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SAM 6IntA 07 07 Customer Profitability Analysis
SAM 6IntA 07 07 Customer Profitability Analysis
SAM 6IntA 07 07 Customer Profitability Analysis
ANALYSIS:
Challenges and New Directions
😉 HELLO!
Group 7
• Annisa Ramadhani (1610531017)
• Belinda Nabila (1610533020)
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The Importance of Customer Profitability
Analysis
Customer profitability analysis: Identifies the costs and benefits of serving
specific customers or customer types to improve an organisation's overall
profitability
The objectives:
✘ Measure customer profitability
✘ Status of being a supplier to a leading company, which can lead to referrals
to other (more profitable) customers
✘ Identify effective and ineffective customer-related activities
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Focus of Customer Account Profitability
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Why Use Customer Profitability Analysis?
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The Differences In Customer Profitability
Can Arise From:
1. Revenue Differences
the revenue obtained by the company in conducting its business.
✘ Differences in the prices charged per unit to different customers
✘ Differences in the selling volume levels across customers
✘ Differences in the products or services delivered to different customers
✘ Differences in the items provided without charge to different customers
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The Differences In Customer Profitability
Can Arise From:
2. Differences in Cost
the cost charged to customers when they consume the
products or services.
✘ Differences in distribution channel
i.e. individual customer usually want more service. While industrial
customers want competitive prices and better quality.
✘ Differences in customer service levels
✘ Service companies
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Illustration Of Customer Profitability
Analysis
Blue Ridge Company manufactures and sells sport towels, which
differ in size, color, logos, embroidery, and dying.
Individual customers of Blue Ridge Company in size as follows:
Large customers: National retail chains
Midsize customers: Smaller retail chains and licensing agents
for sport teams
Small customers: Customers who purchase towels in response
to advertisements, mail-order campaigns, and other forms of
marketing
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EXHIBIT 2. Profile Of Customer Grouping Of
Blue Ridge
Panel A Large Midsize Small
Number of customers 8 154 824
Units sold 100,250 58,544 117,406
Sales volume $ 308,762 183,744 318,024
Number of orders received 133 845 5,130
Number of shipments 147 923 5,431
Number of units embroidered 5,959 6,490 29,394
Number of units dyed 20,536 9,935 12,328
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Illustration Of Customer Profitability
Analysis
Sales dollars
Marketing by customer type
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Illustration Of Customer Profitability
Analysis
Profitability of Large Customers
Percent of Operating
Customers Percent of Revenues
Income
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Challenges In Developing Customer
Profitability Information
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How To Develop Reliable Customer Revenue
and Customer Cost Figures
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How To Develop Reliable Customer Revenue
and Customer Cost Figures
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How To Recognize Future Downstream Cost
of Customers
✘ Environmental Costs
Much diversity exists arround the world concerning the regulation of environmental
costs.
The challenging these cost for accurate costing are twofold
1. To estimate the magnitude of the environmental cost
2. To assign the environmental cost to appropriate time periods so that customer profit reports
can be calculated.
✘ Litigation Costs
The overall amount of money that is spent on a lawsuit. This generally includes costs
related to preparation before the case, as well as costs that come up along the way during trial.
Litigation can often involve many expenses, and is sometimes time-consuming as well.
As a result, litigation costs should always be considered and factored into one’s budget whenever
considering a lawsuit.
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Several Dilemas Concerning Customer
Costing:
✘ Providing estimates
The company must recognze possible future litigation from the
beginning and it will be interpreted as admission of legal
liability.
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How to Incorporate a Multiperiod Horizon
into The Analysis
The importance of having a long term perspective in business decission is frequently emphasized.
For example Brand managers need a long perspective because some brand can persist for many
years.
The notion of a product life cycle was created in part to emphasize how front-end expenditures are
required before produce revenues are realized in later periods
Tracking profitablity over time. Budgeting for customer profitability over an extended time is
critical when making decisions based on reports.
Longterm profitablity budgets. One proposed measure of the succes of a company new product
development is the percentage of total revenues from new products. The aim is to maximize
retention of existing profitable customer and to increase the rate at which new profitable customer
added. However, an increase in the percentage of revenues from new customer could be a negative
signal.
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How to Recognize Different Drivers of
Customer Units
✘ All costs are variable in the longg run with respect to choosen cost drivers
✘ None of the costs are joint (in the sense that two or more product or servicces are
simultaneously produced delivered to one customer).
✘ Several approach can be taken to relax the assumptions that all costs are variable
1. Prepare separate analyses for cost drivers and their rates in the short run and the
long run
2. Prepare customer cost hierarchies that recognize different level of cost
drivers
Customer Spesific Coste Customer Spesific Contribution
Customer Line Costs Customer Line Contribution
Company enterprise costs Operating Income
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How to Recognize Different Drivers of
Customer Units
✘ New Directions
The emphasis on adapting a “customer focus” has become pervasive areas of
management.
1. Supporting Strategic Decisions
Customer profitability systems typically assume that the existing business infrastructure
will stay relatively constant in the face of various management decisions
2. Valuing Intangible Assets
By periodically estimating the value of a customer base, the multiperiod effect on
increase in customer loyalty can be analyzed a systematically
3. Analyzing customer retention rates
Customer profitablity database would facilitate development of more informed decision
making tools it will make alternative approach (lower prices or better customer
services) Refinements in tracking customer profitability will permits more extensive
testing of the economics of these approaches
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THANKS!
Any questions?
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