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14-21 (Cont'd.)

There are several options here:

Simple verbal persuasion by showing customers cost drivers at Figure Four.

Explicitly pricing out activities like cartons delivered and shelf-stocking so that customers pay for the costs they cause.

Restricting options available to certain customers, e.g., customers with low revenues could be restricted to one free delivery per week.

An even more extreme example is working with customers so that deliveries are easier to make and shelf-stocking can be done faster.

d.Offer salespeople bonuses based on the operating income of each customer rather than the gross margin of each customer.

Some students will argue that the bottom 40% of the customers should be dropped.  This action should be only a last resort after all other avenues have been explored.  Moreover, an unprofitable customer today may well be a profitable customer tomorrow, and it is myopic to focus on only a 1-month customer-profitability analysis to classify a customer as unprofitable.

14-22 (30–40 min.)   Variance analysis, multiple products.

1.

=  

Lower-tier tickets=(3,300 –  4,000) $20=$14,000 U

Upper-tier tickets=(7,700 –  6,000) $  5=     8,500 F

All tickets$  5,500 U

2.

=

= =

=$11 per unit (seat sold)

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