Integrating cost-to-serve and customer profitability for an effective market orientation business culture: lessons from a case study

Abstract

Most companies are aware of their customer's revenues but fail to understand the costs incurred to have those revenues. Cost-to-serve analysis allows managers to truly understand the costs in which they incur when they are meeting their customer's needs and reduce them, never affecting the quality of service. Furthermore, customer profitability analysis measures the revenues and the costs to serve associated to a particular customer. It helps the company to make strategic decisions about their prime customers in order to augment profitability. These analyses together help the company to get to know their customers, to reflect their strategies in the incomes and costs of each customer and to become more profitable along the way. The main objective of this paper is to discuss the integration of cost-to-serve and customer profitability for an effective market orientation business culture. This paper contributes with insights from a case study in a Portuguese food business. The results obtained emphasize the relevance of the customer profitability analysis within the company and their impact in company's success.