Measuring and Managing Customer Relationships Essay

Some companies gain highly sophisticated analytic systems that allow them to estimate these parameters based on the demographic characteristics of a authorization or newly-acquired customer. The analytics help guide the companies promotion strategies and campaigns to attract customers with the highest expected lifetime value. For example, RBC Financial free radical in Canada uses an analytic model of a customers future profitability based on age, tenure with the bank, number of products and services already utilize at the bank, and the customers potential to acquire additional products and services, grow account balances, and engender fee-based income.1 The bank assigns a personal account vox to its estimated high lifetime value customers, ensures that their phone calls get picked up quickly, and provides them with ready access to credit at attractive terms. 6-31The net promoter score is promising to have the greatest predictive magnate for duplicate purchases and growth in business-to-customer settings where customers have frequent interactions with companies.The score is likely to have the least predictive power in business-to-business settings where purchasing decisions ar made by highly sophisticated professionals. In this case, it is better to ask, How likely is it that you will continue to purchases products or services from Company X? CASES 6-32The responses below are based on Survival Strategies After Cost Cutting, Companies Turn Toward Price Increases, by Timothy Aeppel, The Wall Street diary (September 18, 2002, p. A1).(a)Jergens president based the price on what he determined to be the cost of producing the order of 10 odd-sized fasteners from scratch. The cost include setup for the odd size and overtime labor. The companionship actually produced the odd-sized fasteners by producing large fasteners and then shortening 10. This method was less costly than setting up the equipment to run a nonaged batch of the required odd size. (b)Good year had been rewarding its gross revenue troops based on volume, providing an incentive for the sales force to deeply discount prices to large distributors.The discounts were so substantial that the large distributors could resell the tires to smaller distributors (even with conveyance of title costs to other regions), reducing Goodyears sales at higher prices to smaller distributors. Goodyear responded by bully the discounts to large distributors, removing discount approval authority from the sales force and transferring it to a tactical pricing meeting that determines whether Goodyear can profitably match a competitors prices. Goodyear also modified its sales force bonus scheme to include a revenue per tire metric.(c)Emerson discovered that customers were willing to pay some 20% more than Emersons initially proposed cost-based price of $2,650 for a new compact sensor. Emerson priced the sensor at $3,150. Note that the article does not provide information on how Emerson deter mined product costs that it used as a basis for its markups. A traditional cost system is more likely to undercost a low-volume or customized product because it allocates manufacturing support costs to products based on unit-level drivers.An activity-based costing system more accurately assigns costs based on resource usage. (d)Wildeck, a maker of metal guard rails, mezzanines and material lifts for factories and warehouses, promoted packages that included installing its products. The installations bring higher profit than parts catalog sales. Wildeck responded to a competitors lower-priced storage-rack defender by developing its own lite version and pricing it much lower than the competitors price.When customers called about purchasing the lite version, they were informed of the benefits of the original version, and most of these customers bought the original version. An accurate costing system, such as a good activity-based costing system that includes both manufacturing and non manufacturing costs of providing goods and services to customers, provides reasonably finespun information to managers for making decisions about the mix of products and services to offer to customers and prices to charge in order to generate the desired level of profitability.(e)Union Pacific introduced a minimum price that was higher than a third of its customers paid. The company was not concerned if it lost these customers because customers who were paying higher prices would fill up the newly free space. dropping unprofitable customers will not lead to an immediate increase in profit if the associated capacity-related costs are committed costs and the resources cannot be put to other profitable use.