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

question 94

Multiple Choice

A retail store sells a popular cosmetic called Devine 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 3 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 12% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds? (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 worksheet below to help organize your computations and answer of the question(s) .
$\begin{array}{|c|c|c|c|c|c|}\hline \begin{array}{c}\text { Improvement } \\\text { Option }\end{array} & \text { Price } & \begin{array}{c}\text { Contribution } \\\text { Margin }\end{array} & \begin{array}{l}\text { Repurchase } \\\text { Frequency }\end{array} & \begin{array}{l}\text { Defection } \\\text { Rate }\end{array} &\text { VLC in } \$\\\hline \text { Base case } & \$ 30 & 0.50 & 3 & 20 \%& \\\hline(\mathrm{a}) & \$ 30 & & & \\\hline \text { (b) } & \$ 30 & & & \\\hline \text { (c) } & \$ 30 & & & \\\hline\end{array}$
-The value of a loyal customer (VLC) for improvement option (a) is _____.

• A) more than $100 and less than or equal to $150
• B) more than $150 and less than or equal to $200
• C) more than $200 and less than or equal to $250
• D) more than $250

---

Definitions:

Treaty of Cateau-Cambresis

A series of agreements signed in 1559, ending the conflict between the French Valois and Spanish Habsburgs.

Henry II

A King of England from 1154 to 1189, known for legal reforms that laid the basis for the English common law system.

Albrecht Wallenstein

A prominent military leader and mercenary during the Thirty Years' War, known for his strategy, leadership, and complex allegiances, influencing the outcome of numerous battles.

Protestantism

A branch of Christianity that originated with the Reformation, a movement against what its followers considered to be errors in the Roman Catholic Church.