Question

Amazon is thinking about using Amazon Prime as the shopper loyalty program for Whole Foods featuring discounts and incentives for purchases. By introducing the program, Amazon projects they will reduce the NPV of average customer lifetime margin to $2,050 but increase retention to 72%. Assuming the same discount rate (10%), should they implement the program? Why

Answer 1

Yes. They should implement the program because,

1. With the same discount rate, NPV gets reduced by $2050
2. Customer Retention rate gets increased to 72%
3. It will help to acquire newer customers
4. Reduction of NPV margin can also be compenstaed through customer retention and new client acquisitions
5. If they didn't implement the program, they will lose the customers which is more important than the NPV value of customer
6. Retaining the existing customer is more valuable than acquiring the newer customers