Module 5: Measuring & Managing Customer Relationships Flashcards
what does MSDA stand for
Marketing, selling, distribution, and administrative expenses
what are MSDA independent of?
Most are independent of the volume and mix of products and cannot be traced through causal relationships to products
how do MSDA expenses differ and give example
Customers and channels differ considerably in their use of MSDA resources (ex. Cost of reaching company clients is much lower than individuals)
what can help trace MSDA expnese to customers, customer orders and channels
ABC
what is included in process perspective in BSC
cost of production and purchasing processes
what happens when we allocate MSDA based on % of sales?
can result in skewed profitability for customers
9 things that result in high cost to serve customers
Order custom products Small order quantities Unpredictable order arrivals Customized delivery Change delivery requirements Manual processing: high order error rates Large amounts of pre-sales support Large amounts of post-sales support Pay slowly
9 things that result in low cost to serve customers
Order standard products High order quantities Predictable order arrivals Standard delivery No changes in delivery requirements Electronic processing with 0 defects Little to no pre-sales support No post-sales support Pay on time
what does 80-20 rule only apply to
sales revenue, not profits
explain 80-20 rule
When companies rank products and customers from highest volume to lowest, they find top-selling 20% of products/customers generate 80% of total sales
explain 40-1 rule
Lowest volume 40% of products/customers generate only 1% of total sales
how can we portray customer profitability
from an ABC customer analysis as a whale curve
x and y axis of whale curve
Plot cumulative profitability (y) vs cumulative % of customers (x)
how do we rank customers on x axis for whale curve
from most profitable to least profitable
3 things whale curve reveals
1) The most profitable 20% of customers generate about 180% of total profits
2) Middle 60% of customers break even
3) Least profitable 20% of customers lost 80% of total profits, leaving company with 100% of total profits
where do high profit customers appear on whale curve
left side
3 characteristics of high profit customers and what managers should do
1) These customers should be protected
2) They could be vulnerable to competitive inroads
3) Managers should be prepared to offer discounts, incentives and special services to retain loyalty of these valuable customers if a competitor threatens
where do low profit customers appear on whale curve
right side
characteristic of low profit customers and what managers should do
Managers can use ABC to help understand why these customers are unprofitable and to provide insight on how to transform unprofitable customers into profitable ones
why do service companies have to focus on customer costs and profitability more?
because the variation in demand for org resources is much more customer driven than in manufacturing companies
in manufacturing, what is customer dependent/independent
manufacturing costs are customer independent, only MSDA expenses might be customer dependent
in service companies, how should be measure revenues and costs?
Measuring revenues and costs at customer level provides company with far more relevant and useful info than at product level
4 ways to increase customer profitability
1) Process improvements
2) Deploy menu-based pricing to allow customers to select features and services for which they are willing to pay
3) Enhance customer relationship to improve margins and lower cost to serve
4) Use more discipline in granting discounts and allowances
how can managers improve processes?
by analyzing internal operations
