Cost to Serve and Customer Selection

Abstracts

This chapter explores strategic issues in managing customer performance. First, it examines why large firms failed to implement cost-to-serve (CTS) policy for customer accounts and the consequence of CTS mismatch on the corporate performance. Second, it illuminates the necessity to separate customers by value contribution to the firm (i.e., customer clusters). Third, it discusses new rules for customer selection and resource allocation. A new tool of customer performance management grid (CPMG) is introduced which links CTS to customers by value contribution. Management can make use of this new tool to establish pricing and CTS policies based on customer clusters (i.e., CP/CTS ratios). Furthermore, management can examine business potentials and customer compatibility between the target customer and the firm to decide action strategies for customer investment. To integrate total customer performance management, sale performance monitoring system which links customer clusters, customer fit, and customer investment is discussed.