Concept of customer lifetime value

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Reference no: EM131747382

McDonalds has a number of measures it uses to understand customers and their trends. It has 45 Million loyal customers. Two-thirds of fast-food users visit a McDonald's at least once a month. Every month more than 90 percent of American children eat at McDonald's. At McDonalds about one in 30 disgruntled customers complains, while the rest just never come back.

Average customer trends

Visits per week – Avg 4 (2 breakfast – avg – $3.28 ea.) (2 lunch or dinner meals- avg - $5.62ea. )

The average person brings someone with them (37% of the time buying their meal)

* These numbers provided are illustrative of analysis McDonalds makes

A person goes in to McDonalds and orders a Quarter Pounder meal with no mustard fries and a Coke (Total bill for the meal $5.39). The person receives a Big Mac. Disgruntled the person parks their car and goes in. The person asks for the manager.

Part A: Using the concept of Customer lifetime value explain how much this customer is worth to McDonalds (in dollars) and recommend as a manager what you would do about this situation and why.

Part B: Calculate McDonalds over arching company CLV

McDonalds operating income is $3.9B on $22B in sales. McDonalds keeps 98.2% of its customers. It uses a 15% cost of capital number for business cases. Calculate McDonalds over arching CLV and tell what this number should mean to McDonalds.

Reference no: EM131747382

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