Question

Maru’s brother suggested she focus on the Elite Ballplayers segment, targeting it byoffering a ¥500 discount on all future purchases to Elite Ballplayers who purchase atleast twenty batting cage hours in Year 1. (Assume all Elite Ballplayer customers bookexactly twenty hours each year. Also assume that this discount is made on top of thegala event option above, instead of the magazine option for acquiring Elite Ballplayers.)Although this will decrease the amount MBC can bill Elite Ballplayers (from ¥7,500 perhour to ¥7,000 per hour from Year 2 onward), Maru believes it will increase the retentionrate of these customers to 75 percent immediately. Should MBC offer this promotion?Explain your reasoning.

Answer 1

To determine if MBC should offer a ¥500 discount to Elite Ballplayers, one must consider the immediate cost against increased customer retention and long-term benefits. Despite reduced initial revenue, improved loyalty and word-of-mouth can be valuable in a monopolistically competitive market.

Step-by-step explanation:

When determining whether Maru's Baseball Cage (MBC) should offer a promotion of a ¥500 discount to Elite Ballplayers who purchase at least twenty batting cage hours in Year 1, several factors need to be considered. The discount reduces hourly billing from ¥7,500 to ¥7,000 from Year 2 onward, but it's expected to increase the retention rate of these customers to 75 percent.

From a business standpoint, the cost of the discount must be weighed against the increased customer retention and potential long-term revenue. If the increased retention rate leads to more consistent revenue, it may offset the immediate loss due to the discount. Moreover, high loyalty among Elite Ballplayers could lead to increased word-of-mouth promotion and potentially attract more customers. Without specific financial data, it's difficult to provide a definitive answer, but such a strategy is often effective in Monopolistic Competition, where differentiation and customer loyalty are key.

Answer 2

Maru should offer the promotion to Elite Ballplayers as it can increase customer retention rate. By offering a ¥500 discount on all future purchases to Elite Ballplayers who purchase at least twenty batting cage hours in Year 1, Maru is providing an incentive for these customers to continue purchasing from MBC.

Step-by-step explanation:

Maru should offer the promotion to Elite Ballplayers as it can increase customer retention rate. By offering a ¥500 discount on all future purchases to Elite Ballplayers who purchase at least twenty batting cage hours in Year 1, Maru is providing an incentive for these customers to continue purchasing from MBC.

The discount will offset the decrease in billing rate from ¥7,500 per hour to ¥7,000 per hour from Year 2 onward.

The promotion aligns with the goal of increasing customer retention as it rewards Elite Ballplayers for their loyalty. This can lead to a sense of appreciation and encourage them to continue doing business with MBC.

It is important for businesses to retain customers as it costs more to acquire new customers than to retain existing ones. By offering the ¥500 discount, Maru is investing in customer loyalty and potentially increasing long-term revenue.