Calculation of WOM for CLUB MED (A)

Facts:

1. 65% of new customers are influenced by WOM (Page 8, last but one para)
2. 60% of all customers in one year are new(Page 8, last but one para)
3. 25% of satisfied customers are repeat customers(Page 8, last but one para)
4. Contribution Margin = 60%(Page 8, last but one para)
5. Repeat customers generally took 4 additional vacations(Page 8, last but one para)
6. Revenue from 1 customer = $ 1000 (Exhibit 2, Part 1, Sales/Guest , Average figure)

Assumptions

1. Satisfaction Rate in 1985 = 80%

2. All WOM effects in one year take place in the next year. (actually, this assumption is to avoid the
Time Value Effect… you can dump this assumption if you have the time value data which you
would if you have a robust CRM in real life)

Calculations

1. In 1986 there were 332000 customers (Exb 2, part 1, 3 rd row, last col). Using fact 2, there were
200000 new customers (approx)
2. In 1985 there were 282000 customers(Exb 2, part 1, 3 rd row, 6th col). Going by assumption 1,
there would be 225,000 satisfied customers (282000*0.8)
3. Again by Fact 1, 65% of 200000 customers in 1986 came through WOM. i.e. 130000
(200000*.65)
4. Combining points 2 and 3, 225000 satisfied customers in 1985 gave rise to 130000 WOM-
induced customers in 1986. This implies 1 satisfied customer in 1985 gave 0.6 WOM-induced
customer in 1986 (130000/225000)
5. So, the conversion ratio between satisfaction and WOM is 1:0.6. This is the crucial figure.
6. Now there are 3 types of customers
a. Customers who repeat and give WOM = 25% of the satisfied customers (Fact 5)
b. Customers who give WOM only = 75% of the satisfied customers (corollary of fact 5)
c. Customers who give negative-WOM because they are dissatisfied.
7. The value of 1 vacation is 1000 USD (fact 6). So the Value of WOM is 0.6*1000 = 600. One can
assume that that the value of the negative-WOM will be the negative of this figure.
8. So, now let us calculate the worth of each of these customers
9. Repeat Customers = 4 additional vacations+ 5 WOMs (one from current vacation and 4 from
future vacations) = 4*1000+5* 600 = 7000
10. Non-repeat Satisfied customer = 0 additional vacations + 1 WOM = 0.05*1000+1*600 = 600
11. Dissatisfied Customer = 0 additional Vacations -1*600 = -600
12. So, what is the value of satisfaction?
For getting 2 marks extra, you need to send me the following answers

1. Value of satisfaction based on 80% satisfaction

2. Value of satisfaction based on 90% satisfaction
3. What happens when repeat customers becomes 30% instead of 25%
4. And finally, with 60% contribution, what is the total contribution increase with a 10% increase in
satisfaction, increase of 5% repeat customers and both.

I need the answers by email to reach me by 12.00 midnight today.