Page 68 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Unit 3: Analysing Profitability of Customers

To survive in today’s highly competitive business environment, any organization must achieve, Notes
at least temporarily, a competitive advantage. A low cost/price strategy focuses on providing
goods or services at a lower cost than the competition, or superior goods or services at an equal
cost. In education, it might be accomplished by limiting programs and courses offerings, by
reducing the complexity of the course design and production process, or by limiting service or
learner support. This strategy requires as well a tight cost-control system, benefiting from
economies of scale in production, and experience curve effects.

Example: At the University of Phoenix online (UOP), managers determined that faculty,
facilities, and support staff accounted for a large portion of their costs. They targeted these three
components to make a dramatic reduction in their cost structure. Almost all faculty members at
UOP teach part time and hold other full-time jobs.
According to Jackson (2000, p. 34), faculty are paid U.S. $900-U.S. $1200 to teach a course, and are
expected to focus almost exclusively on teaching rather than on other responsibilities that are
common in most universities (student advising, course creation, university management,
research, and community service). UOP estimates that faculty must spend 100 hours on their first
course, less as they become more proficient (referring to the learning curve benefits). Faculties
at the University of Phoenix are not provided with offices, thus reducing the investment in
buildings and the cost of operating them. UOP seems to realize costs savings by marginalizing
academics and reducing their pay and advantages. On the other hand, there are few support
services for students, and the library is accessible only via the World Wide Web, thus reducing
dramatically the cost of housing books and paying for professional support staff. UOP is an
accredited university (since 1978, by the North Central Association of Colleges and Schools).
Courses and instructors are constantly measured for both learning and student (customer)
satisfaction. Perhaps most critically, UOP has eliminated the role of research—except as it affects
online education—from the traditional role of the University. UOP receives no government
subsidies, has consistently returned profits to its shareholder owners, and charges competitive
tuition rates. UOP uses a business approach rather than an academic approach to education, and
is one of the few profitable for-profit universities in the U.S. (Jackson, 2000).
The second strategy for gaining competitive advantage is differentiation. The primary focus of
this strategy is to create a unique position in the market through provision of goods or services
that are valued for their uniqueness or fit to the needs of a particular group of buyers. A
differentiating strategy also requires ongoing cost control efforts within a strategic management
emphasis geared towards differentiating offerings. For example, the course package by itself
could not provide competitive differentiated advantage, as it is fairly easy for other institutions
to duplicate it, either by buying it directly from the producing institution, or by creating a very
similar package. However, when the services of highly competent academics and tutors, registry
staff, student advisors, and counsellors are added, a strong and unique bond can be created
between the university and its learners. This unique bond becomes a differentiating competitive
advantage when the institution subscribes to a vision of quality, support, service, and excellence
(Woudstra & Powell, 1989).
A third competitive strategy not depicted by Porter’s framework is called focus: a strategy for
targeting a very specific segment of the market as defined, for example, by type of learner (e.g.,
Aboriginal students), specific type of program offered, or specific characteristics of a geographic
area. This strategy is used to choose market niches where competition is the weakest, or where
the online learning institution has a competitive advantage because of technology or other
forms of differentiation. The focused institution succeeds by avoiding direct competition. It may
also have strong differentiation advantage, a low cost advantage, or both, for its market segment.
For example, professional organizations, such as the Certified General Accountants Association,
the Society of Management Accountants of and Chartered Accountants School of Business fall
into this category of focused competitive advantage.

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