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

question 77

Essay

A retail store sells a popular cosmetic called Devine and the store manager was 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
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:

Voting Rights

The entitlement of shareholders or members of an organization to vote on important matters, such as the election of the board of directors.

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting its liabilities; also known as shareholders' equity.

Stock Dividend

A dividend payment made by a company to its shareholders in the form of additional shares, rather than cash.

Market Value

The present cost at which a product or service is available for purchase or sale in the marketplace.