

Avg.
Good
Service Quality
Poor
Avg.
Good

Hamburger Price
25% Lower
Avg.
25% Higher
Rank these options from 1 (most preferred) to 9 (least
preferred).
Profile A:
Taste Quality
Poor
Service Quality
Poor
Hamburger Price
25% Lower
Profile B:

Taste Quality
Avg.
Service Quality
Poor
Hamburger Price
Avg.
Profile C:
Taste Quality
Good
Service Quality
Poor
Hamburger Price
25% Higher
Profile D:
Taste Quality
Poor
Service Quality
Avg.
Hamburger Price
25% Higher
Profile E:
Taste Quality
Avg.

Service Quality
Avg.
Hamburger Price
25% Lower
Profile F:
Taste Quality
Good
Service Quality
Avg.
Hamburger Price
Avg.
Profile G:
Taste Quality
Poor
Service Quality
Good
Hamburger Price
Avg.
Profile H
Taste Quality
Avg.
Service Quality

Good
Hamburger Price
25% Higher
Profile I:
Taste Quality
Avg.
Service Quality
Good
Hamburger Price
25% Higher
Stop after you are done with ranking.
Answer the following questions:
· Which aspect of price or performance is most important and
which is least important?
· Compare the customer values of the following two options:
· A hamburger that has average taste quality, average service
quality, and average price.
· A hamburger that has poor taste quality, high service quality
and low price.

1
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_1432013426.unknown
_1432013421.unknown
_1432013423.unknown
_1432013424.unknown
_1432013422.unknown
_1432013419.unknown
_1432013420.unknown
_1432013418.unknown
_1432013417.unknown
· How would the market development index change if the annual
purchase rate increased to 25%?
Market potential = 4,500*50%* 25%*1= 562.5
Market Development index= Market Demand/ Market
potential *100 = 325/562.5 *100 = 57.8
· What would be the market potential in both units and dollar

values if the buying ceiling reduced to 40% and the average
price increased to $700?
Market potential in units = 4,500 * 40% * 20%*1= 540
Market potential in dollars = 4,500 * 40% * 20%*1*700=
378,000
· How much would the market share index be if price
acceptance index could be improved from 50% to 60%?
· How much would the market share index be if a product’s
purchase metric could be improved from 75% to 80%?
45% x 75% x 60% x 79% x 75% = 11.9%
45% x 75% x 50% x 79% x 80% = 10.7%
· What is the percent gross profit in this example (revenues-cost
of goods sold/revenues)?
· 48.5/125= 38.8%
· If percent gross profit was reduced to 35%, how would NMC
(net marketing contribution) change? What are the Marketing
ROS and marketing ROI in that case? How about operating

income?
NMC= Gross Profit – Marketing& Sales Expenses = 125*35% -
18.5 = 25.25
Marketing ROS= NMC/SALES *100= 25.25/125*100= 20.2
Marketing ROI= NMC/Marketing& Sales Expenses *100 =
25.25/125*18.5= 140.3
Operating income= 25.25- 20 = 5.25
· How would the lifetime value of the average customer change
if the customer life was shortened from 5 to 4 years? 111.7-
34.2= 77.5
· How would the lifetime value change if the customer life was
extended from 5 to 6 years and in year 6 the net cash flow was
$60?
· Present value of 1 dollar is .564
· 60*.564=33.84
· 111.7+33.8=145.54
· How would the average customer profitability change with 25
percent loyal and 25 percent repeat customers?

25
400
100
25
225
56.25
10
165
16.5
20
20
4
20
-20
-4
172.75

The Customer Experience and Value Creation Chapter 4 O.docx

The Customer Experience and Value Creation Chapter 4 O.docx

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