Gregory Steinbrenner

MRKT 605
Customer Value Pyramid Assignment
10/1/!01"
Part One: Please answer the questions Use the
Database worksheet in the Excel spreadsheet.
1. an !ou detect an! relationship between the
len"th o# the relationship and pro$tabilit!%
T#ere does not a$$ear to be any relations#i$ bet%een t#e
lengt# o& t#e relations#i$ %it# a 'ustomer and t#e
$ro(tability o& t#at 'ustomer based on t#e )igure 1*
T#ere&ore+ sales$eo$le s#ould not $la'e any additional
e,ort in trying to in'rease sales on 'ustomers %#o #a-e a
longer relations#i$ %it# t#e 'om$any*
&. Once !ou ha'e identi$ed the top 1( and botto)
1( custo)ers* who are the botto) "u!s and what
should we do with the)%
Cust
No.
Customer
Name
Proftabi
lity
30 Norman, Lea $248.50
Table 1.
Figure 1.
44
Vonta Leach
Industries $224.70
27
Lamont,
Cranston $190.00
90 ro!n, Corne"" $173.20
32 #au", #au" $1$7.40
94
%ou&"as,
'ar(ues $59.70
33 )e&ina"d, Le!is $29.70
74 *her, 'ichae" +$155.00
31 *scar, *scar +$344.80
$2 ,"-nn, 'i.e
+
$1,424.8
0
./amining Table 1+ t#ree o& t#e 'ustomers are not
$ro(table and are 'osting t#e 'om$any money* 0n &a't+
one 'ustomer is 'osting t#e 'om$any o-er 11+"00* 0n
addition+ t#ere are t%o 'ustomers %#o $ro-ide less t#an
1100 in $ro(tability* T#e rest o& t#e bottom 10 'ustomers
$ro-ide modest $ro(tability*
T#e 'ost o& ser-i'ing t#ese 'ustomers is on $ar %it# all
'ustomers* T#e median o& t#e bottom 10 'ustomers is
110 -s 11!" &or all 'ustomers* 2o%e-er+ t#e median
-alue o& returns is mu'# #ig#er &or t#e bottom 10
'ustomers* T#e median -alue &or t#e bottom 10 is 13!4
-s 164 &or all 'ustomers* T#e most telling statisti' is t#e
net sales* T#e median net sales &or t#e bottom 10
'ustomers are only 16!5 -s t#e median &or all 'ustomers
is 1165*
T#e 'om$any s#ould e/amine raising $ri'es+ $arti'ularly
on Mi6#ail $rodu'ts* T#ese $rodu'ts only $ro-ide !07 to
net sales* T#is may redu'e some o& t#e $ro(tability on
t#e gold or iron 'ustomers+ but it may #el$ eliminate t#e
lead 'ustomers resulting in #ig#er o-erall $ro(tability &or
t#e 'om$any* 0n addition+ t#e 'ost o& goods sold is #ig#er
&or t#e all 'ustomers -s t#e bottom 10+ 1651 -s 113+
res$e'ti-ely* T#e 'om$any s#ould e/amine %ays to
redu'e t#e 'osts o& goods sold to in'rease $ro(tability*
3. +hich o# the ,-./0-, codes see)s to "i'e us
the best pro$tabilit!% -s there an! pattern that
!ou can see%
)igure ! s#o%s t#e total $ro(tability by S0C/8A0CS 'odes*
!354 $ro-ided t#e 'om$any %it# t#e best total $ro(tability
%it# 11!+1!!* !!53 'ame in se'ond and #ad an o-erall
total $ro(tability o& 13+316* 2o%e-er+ %#en you a-erage
t#e $ro(tability by 'ustomer+ !!53 #as t#e #ig#est
$ro(tability at 11+4!4* !354 is a 'lose se'ond at 11515*
T#is indi'ates t#at t#e $ro(tability o& !354 is mu'# more
#ig#ly -ariable $er 'ustomer 'om$ared to !!53* T#ere&ore+
management must de'ide i& t#ey are %illing to in-est
mar6eting resour'es in trying to ma/imi9e !!53 be'ause it
o,ers t#e greatest $otential $ro(tability+ but t#ey run t#e
ris6 o& #a-ing lo%er a-erage returns t#an !!53* T#e ot#er
alternati-e is to &o'us on !!53 %#i'# o,er less -olatility+ but
#as a mu'# lo%er $otential &or o-erall $ro(tability*
Figure 2.
1. 2he cost o# "oods sold re3ects the underl!in"
costs o# each product. 4or the )ar"inal
custo)ers* which products should we tr! to
pro)ote to increase their pro$tabilit!%
:oo6ing at )igure + an analysis o& t#e a-erage sales $er
$rodu't o& marginal 'ustomers s#o%s t#at ;rdnase #ad t#e
#ig#est a-erage sales $er marginal 'ustomer at 11+306*
Mi6#ail #ad t#e lo%est a-erage sales $er marginal 'ustomer
at 140* )leer %as slig#tly #ig#er at 11+0"5* Mar6eting
'ould $romote bot# )leer and Mi6#ail to try and in'rease
sales* 2o%e-er+ Mi6#ail only $ro-ides !07 to net sales+ so
it may be in t#eir best interest to &o'us on )leer* 0n
addition+ ;rdnase 'ontributes t#e #ig#est $er'entage to net
sales at 507* T#ere&ore+ e-en t#oug# sales are strong &or
;rdnase+ Mar6eting may %ant to $romote ;rdnase to
in'rease sales+ or maintain t#em at a minimum*
Figure 3.
Part 2wo: Please answer these questions. Use the
o))ission worksheet in the Excel spreadsheet.
1. an !ou detect an! relationship between the
len"th ser'ice with the co)pan! and sales
success%
<ased on an analysis o& )igure " and Table ! belo%+
Kor$olins6i #as t#e #ig#est =T> o& sales ?15+350@ along
%it# t#e #ig#est sales in ea'# o& t#e $rodu't 'ategories*
Studer #as t#e se'ond #ig#est o-erall sales along %it#
t#e se'ond #ig#est sales ?1"+535@ in ea'# o& t#e $rodu't
'ategories* <ro%n is a 'lose t#ird in o-erall sales
?1+66@ and ea'# o& t#e $rodu't 'ategories* T#eir sales
manager s#ould e/amine %#at ma6es Kor$olins6i so
su''ess&ul as 'om$ared to Studer and <ro%n* 2is sales
more almost double to Studer+ t#e se'ond $la'e
sales$erson* T#ere is no relations#i$ bet%een t#e
$rodu'ts and t#e sales$erson* T#ere&ore+ Kor$olins6i is
su''ess&ul %it# selling any o& t#e $rodu'ts* 0nterestingly+
t#ere is an in-erse relations#i$ bet%een t#e lengt# o&
ser-i'e and t#e sales su''ess* Kor$olins6i #as t#e
s#ortest lengt# o& ser-i'e at "*5 years* Studer #as t#e
se'ond longest lengt# o& ser-i'e at 3*5 years+ and <ro%n
#as t#e longest lengt# o& ser-i'e at 13*"* T#is seems
'ounterintuiti-e to %#at %ould be e/$e'ted* 0 %ould
e/$e't t#at t#e lengt# o& e/$erien'e %ould be dire'tly
related to sales su''ess* 0tAs $ossible t#at <ro%n and
Studer #a-e lost moti-ation to in'rease sales* 0t %ould be
%ort#%#ile &or t#e sales manager to e/amine sales trends
o& t#e indi-iduals o-er time to see i& t#is is an isolated
in'ident or a '#roni' issue* 0& it is a '#roni' issue+ t#e
sales manager may #a-e to 'onsider (ring t#ese
indi-iduals &or $oor $er&orman'e*

