Page 60 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Unit 3: Analysing Profitability of Customers

Unprofitable customers may be handled through changing incentives and prices by adopting Notes
service-based, or menu based, pricing as a means of improving profitability. The authors cite a
United Kingdom survey (Innes and Mitchell 1995) in which the most important use of customer
profitability analysis was found to be for pricing policies.
An analysis of customer service costs and customer profitability can enable the revaluation of
business processes and practices. Product lines can be rationalised leading to cost savings. Business
practices can be streamlined and sales force incentives can be restructured to create a better
understanding of costs and profits which can help management and salespeople in their pursuit
of additional revenue, or in offering special services.

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Caselet Marshall & Ilsley (M&I) Corporation

Implementing a CPM Strategy

To enhance their ability to maximise client profit potential while staying focused on client
needs Marshall & Ilsley Corporation (M&I), a financial services company, implemented a
(CPM) strategy which included a comprehensive data warehouse system. Beginning in
1995 the company:

 Developed and gained senior management commitment to 5 strategic project goals
and set up an executive steering committee for the project;
 Communicated the strategic project goals and conducted information meetings with
affiliate bank presidents;
 Reviewed the strategic information needed to meet the corporate objectives;
 Established a data warehouse to capture the information needed to analyse customer
profitability within 28 affiliates, and the affiliate’s 243 offices;
 Introduced management information initiatives including Activity-Based Costing,
Product Profitability Reporting, Delivery Channel Performance and Retail Customer
Profitability;
 Identified product activity and product activity costs, and analysed and translated
data into customised reports for employees at all levels.
With the CPM system in place M&I management was able to identify the profit and
financial drivers of products and product mixes improving the decision-making process.
(Hutt 2000)
Source: http://www.accountingtoday.com/ato_issues/26_5/CRM-Case-studies-BDO-Hughes-Zoho-
Dynamics-WebsterRogers-62476-1.html

Measure and Evaluate Customer Profitability Management

The following provides an indication of how Customer Profitability Management processes
may be assessed:
1. Customer Lifetime Value (CLV), e.g. customer lifetime revenue potential - lifetime costs =
customer lifetime value. CLV is a measure of customer profitability over the lifetime of
the organisation/customer relationship.

2. Customer Loyalty, seeks to measure overall customer loyalty. This may be presented as
an index and used in conjunction with other leading measures such as customer satisfaction

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