Question

Despite the shaky economy, Starbucks is opening new stores around the world. In 2012, Starbucks expected to open 600 new locations internationally, about 25 percent of which will be in China. It’s no secret that Starbucks’ acquisition strategy is closely scrutinized and routinely copied. Using rough sales figures from 2004, we should be able to estimate the CLV of an average Starbucks Customer. The sales data from Starbucks may not reflect current marketing trends, and is only provided to solve and calculate this CLV problem.

We know that three out of four new customers will remain a customer and that for every customer, the average number visits per week is 4.2 and the customer expenditures per visit is $5.90. The average customer lifespan is 20 years and the average profit margin per customer is 21.3%. If the time horizon chosen was 20 years, What would the Customer Lifetime Value of a Starbucks customer?

Note: A year has 52 weeks

Answer 1

Customer Lifetime Vale = Life time Value X Profit Margin

Life time Value = Average Value of Sale X Number of Transactions X Retention Time Period

	Average Value of Sale	=	$5.90
	Number of Transactions	=	218.4 Times (4.2 times X 52 weeks)
	Retention Time Period	=	20 years
	Profit Margin	=	21.3%
	Life time Value	= =	$5.90 X 218.4 Times X 20 years $25,771.20
	Customer Lifetime Value	= = =	Life time Value X Profit Margin $25,771.20 X 21.3% $5,489.27