YTD $
purchases
YTD $
Fleer
YTD $
Mikhail
YTD $
Odnase
Brown, Lou $3,366 $1,081 $1,179 $1,106
Korpolinski $8,780 $3,589 $2,426 $2,765
Studer $4,575 $1,241 $1,585 $1,749
&. Usin" the co))ission rates at the top o# the
worksheet* calculate each salespersons
co))ission #or each product.
5. alculate the total co))ission #or each
salesperson.
1. -s there a relationship between the len"th o#
ser'ice and co))ission%

Commission
Fleer
Commission
Mikhail
Commission
Odnase
Total
commission
Brown $584 $283 $531 $1,398
Figure 4.
Table 2.
Table 3.
Korpolinski $1,777 $534 $1,217 $3,527
Studer $558 $296 $699 $1,554
/imi"ar to the sa"es data, the commision data indicate that 0or1o"ins.i
has the hi&hest tota" sa"es commision 2$3,5273 and the hi&hest
commision 4or each 1roduct 25a6"e 3 and ,i&ure 53. /tuder has the
second hi&hest tota" sa"es commission 2$1,5543 and is second hi&hest
in *rdinase and 'i.hai" commisions, 6ut is third in ,"eer commissions.
ro!n is third in tota" sa"es commision 2$1,3983 and is third in 'i.hai"
and *rdnase commissions, 6ut is second in ,"eer commissions.
In addition, as seen in the sa"es data, 0or1o"ins.i, !ith the shortest
"en&th o4 ser7ice, has the hi&hest commissions !hich seems
counterintuiti7e to e81ectations. 9"thou&h, /tuder is second, ro!n is
a 7er- c"ose third. 5here4ore, there a11ears to 6e an insi&ni:cant
di;erence 6et!een ro!n and /tuder<s commissions. It is e81ected
that 0or1or"ins.i<s commissions !ou"d 6e much hi&her as a resu"t o4 his
si&ni:can"t- hi&her sa"es com1ared to ro!n and /tuder. 9s stated
1re7ious"-, mana&ement must e8amine !h- the sa"es o4 ro!n and
/tuder are much "o!er considerin& their "en&th o4 ser7ice is much
"on&er than 0or1or"ins.i, es1ecia""- ro!n !ho has 13 additiona" -ears
on to1 o4 0or1o"ins.i. C"ear"-, there is an issue here that the sa"es
mana&er must :&ure out. I4 this is a chronic 1ro6"em, then he must
consider :rin& them 6ecause c"ear"- commissions are not incenti7i=in&
ro!n and /tuder to increase their sa"es.
Figure 5.