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

question 5

Essay

A retail store sells a popular cosmetic called Devine and the store manager was 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 increase the contribution margin to 0.58 or reduce the customer defection rate to 15% or increase the repurchase frequency to 4 times per year, what is the best way to spend these funds? Assume all other variables remain at the base case level for each improvement option.)
You may want to use the table below to help organize your computations and answer.
$$\begin{array} { c c c c c } \underline{\text { Price } }& \underline{\text { Contribution Marpin }} & \underline{\text { Repwchase Frequency }} & \underline{\text { Defection Rate }} & \underline{\text { VLV in \$ }} \\ \$ 30 & 0.50 & 3 & 17 \% & \$ 264.69 \\ \$ 30 & 0.58 & 3 & 17 \% & \text { \$307.00 } \\\$30 & 0.50 & 3 & 15 \% & \text { \$300.00 } \\\$ 50 & 0.50 & 4 & 17 \% & \$ 352.92 \\\end{array}$$ Note: BLC is 1/.17 = 5.882 years and 1/.15 = 6.67 years.

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Definitions:

Consumption Function

An economic formula that represents the relationship between total consumption and gross national income.

Disposable Income

The financial resources families have for expenditures and savings after income taxes are removed.

Disposable Income

The total funds available to families for spending and saving after subtracting income tax.

Transfer Payments

Payments made by governments to individuals without any expectation of a good or service in return, such as welfare or unemployment benefits.