A computer manufacturer currently has a 15 percent customer defection rate. Their accounting department estimates the incremental contribution to profit and overhead as 30 percent. Customers purchase computers every four years at an average cost of $1,200. In an effort to reduce the defection rate, the company is improving both the quality of its computers and its post-sale service. Determine the value of a loyal customer if the defection rate drops to 5 percent.
A) Less than or equal to $500
B) More than $500 and less than or equal to $1,000
C) More than $1,000 and less than or equal to $1,500
D) More than $1,500 and less than or equal to $2,000

Question

Quizplus · Accepted Answer

The value of a loyal customer can be calculated using the formula: Value = (Profit per purchase) / (Defection rate). With a 5% defection rate, the value is ($1,200 * 30%) / 0.05 = $7,200, which is more than $1,500 and less than or equal to $2,000.

A Computer Manufacturer Currently Has a 15 Percent Customer Defection