Measuring and Managing Customer Relationships
Chapter 6
Measuring and Managing Customer Relationships
QUESTIONS
6-1 Nonfinancial measures such as customer satisfaction and customer loyalty are important in managing relationships with customers, but an excessive focus on improving customer performance with only these metrics can lead to deteriorating financial performance. To balance the pressure to meet and exceed customer expectations, companies should also be measuring the cost to serve each customer and the profits earned, customer by customer.
6-2 Examples of differences between customers who have high and low costs-to-serve may be drawn from the chapter’s Exhibit 6-1, part of which appears below.
High Cost-to-Serve Customers
Low Cost-to-Serve Customers
Order custom products
Order standard products
Small order quantities
Large order quantities
Customized delivery
Standard delivery
Manual processing; high order error rates
Electronic processing (EDI) with zero defects
Large amounts of pre-sales support (marketing, technical, and sales resources)
Little to no pre-sales support (standard pricing and ordering)
Large amounts of post-sales support (installation, training, warranty, field service)
No post-sales support
Pay slowly (have high accounts receivable from customer)
Pay on time (low accounts receivable)
6-3 Companies should not necessarily avoid high cost-to-serve customers. The high cost of serving such customers can be caused by their unpredictable order patterns, small order quantities for customized products, nonstandard logistics and delivery requirements, and large demands on technical and sales personnel. Activity-based pricing may be used to ensure that companies charge prices that are high enough to cover the high costs of serving such customers. Customers may, in response, change their behavior to become lower cost-to-serve customers. Companies may also improve the process used to produce, sell, deliver, and service customers in order to improve customer
Measuring and Managing Customer Relationships
QUESTIONS
6-1 Nonfinancial measures such as customer satisfaction and customer loyalty are important in managing relationships with customers, but an excessive focus on improving customer performance with only these metrics can lead to deteriorating financial performance. To balance the pressure to meet and exceed customer expectations, companies should also be measuring the cost to serve each customer and the profits earned, customer by customer.
6-2 Examples of differences between customers who have high and low costs-to-serve may be drawn from the chapter’s Exhibit 6-1, part of which appears below.
High Cost-to-Serve Customers
Low Cost-to-Serve Customers
Order custom products
Order standard products
Small order quantities
Large order quantities
Customized delivery
Standard delivery
Manual processing; high order error rates
Electronic processing (EDI) with zero defects
Large amounts of pre-sales support (marketing, technical, and sales resources)
Little to no pre-sales support (standard pricing and ordering)
Large amounts of post-sales support (installation, training, warranty, field service)
No post-sales support
Pay slowly (have high accounts receivable from customer)
Pay on time (low accounts receivable)
6-3 Companies should not necessarily avoid high cost-to-serve customers. The high cost of serving such customers can be caused by their unpredictable order patterns, small order quantities for customized products, nonstandard logistics and delivery requirements, and large demands on technical and sales personnel. Activity-based pricing may be used to ensure that companies charge prices that are high enough to cover the high costs of serving such customers. Customers may, in response, change their behavior to become lower cost-to-serve customers. Companies may also improve the process used to produce, sell, deliver, and service customers in order to improve customer