CASE 1:

Melissa Wood Health

and the Creator Economy

Integrantes:
Felipe Aguilera
Marco Lama
Martín Rendic
Agustín Ulloa
Profesor:
Andres Musalem
 Question A:

Intangible assets like customers are very important for the firm. For example, Melissa Wood built her entire
business with the support of her subscribers and followers. That's why Melissa needs to understand the value
of her customers.

If we want to see the value of Melissa´s customers, it is needed to give them a quantitative value. In this case,
will be taken a discount rate per month of 1%. This information is given by the problem. Is inferable that the
retention rate of MWH subscribers is from 90% to 94% (because the churn rate is 6% to 10%). Therefore, we
will take the average of both rates (92%).

A subscriber per month pays $9,99, with the option to pay $99 a year, nevertheless, we are going month to
month. Besides, the cost of acquisition is $2. We need to note that this cost incurs just once when the
customer subscribes for the first time. As a result we have a margin of $9,99. With this information we can use
the equation “Customer Lifetime Value” in infinite periods:

𝑟 0,92
𝐶𝐿𝑉 = 𝑚( 1+𝑖−𝑟 ) − 𝐴 = 9, 99( 1+0,01−0,92 ) − 2 = $100, 12

Hence the value of a subscriber given to Melissa Wood Health is $100,12.

Question B:

I.There is three ways where a follower can make revenues for Melissa:
1. If a follower subscribes to the page MWH and stays as a subscriber more than a month, since the first
month is a free trial. Besides the monthly subscription of $9,99, there is an annual subscription of $99.
2. If she partners-up with brands and products, promoting them via link in her Instagram story (receiving
between a 10% and 20% from the purchase made from the link) or with discount and or benefits codes
(receiving between a 20% and 30% of the profit made where the codes were used).
3. Through their partnerships with brands, MWH has an income per Instagram post. It is mentioned that
the accounts with one million followers (MWH has 650,000) can charge between $20,000 and $30,000 by
posting three to five stories or posts.

II.Considering the income data from MWH affiliates and partnerships as seen in Exhibit 9, we can infer that the
income growth comes close to a 12,5% monthly, where if we project the income starting from October 2020,
the results indicate that the profits associated with these two assets would amount to $112,500. Furthermore,
as for the same date, MWH had 650,000 followers. With this data in consideration, the average income by
subscriber is 0.173 dollars.

III.First, the follower must come to know that there is an existing platform where MHW publishes exclusive
content (workout plans). Later, the follower must be interested in the available content. In the situation where
both conditions appear to be true, the followers have the option to subscribe to the site with a free-trial
membership that lasts for a month. If the clients find the MHW exclusive content satisfying, it’s highly possible
that he will be paying the subscription for the following month.

IV.(BONUS) In a monthly point of view, with a 1% discount rate, a 2% abandonment rate and no acquisition cost,
to attract new followers and an income margin from affiliates + partnerships of $0,173 (considering that MWH
receives $112.500 monthly from affiliates + partnerships and has 650.000 followers).
Besides, by October 2020, MHW had 92.000 active subscriptions and 650.000 followers, due to that, the
proportion of followers that are subscribers too are roughly 14,15%.

With all of that in mind, supposing that a subscriber is also a follower, meaning that no subscriber isn’t a
follower, we can calculate the following CLV:

0,98
𝐶𝐿𝑉 = 0, 173( 1+0,01−0,98 ) + 100, 12 * 0, 1415 = $19, 94

In a few words, we have the Customer Lifetime Value of a follower of MWH it is $19,94.

Question C:

For Melissa the decision of making a leisure deal is very important, because the impact can be positive or
negative. On the bright side, Melissa could expand her brand in places she wasn’t known before. The
agreement (Exhibit 10) between the retailer and Melissa offers a 60-minute interview and two appearances in
the press, helping Melissa to increase her reach. With this Melissa can increase her client base, and overall
increase in Instagram followers.

Without this leisure deal the income of Melissa is variable through time. We saw in the previous item that the
affiliation with a firm makes a revenue of 20% to 30% of what she sells (with codes). On the other hand, the
partnership revenue depends on the brand and the leisure they have. In this case, a constant income is
guaranteed: a minimum royalty of $950,000. Besides there is a variable income of 10% of “Net Sales” from the
brand. However, Melissa has an exclusivity contract with the retailer, therefore she can not use her brand
“MWH” with another firm.

One of the concerns of Melissa and her team is the quality of the products. The products of Melissa had been
of a good quality, nevertheless sometimes big retailers decrease the quality of the products and increase the
production. Furthermore, the responsibility of the shipping comes from the retailer. If the customers have a bad
experience, for example if the quality is not enough or the item didn't ship on time, the reaction of the customer
could be against Melissa Wood. As the face of the brand, she would be blamed for the poor quality and
ineffective shipping.

This leisure deal will last one and a half years, and it is necessary to analyze the restrictions of the contract.
We previously said that there is an exclusivity agreement between Melissa and the retailer. What makes it
impossible for Melissa to work with other brands of the women and health industry. However, she could work
with firms of another industry like “Ford”. Another restriction is the promotional content. The agreement states:
“MWH will have prior approval for the content created to promote the products”. This means a restriction in her
creative process. Both restrictions could bring problems between Melissa and the large retailer.