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

Eddy Cardinaels, Filip Roodhooft, Luk Warlop and Gustaaf Van Herck
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Gustaaf Van Herck: Vlerick Leuven Gent Management School

Vlerick Leuven Gent Management School Working Paper Series from 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.

Keywords: Customer profitability; pricing; sales support diversity; decision making. (search for similar items in EconPapers)
JEL-codes: C91 D83 M31 M41 M49 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2004-04-17
New Economics Papers: this item is included in nep-acc and nep-exp
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