Week 6

Question 1

What is Customer Relationship Management (CRM)?

Answer 1

CRM is the practice of collecting and analyzing data to understand customer behaviors and needs, with goals of improving customer service, retention, and profitability through enhanced relationships.

Question 2

What is Customer Profitability Analysis (CPA)?

Answer 2

CPA is the analysis of revenues and costs incurred from customers to determine their profitability. It uses activity-based costing (ABC) to assign costs accurately based on customer-specific activities.

Question 3

What are the stages of CPA?

Answer 3

The stages include
(1) revenue analysis
(2) expense adjustments for true revenue
(3) customer cost analysis to determine the annual cost and profitability for each customer

Question 4

What is the purpose of the Pareto Principle in CPA?

Answer 4

It identifies that a small portion of customers often contributes the majority of profits, helping firms focus on high-value customers and manage or restructure relationships with less profitable ones.

Question 5

How can companies use Customer Profitability Analysis?

Answer 5

Companies use CPA to identify the most profitable customers, improve unprofitable relationships, and allocate resources efficiently​

Question 6

How are costs allocated in CPA?

Answer 6

Costs are assigned to customers through activity-based costing, including product/service costs, order processing, marketing, distribution, and customer service overheads.

Question 7

What is the purpose of revenue analysis in CPA?

Answer 7

The purpose is to calculate the annual revenue for each customer segment, adjusted for discounts and service fees, to determine true profitability​

Question 8

Why do companies need to transform unprofitable customer relationships?

Answer 8

Companies transform unprofitable relationships to either make them profitable or decide whether to drop the customers