Estimate the value of a loyal customer of a loyal Volvo automobile owner. Assume the contribution margin is 0.28, the purchase price is $63,000, the repurchase frequency is every six years, and the customer defection rate is 22 percent. Do not round intermediate calculations. Round your answer to the nearest dollar.

value of a loyal customer = $481,091 (to the nearest dollar)

Explanation:

The Value of a loyal customer (VLC) is the measure of loyalty shown by the customer in choosing a company over its direct competitors every time.

To calculate VLC, the following formula is used:

VLC = (purchase price) × (contribution margin) × (repurchase frequency) × (buyer's life cycle).

From the list of data in the question, you will notice that 'buyer's life cycle (BLC)' is not given. Now, let us calculate BLC.

BLC = 1 ÷ (defection rate)

Defection rate = 22% = 22/100 = 0.22

∴ BLC = 1 ÷ (0.22) = 1/0.22 (do not round intermediate calculations)

∴ VLC = 63,000 × 0.28 × 6 × (1/0.22)

= $481,091 (to the nearest dollar)

answer; the cpi;