Question

1. Jos. A Bank, a men’s wear chain, plans to launch 3 suits named: Executive, Reserve, and Traveler. The prices of the suits are $790, $540, and $350 respectively. The fabrics and detail are different on the suits so the variable costs are $300, $200, and $110, respectively. The design cost for the series was $250,000 and promotional spending was $4M. Assuming that the sales mix for the three suits will be 1:2:5 respectively,
   1. Calculate the breakeven quantity for each suit. [3]

2. Assume that Jos. A Bank was able to acquire 20,000 customers from the $4.25M. If the discount rate is 8% and the retention rates in each period for segments E, R and T are 70%, 75%, and 80% respectively. Calculate the CLV for each segment (The total contribution from part (a) for margins). [6]

3. Suppose Jos. A Bank is considering an increase in margin of 5% per year on all suits. Calculate CLV for each segment. [3]

4. If in the second year, Jos. A Bank allocates $2M for an ad campaign in a city targeting 20,000 potential customers within one segment, how many customers (round up to the nearest whole number) would need to switch in order to justify the $2M in acquisition spending. Do your calculations for each segment assuming the whole 200,000 come from each respective segment. [Hint: Use CLVs from part c. Calculate the BAR and multiply by the target size] [6]

5. Suppose the demand last year for Reserve suit was 80,000 units at the original $540 price. How much profit did they make last year, assuming that the fixed cost is spread equally across the models? [2]

Answer 1

	Executive	Reserve	Traveler
Price	790	540	350
variable Cost	300	200	110
Fixed Cost Apportioned (1:2:5)	531250	1062500	2656250
break Even Quantity	= Fixed Cost/(Price -Variable Cost)	= Fixed Cost/(Price -Variable Cost)	= Fixed Cost/(Price -Variable Cost)
	1084.183673	3125	11067.70833
	1085	3125	11068

	Executive	Reserve	Traveler
Customer	2500	5000	12500
Gross Margin per customer	490	340	240
Discount Rate	8%	8%	8%
Retention Rate	70%	75%	80%
CLV	902.63	772.73	685.71

Gross margin * (Retention rate / [1+ Rate of discount – Retention rate]

	Executive	Reserve	Traveler
Customer	2500	5000	12500
Gross Margin per customer	514.5	357	252
Discount Rate	8%	8%	8%
Retention Rate	70%	75%	80%
CLV	947.76	811.36	720.00