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Estimate the value of a loyal customer of a loyal Volvo automobile owner. Assume the contribution margin is 0.28, the purchase price is $63,000, the repurchase frequency is every six years, and the customer defection rate is 22 percent. Do not round intermediate calculations. Round your answer to the nearest dollar.

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Prozidn

Answer:

value of a loyal customer = $481,091 (to the nearest dollar)

Explanation:

The Value of a loyal customer (VLC) is the measure of loyalty shown by the customer in choosing a company over its direct competitors every time.

To calculate VLC, the following formula is used:

VLC = (purchase price) × (contribution margin) × (repurchase frequency) × (buyer's life cycle).

From the list of data in the question, you will notice that 'buyer's life cycle (BLC)' is not given. Now, let us calculate BLC.

BLC = 1 ÷ (defection rate)

Defection rate = 22% = 22/100 = 0.22

∴ BLC = 1 ÷ (0.22) = 1/0.22 (do not round intermediate calculations)

∴ VLC = 63,000 × 0.28 × 6 × (1/0.22)

[tex]VLC = \frac{63000 \times 0.28 \times 6}{0.22} \\= 481,090.91[/tex]

= $481,091 (to the nearest dollar)

The value of a loyal customer of a loyal Volvo automobile owner is $481,091.

What is a calculation of the value of a loyal customer?

The value of loyal customers or VLC is derived by multiplying the values of the purchase price, contribution margin, repurchase frequency, and buyer's life cycle with each other.

Here, the buyer's life cycle would be calculated by dividing 1 by the defection rate.

Now, VLC would be;

[tex]VLC=63,000*0.28*6*\frac{1}{0.22} \\=481,090.91[/tex]

Learn more about the value of customers here:

https://brainly.com/question/14186307

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