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Question: What factors affect CLV (or LTV) and CAC? What can Hubble do to increase its CLV and decrease CAC over time? What factors are working against this?

11 Oct 2022,6:30 PM

 

5. What factors affect CLV (or LTV) and CAC? What can Hubble do to increase its CLV and decrease CAC over time? What factors are working against this?

Promotion Strategy

7. Is TV advertising working for them?

a. What do you learn from the first TV test, where Hubble spends $1 million in some testmarkets?
What is the CAC based on the data available from the first TV test (Exhibit 12)? (Hint: To calculate the number of new customers acquired, use the values (i) Additional customer acquisitions (i.e., 0.006 per 1000) and (ii) total number of impressions of the TV Ad.) What are the pros and cons of the A/B method described to measure the effectiveness of the TV campaign (in terms of acquiring new customers)?

b. What do you learn from the World series TV test? What is the CAC based on the data available from the World Series TV test? What are the pros and cons of the method described to measure the effectiveness of the World Series TV test (in terms of acquiring new customers)?

c. Compare the CACs from the TV advertising to the average CAC of $100 (case exhibit 9). Is investing in TV advertising working for them? Why or why not?

8. What do we learn from the results from recent Facebook Campaigns (case exhibit 10)? Should Hubble spend on reaching new prospects or on re-targeting those who are already aware of Hubble? Please justify your response.

9. What are some of the challenges that are discussed in the case regarding attributing sales (new customer acquisition) to different (online and offline/traditional) promotional methods?

Expert answer

 

CLV (Customer Lifetime Value) is determined by a number of factors, including the cost to acquire a customer (CAC), the average amount a customer spends over their lifetime with the company, and the customer retention rate.

 

Hubble can work to increase its CLV and decrease CAC over time by focusing on customer retention and increasing average customer spending. Factors that are working against this include the cost of goods sold and customer attrition.

 

Improving customer retention rates can be done through a variety of methods, such as increasing customer satisfaction, offering loyalty programs, and reducing prices. Increasing average customer spending can be accomplished by upselling and cross-selling complementary products, introducing new product lines, and raising prices.

Doing all of this will be difficult, but if Hubble can succeed in increasing its CLV while simultaneously decreasing its CAC, it will be well on its way to long-term profitability.

 

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