It’s 1994, and you are one of the corporate brand managers for Blockbuster Video

| June 7, 2016

Question
It’s 1994, and you are one of the corporate brand managers for Blockbuster Video

(remember those?). You are interested in whether a 3-year long marketing campaign

centered on extended weekend rentals for “Preferred” clients would be proIitable. Based

on Iield tests in select markets, giving Preferred membership customers a weekly coupon

for the latest blockbusters seems to increase the number rentals over the weekends if the

key titles are adequately stocked.

1. The average Preferred customer rents 2 old titles at $1.99 and 1 blockbuster title for

$4.99 each week. The data suggest that customers will rent TWO additional blockbuster

movies over the weekend when given a $2.00 discount per weekend blockbuster title.

Thus, each customer rents on average 2 old titles (at $1.99), 1 blockbuster title during

the week (at $4.99), and at least 2 discounted blockbuster titles (at $2.99) over the

weekend.

2. Each store on average hosts an average of 3,000 Preferred customers from the

surrounding area. Further, these customers are very loyal and retention based on

yearly rental records is about 95%. Acquisition cost associated with the Preferred

membership is approximately $100 per customer.

3. The discount rate for the industry is about 17%. The companyAf?cA????1A????1s average gross margin

is 34%.

4. Costs associated with the Preferred customer appreciation program include:

a) marketing expenses (weekly direct mailings, local newspaper inserts

targeting those with Preferred membership cards, emails, and

communication) are about $3,500 per week; and

b) marketing cost to continually train employees (high turnover) that is about

$200 per week.

These costs are Iixed regardless of total number of Preferred renters.

TO DO

a) Identify and list all assumptions for the CLV problem;

b) setup and complete a CLV calculation ;

c) answer and explain: Is this a good venture? Why or why not?

Requires excel table with solutions and format. will award full points for good job

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