Supply Chain Costing and Performance Management, 2nd Edition

CHAPTER 9Customer and Distribution Channel Profitability Analysis

THE ONLY VALUE A company will ever create for its shareholders and owners is the value that comes from its customers—current ones and the new ones the company acquires in the future. To remain competitive, companies must determine how to keep customers longer, grow them into bigger customers, make them more profitable, serve them more efficiently, and acquire more profitable customers.

But there is a problem with pursuing these ideals. Customers increasingly view suppliers' products and standard service lines as commodities. This means that suppliers must shift their actions toward differentiating their services, offers, discounts, and deals to different types of existing customers to retain and grow them. Further, they should concentrate their marketing and sales efforts on acquiring new customers who have traits comparable to those of their relatively more profitable customers.

As companies shift from a product‐centric and service line–centric focus to a customer‐centric focus, the myth that almost all current customers are profitable needs to be replaced with the truth. Some highly demanding customers may indeed be unprofitable! Unfortunately, many companies' management accounting systems aren't able to report the customer profitability information needed to support analysis for how to rationalize which types of customers are more attractive to retain, grow, or win back, as well as which types of new customers ...