Suppose that GLC earns a $2000 profit each time a person buys acar. We want to determine how the expected profit earned from acustomer depends on the quality of GLC's cars. We assume a typicalcustomer will purchase 10 cars during her lifetime. She willpurchase a car now (year 1) and then purchase a car every fiveyears—during year 6, year 11, and so on. For simplicity, we assumethat Hundo is GLC's only competitor. We also assume that if theconsumer is satisfied with the car she purchases, she will buy hernext car from the same company, but if she is not satisfied, shewill buy her next car from the other company. Hundo produces carsthat satisfy 80% of its customers. Currently, GLC produces carsthat also satisfy 80% of its customers. Consider a customer whosefirst car is a GLC car. If profits are discounted at 10% annually,use simulation to estimate the value of this customer to GLC. Roundyour answers to one decimal digit.
$
Also estimate the value of a customer to GLC if it can raise itscustomer satisfaction rating to 85%, to 90%, or to 95%. You caninterpret the satisfaction value as the probability that a customerwill not switch companies.
| Satisfaction rating | Customer value to GLC |
| 85% | $ |
| 90% | $ |
| 95% | $ |
