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The joint effects of customer profitability reports and sales support diversity in effective customer pricing

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Author Info

  • Eddy Cardinaels
  • Filip Roodhooft

    ()

  • Luk Warlop
  • Gustaaf Van Herck

    (Vlerick Leuven Gent Management School)

Abstract

This paper experimentally investigates the value-enhancing effects of more accurate customer profitability analysis (CuPA) reports on customer pricing decisions and firm profitability when customers place different demands on the firm's support functions. Activity-based driven CuPA reports are contrasted against less accurate reports, either based on traditional volume-based costing or on aggregated feedback. Cost complexity of the environment was further varied by either low or high diversity in resource usage across customers depending on whether or not the most costly type of customer always consumed more resources in each of the various support functions of the firm. Results suggest that the diversity in resource requirements serves as an important 'contextual factor' for CuPA to have incremental value over the less accurate report types. Only when usage of sales support becomes more diverse, CuPA provides strong opportunities for learning resulting in more effective customer pricing and profit improvement. Results further show some profit benefits of volume-based costing reports. Even though cost allocations are more distorted, they still perform better than aggregated reports that do not allocate marketing overhead, but only in a more complex cost settings.

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Bibliographic Info

Paper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2004-05.

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Length: 30 pages
Date of creation: 17 Apr 2004
Date of revision:
Handle: RePEc:vlg:vlgwps:2004-05

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Related research

Keywords: Customer profitability; pricing; sales support diversity; decision making.;

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