FreedomBell provides personal monitor devices for elderly customers. These devic

Question

FreedomBell provides personal monitor devices for elderly customers. These devices are worn on a cord around the neck and transmit information about vitals (heartbeat, respiration, blood pressure) to the FreedomBell monitoring station. The devices also have an emergency button which, if pressed, will call FreedomBell immediately. FreedomBell monitors the device output and dispatches medical and emergency services when necessary. The device is provided free of charge to clients, but the monitoring service costs $39.99 per month. FreedomBell’s variable costs for the monitoring service are $3.12 per month. Clients have been dissatisfied with the quality of the monitor device which has a tendency to fall apart. FreedomBell is searching for a new vendor to manufacture the device in hopes of improving the device’s durability and, thus, increasing customer retention rate, which is currently 60% per month. To counteract customer churn, FreedomBell deploys an intensive marketing program and has been successful in maintaining the number of customer accounts at 1,800,000. If the newer device is used, monitoring costs will increase by $0.75 per month. FreedomBell has a monthly discount rate of 0.009 (0.9%).

How many customers does FreedomBell lose each month?

Explanation / Answer

Customer lost = (1- customer retention rate )* no of cutomers

Retention rate - 60%

no of customers =1,800,000

For last month the number of customers were 1,80,000/.6 =3,000,000

Lost customers = 1,200,000

for the next month, number of customers lost will be (1-.6)*1,80,000 = .4*1,80,000 = 720,000

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