Class Notes (808,703)
Canada (493,376)
Business (3,224)
BU247 (83)

Chapter 6 BU247.docx

3 Pages
Unlock Document

Wilfrid Laurier University
Greg Clark

BU247 Chapter 6 – Measuring and Managing Customer Relationships Week 7 Measuring Customer Profitability Reporting and Displaying Customer Profitability -Whale curve – a plot of cumulative profitability versus the percentage of customers, where customers are ranked from the most profitable to the least profitable. In a typical whale curve, the most profitable 20 percent of customers generate between 150 and 300 percent of the company’s profits. The unprofitable customers incur losses that cumulatively bring the company’s profits down to 100 percent -A company cannot lose a large amount of money with a small customer because it does not do enough business with it to incur large losses -Only a large customer, demanding high discounts from list price and also making many demands on a company’s technical, sales, distribution, and administrative resources can be highly unprofitable -Large customers are typically a company’s most profitable or its most unprofitable -The opportunity for a company to identify its unprofitable customers and then transform them into profitable ones is perhaps the most powerful benefit that a company’s managers can receive from an ABC system Customer Costs in Service Companies -Service companies must focus on customer costs and profitability because the variation in demand for organizational resources is much more customer driven than in manufacturing organizations -A manufacturing company producing standard products can calculate the cost of producing the products without regard to how their customer can use them; the manufacturing costs are customer independent -Only the costs of marketing, selling, order handling, delivery, and service of the products might be customer specific -Small-balance customers can be quite profitable and large-balance customers can be highly unprofitable Increasing Customer Profitability Process Improvements -Managers should first examine their internal operations to see where they can improve their own processes to lower the costs of serving customers Activity-Based Pricing -Activity-based pricing establishes a base price for producing the delivering a standard quantity for each standard product -Activity-based pricing, prices orders, not products Managing Relationships -Persuading customers to use a greater scope of the company’s products and services -Some customers may be unprofitable because it is the start of the relationship with the company -Companies can afford to be more tolerant of newly acquired unprofitable customers than they can of unprofitable customers they have served for 10 or more years The Pricing Waterfall -Before confronting a customer with an explicit price increase, the company should examine the many BU247 Chapter 6 – Measuring and Managing Customer Relationships Week 7 way I has already reduced the effective price the customer actually pays -Companies fail to see all of the revenue leaks from list price because they record the discounts and allowances in different systems and make the revenue deductions at different times of the year -p. 227 – 232 if more details are needed Salesperson Incentives -Salesperson incentives and compensation arrangements encourage salespeople to close deals and generate revenues without regard to the cost of fulfilling the special arrangements negotiated in the deal and the impact of discounts and allowan
More Less

Related notes for BU247

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.