Part 2

NYC Fashion is a catalog retailer which merchandizes clothes. Due to low rates of new clients, the company
tries to develop a client acquisition strategy by either acquiring a customer broker list or by choosing randomly the
customers.
The cost for sending a catalog (including production and sending costs) is 0,5$. Based on past experience, the
company expects a return rate of 1% if choosing a random list of customers. Otherwise (buying a broker customer
list), the return rate will be 4%, but the broker will charge 0,2$ for every customer information (database
entrance).
Which acquisition strategy should be chosen (random list or broker list)? Compute the acquisition cost for the
two alternatives.

Part 2
NYC Fashion changes its fashion line 4 times per year. Past data shows that the client can be divided in two
segments: frequent (buy 2 times/year with a mean value of 50$) and occasional clients (buy one time/year with a
mean value of 80$). The retention rate for frequent clients is 75%, while 50% for occasional clients. The gross
profit represents 20% of every sale and includes all cost excepting the cost of sending a catalog. In the first year,
every client will receive a catalog each month. Based on the pattern identified in the first year, the frequent clients
will get 12 catalogs/ year, while the occasional ones will receive 4 catalogs/year.
After how many years will the company achieve break-even (differentiate between frequent and occasional
clients)?
The company assumes a discount rate of 1% and abandons a client if his discounted profit is under 1$.
Compute the CLV for a frequent and an occasional client.