CRM Term Project

CRM strategy for a Coffee

chain

Premise

The coffee chain under consideration was established in 2009 .

It operates in a model similar to Cafe Coffee Day-a QSR model

Has over 50 stores in different locations across the country.

The restaurant has decided to undertake a direct marketing campaign to

help acquire retain and indentify the most valuable customers.

(describe in more detail if you want)

Industry Analysis
Add industry analysis if you want

Customer Acquisition

Customer Acquisition was mainly done through SMS marketing.

As part of its launch the caf undertook a bulk SMS campaign that targeted
a specific demographic.

Through this campaign the caf was able to reach thousands of potential
customers through concise SMS announcements, such as one time
promotions and coupons as part of their launch.

Rather than a random randomly sending out SMSes , the company

purchased a database from a list broker in order to target members of a
particular demographic

Acquisition Cost Estimates

The total acquisition cost of a customer would be =cost of sending a catalog/ response rate

Random SMS
campaign

Assuming a cost per SMS of

Rs .5 and a typical response
rate of 1%

Targeted SMS
campaign

Assuming a cost of purchasing

customer list at Rs 2/ name
and a higher response rate of 10%

Acquisition cost/ customer= Rs

50

Acquisition cost/ customer=

(2+.5)/.1= Rs 25

Assuming that the SMS s were sent to around 3 million customers

and assuming a 10% response rate the size of the cohort acquired
can be estimated as 300000

Database Marketing at the

Cafe

In order to implement a CRM strategy customer level information is requiredvarious activities and their costs and returns need to be measured and
evaluated.

The company records customer information at POS in order to evaluate

performance on the basis of the value each individual customer brings to the
firm

In addition to customer contact information POS keeps track of average check

size, frequency of visits and party size.

System also stores information on reservations and take out delivery.

All this information will help single out high value customers on the basis of
their recency, frequency and monetary values and we can develop customized
promotions for these individuals

Projecting Profitability/
Customer

Assuming a cohort of 300000 customers acquired in the first year.

The caf will continue SMS promotions to these customers 5 smses per month
Total direct marketing costs= 0.5x5x12x300000= 9000000
In addition total annual expenses for branding and advertising amount to
approximately = 10000000
Hence total marketing costs for the company amount to approximately
19000000
Average marketing cost /customer = 19000000/300000= 63.33

Calculating Average Customer Lifetime

Duration
Period
Expected
since
number of
acquisio
Actual Retention Predicte Defection Survival Active
Number of
n
Year
Rate
d
Rate
Rate
Customers
Active Periods
1 2010
29%
71%
29%
87000
87000
2 2011
38%
100% 11.1218%
33365.38
66730.76
3 2012
50%
100% 5.6100%
16830.02
50490.07
4 2013
59%
100% 3.3323%
9996.78
39987.12
5 2014
66%
100% 2.2004%
6601.27
33006.34
6 2015
71%
29% 1.5612%
4683.57
28101.44
7 2016
75%
25% 1.1645%
3493.53
24454.73
8 2017
77%
23% 0.9000%
2700.12
21600.93
9 2018
79%
21% 0.7136%
2140.86
19267.70
10 2019
81%
19% 0.5764%
1729.13
17291.28
11 2020
82%
18% 0.4718%
1415.55
15571.05

Assuming Actual Retention Rate for first year as 29%

Retention Coefficient Assumed to be around 0.3
The average life time duration = (Customers Retained X Number of Periods)/ Size of Cohort =1.34
2
Hence average lifetime of this group of customers is 2 years and marketing programs have to be
initiated to renew the cohort after that

Calculating Individual Profitability

Customer Lifetime Value
Calculation
Total number of unique guests
Average daily spend
Average Gross Margin/
customer
Average number of visits per
year per guest
Average check size
Average Marketing expense
Average acquisition
expense/customer
Total number of Repeat Guests
Retention Rate

300000
7000
42%
8
Rs. 60.00
Rs. 63.00
Rs. 25.00
186450
62%

Revenue growth rate of : 8%

Marketing expenses : 5%
Discount rate : 8%
Average Retention rate : 62%

Lifetime value of the Cohort : 168.51 x

Years
No of visits
Average check size
Average revenue /
customer
Margin

2009

2010
8
Rs.
64.80
Rs.
518.40
32%
32%
Rs.
0 165.89

2011
8
69.984
Rs.
559.87
32%
Rs.
179.16

Gross Profit / Guest

Acquitistion expense/
guest
Rs. 25.00

Marketing expense /
Rs.
guest
0 63.00 Rs. 66.15
-Rs.
Rs.
Rs.
Net Profit/ guest
25.00 102.89 113.01
Probability of
Retention
1
1
0.62
-Rs.
Rs.
Cash
flow
if
Retained
25.00
102.89
70.24
Projected only for two years as avg lifetime Rs.
duration
is 2 years

Discount Factor
1 0.926
0.857

NPV of Expected
-Rs.
Rs.
Cash
flow= Rs. 39,144,588.06
25.00 95.27 Rs. 60.22
300000

Rs.