Problem
Eastern Motors Auto Dealership wanted to estimate the average CLV over a 5 year time horizon of a customer who purchases a new vehicle. The average vehicle sells for 27,914 and has a margin of 6. Based on historical averages, 81 of people buying a new vehicle at Eastern will return for service 9 times over the next 5 years. Though it varies considerably, Eastern generates approximately 87 in margin on each service visit after accounting for parts and direct labor costs. Assume the 5 year value of the service component is $475.
What would be the value of a service loyalty program that increased the average number of visits by 2 (over 5 years) and increased the probability that a new vehicle purchaser would return for service by 5 percentage points on a per customer basis?