A family rents videos from a local video store. On an average, they spend $80 a month. The store's contribution margin is 45 percent and the average customer defection is 40 percent. Determine the value of a loyal customer.
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 = (Average Monthly Spend * Contribution Margin) / Defection Rate. Plugging in the values: ($80 * 0.45) / 0.40 = $90. This suggests the value is more than $1,000 and less than or equal to $1,500.

A Family Rents Videos from a Local Video Store