7033MKT Evaluating Marketing Performance

Question:

CLV Analysis – Case Description

Briz Guards is a Brisbane based company providing security services to mid-sized organizations. Its primary clients are corporate offices, colleges and shopping malls. As of 2016, the Briz Guards had 70 clients across the three sectors, with 20 clients in the offices sector, 40 clients in the colleges sector, and 10 clients in the malls sector. Briz Guard charges a uniform service fee of $200,000 per client, with a fixed cost of 500,000 per sector (see table below for a summary of this information).

The company had been earning less than 10% returns for the past five years and is now embarking on a profitability analysis and expansion path with a stated objective of $2,000,000 in profits. It has identified two main strategies to increase its profits: acquiring new customers; and/or increasing the profitability of its existing customers. Briz Guards has hired you as its marketing consultant to analyse the profit potential of different strategies and advise them on which one to pursue. Briz Guards has provided following information about its clients to enable your analysis.

• The company applies a discount rate of 10%.
• Retention rate for all clients in all three sectors (offices, colleges, malls) is 95%.
• The dataset gives the average annual expenses per client across the three sectors.
• The company has to invest $100,000 for prospecting a new client
• The company’s prospecting has an acquisition rate of 15%.

In addition, its marketing department has provided you with its demand equations for each sector, based on its past pricing experience.

• Offices: No. of Clients (demand) = 100 - [(Service fee * 4) / 10,000]
• Colleges: No. of Clients = 100 - [(Service fee * 3) / 10,000]
• Shopping Malls: No. of clients = 100 - [(Service fee * 4.5) / 10,000]

Tasks:

1) Identify whether Briz Guard can increase its profitability by acquiring new clients. If so, identify the sector or sectors that Briz Guard should focus its attention on.

2) Analyse whether Briz Guard can extract more profits from its current clients by

1. Increasing its service fee uniformly across the sectors, or
2. Charging different service fees for different sectors.
3. Calculate the net profit from Briz Guard’s existing clients taking both its fixed and variable costs into account.
4. Calculate the maximum profit that Briz Guard can achieve by charging the same service fee to all sectors.
5. Calculate the maximum profit that Briz Guard can achieve by charging different service fees to different sectors.

3) Conduct a sensitivity analysis to find out how sensitive your results are to the demand assumptions? In particular, how will your results change if the demand (No. of clients) increases by 20%.

4) Make recommendations about acquisition and/or retention strategies in relation to the sectors and/or segments within each sector.