IKEA is one of the most profitable companies which specialize in designing and selling furniture and accessories for houses and households in the world. IKEA was founded in 1943, and today the company operates all over the world while having the stores in 42 countries and opening a number of new stores in different countries annually. In the United Arab Emirates (UAE), there are two IKEA stores which are opened and operated according to the franchise business principles (IKEA, 2014). To guarantee that IKEA stores in the UAE can develop according to the idea of the long-term growth, it is necessary to refer to the estimation of the Customer Lifetime Value (CLV) in order to examine the issue of profitability (Customer Lifetime Value Calculator, 2007).
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Following the CLV calculated for IKEA stores in the UAE, it is important to note that the average contribution before mailing costs per customer per year is expected to be $200; the one-time acquisition cost per customer is $350; the average contribution per purchase is $200; and the profit per customer in year is $600 (Customer Lifetime Value Calculator, 2007).
The two benefits which IKEA would gain while embracing the concept of the CLV are the following ones: (1) the reduction of expenses associated with the promotion of the new products depending on the target audience’s interests because of improving the target marketing approaches with references to the CLV; and (2) the opportunity to focus on the appropriate service level to respond to the customers’ needs while concentrating on different groups of customers as a result of analyzing the CLV (Customer Lifetime Value Calculator, 2007; IKEA, 2014).
Customer Lifetime Value Calculator. (2007). Web.
IKEA. (2014). Web.