Sales and Profitable Product Lines

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4.Study case Exhibit 9. It shows that about only 50% of its current customers are profitable to do business with. What should Ridderstrale do about the large number of unprofitable customers revealed by the account management system? Should sales representatives be allowed to accept an unprofitable order from a customer?

There are a number of ways to turn unprofitable customers into profitable customers before a company tries to get rid of those customers. Ideas include:

-Perform analysis of carrying costs versus manufacturing order costs to determine if it makes sense to stock more items than is currently done. -Consider the possibility of offering order discounts to unprofitable customers to order fewer times a year, and in larger quantities than they currently do. -Review the least profitable product lines and consider:

oWays to improve manufacturing processes to improve efficiency oProduct design to increase margins
oDiscontinuing the product line
oSelling the product line to a competitor
-Perform a thorough review of each unprofitable customer; search for ways to increase sales of profitable product lines to those customers. -Search for ways to pool the volume of orders for non-stocked products into larger, less frequent production runs. -Increase product selling prices on a customer-by-customer basis in order to reflect the true costs of doing business with those customers. This may result in some loss of customers, but this could also have the net effect of "disinviting" unprofitable customers and making them the problem of another company. -Revise incentive plans for salespersons in order to drive more profitable sales—change commission structure from gross sales volume to net operating margin. Review incentives at a customer level, rather than a total level.

Unprofitable orders should be accepted while Kanthal is reviewing how to address unprofitable customers and/or product lines. The company should also consider the...
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