A Retail Store Sells a Popular Cosmetic Called Rochelle and the Store

question 22

Multiple Choice

A retail store sells a popular cosmetic called Rochelle and the store manager is given $100,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 17%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.58 or (b) reduce the customer defection rate to 15% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds by answering the next two questions? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the table below to help organize your computations and answer.
$\begin{array}{|c|c|c|c|c|}\hline \begin{array}{c}\text { Price \& } \\\text { Improvement } \\\text { Option }\end{array} & \begin{array}{c}\text { Contribution } \\\text { Margin }\end{array} & \begin{array}{c}\text { Repurchase } \\\text { Frequency }\end{array} & \text { Defection Rate }&\text { VLV in } \$ \\\hline \$ 30 \text { (base case) } & 0.50 & 3 & 17 \%& \\\hline \$ 30 \text { (option a) } & & & \\\hline \$ 30 \text { (option b) } & & & \\\hline \$ 30 \text { (option c) } & & &\\\hline\end{array}$
-The value of a loyal customer (VLC) for improvement option (a) is _____.

• A) less than or equal to $100
• B) more than $100 and less than or equal to $200
• C) more than $200 and less than or equal to $300
• D) more than $300 and less than or equal to $400

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Definitions:

Collectivist Cultures

Societies that emphasize interdependence, communal responsibilities, and the priorities of the group above personal achievements.

Individualistic Cultures

Cultures that emphasize personal achievement, independence, and self-reliance, valuing individual freedom and self-expression over communal goals.

Fundamental Attribution Error

The tendency to overestimate the effect of disposition or personality and underestimate the effect of the situation when explaining the behaviors of others.

White Americans

Individuals residing in the United States who identify as being of European, Middle Eastern, or North African descent.