Customer Profitability

8 Oct No Comments

Our study this week focuses on customer profitability.  Review Exhibit 6-6 in the text (Comprehensive Customer Operating Income Statement).  Do you believe this level of detail is effective? Select a company with which that you are familiar.  Review Exhibit 6-7. How would you describe that company along the dimensions in the chart (i.e., types of customer, cost to serve and net margin realized).   Identify another company in the same industry that fits the description on the other side of the continuum. What are some of the specific challenges of the low-price company? What are some of the specific challenges of the high-price company?

Answer:

I believe that the level of detail presented in exhibit 6-6 in the textbook is effective. It helps sales managers review the entire customer relationship and ensure that the relationship with the customer is profitable. It can also help detect areas where the services can be optimized to turn the operating loss into income (Atkinson, Kaplan, Matsumura, Young, 2013, p.230).

In order to determine whether a customer is profitable to the business, a company’s accounting systems must be able to support analysis on revenue and expenses generated by a particular customer.

Service companies focus more on customer cost and profitability because of the difference in demand for organization resources, and customer behavior determines the quantity of demands for resources that provide the service to customers.

After reviewing exhibits 6.6 and 6.7, I believe that Barnes and Noble fall under the lower left hand quadrant of the customer profitability map. Barnes & Noble is price sensitive (and get 50% discount off MRSP from publishing firms as a standard discount), and has very few special demands (such as no weekend delivery in stores, etc). At the other end of the spectrum, stores that sell general merchandise including may require additional service such as manufacturers stocking their own products in fixtures, and specific delivery needs to make their products retail ready.

Some specific challenges for a low priced company may be

Some specific challenges of the high-priced company may be more demands on services, such as dedicated customer service/support,

References:

Atkinson, A., A., Kaplan, R., S., Matsumura, E., M., Young, S., M, (2013). Management Accounting (Sixth Edition), Upper Saddle River, NJ: Pearson.




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