Budgeting Basics and Beyond

5.15. Real-life Illustrations in Profit Planning

Staples, the office supply company, achieves the lowest net-landed cost in the entire office stationery business. But it also targets small business companies employing fewer than 50 people. To further the relationship with this market segment, Staples has created a club. Customers join at no extra cost and get at least a 5 percent discount on fast-moving items. In order to get the discount, the customers must show their cards, allowing Staples to track sales by customer and gain useful data for satisfying its market. Some store managers now have incentives based on customer satisfaction.

Some companies look at a customer's lifetime value to the company, not the value of a single transaction. Home Depot is an example of such a company.

Clerks do not spend time with customers to be nice. They do so because the company's business strategy is built around not only selling home repair and improvement items inexpensively, but around customers' needs for information and service.

Although new products win new markets, it may be better in some cases to stick with existing customer segments. It is easier to build sales volume with customers who already know the company. When Entenmann's of New York, a loyalty leader in specialty bakery products, saw its sales leveling off, it monitored customer purchase patterns in each local market.