A Retail Store Sells a Popular Cosmetic Called Krypton, and the Store

question 24

Essay

A retail store sells a popular cosmetic called Krypton, and the store manager is given $300,000 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 20%, and a repurchase frequency of 4 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.60 or (b) reduce the customer defection rate to 15% or (c) increase the repurchase frequency to 5 times per year, please answer the questions listed below. (Assume all other variables remain at the base case level for each of the three improvement options.)
a.What is the value of a loyal customer (VLC) for improvement option (a)?
b.What is the best way to use the $300,000 in improvement funds?

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Definitions:

Solicitor's Fee

The charges or fees paid for the services of a solicitor, a type of lawyer in some jurisdictions.

Sale

The act of selling something, transferring ownership of a product or service to a buyer for a price.

Purchase

The act of buying goods or services, involving the exchange of money for ownership or use rights.

Certificate

A formal document attesting to a fact, such as the completion of an educational course or the ownership of shares in a company.