“A customer-profitability profile highlights those customers a company should drop to improve profitability.” Do you agree? Explain. Are all customers important? What other options does the organization have instead of “dropping” the customer?
Organizations rank their customers based on their revenue contribution, the frequency of purchases and other factors like creditworthiness. According to Cokins (2015), a customer-profitability profile is a rank used as a management tool to improve customer satisfaction as the operating income. Therefore, it is disagreeable that customer-profitability profile highlights those customers a company should drop to improve profitability. On the contrary, the profile enables the companies to monitor the frequent and loyal customers to make them happy in various ways. For instance, some companies have free usage of luxury hotel suites, special phone numbers, bug credit limits for high-rollers at casinos and upgrade privileges for elite-level frequent flyers for the best customers. It is very common for a small number of customers to contribute a large proportion of the operating income. The Microsoft Company stresses the point by using the phrase, ‘not all revenue dollars are endowed equally in profitability” (Microsoft.com, 2019).
All the customers in an organization are equally important. In many companies, the best customers were at one time the smallest contributors to the operating income. Additionally, other customers individually contribute a small proportion of the operating income but are so many such that their total contributions significantly impact organizations revenue (Peppers & Rogers, 2016). Also, some customers are not frequent buyers but are loyal and promote the company’s image through word of mouth.
Instead of dropping the unprofitable customers, companies can review their product mix and launch a new product that favors their purchasing ability. Also, companies can classify the customers using levels such that the level determines service delivery. Therefore, customers at the best level get personalized attention.
Cokins, G. (2015). Measuring and managing customer profitability. Strategic Finance, 96(8), 23-30.
Microsoft.com. (2019). Microsoft - Official Home Page. Retrieved from https://www.microsoft.com/en-us/
Peppers, D., & Rogers, M. (2016). Managing customer experience and relationships: A strategic framework. John Wiley & Sons.
by EssayRoyal, Nov. 8, 2019, 11:51 a.m.