21 Jul HOW WILL THE ANSWER TO PART (C) CHANGE IF WE NOW CONSIDER THE WORD-OF MOUTH EFFECT?
One proposal offers Show more A companys marketing manager is considering a mobile app development proposal. One proposal offers to create a brand community of users for the company. The manager estimates that the brand community will engage current customers and increase each customers lifetime value (CLV) from $100 to $120. In addition word-of-mouth about the community could increase the value of the online social community. The brand community development entails a one-time cost of $1.2 million to create and maintain (in perpetuity). a) How many people must use the brand community for it to break even if we ignore the word-of-mouth effect? b) How will the answer to part (c) change if we now consider the word-of mouth effect? To include the word-of-mouth effect assume that each original user of the brand community invites five friends on average of whom 2% convert to become regular users (these later users do not invite any more friends). Assume those friends who convert were not previously customers and have a lifetime value of $120. Show less
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