Customer profitability analysis Using activity-based analysis, you have just prepared a customer profitability report for the sales manager that shows some customer groups are profitable but other customer groups are unprofitable. The sales manager is delighted with your report. We states:
This is just the type of information that we need to implement strategies to increase the company’s overall profitability. I will talk to the managing director at once and advise her that we will no longer sell products to the unprofitable customer groups and we will focus all our sales effort on the profitability customer groups.
1. Do you think that the strategies outlined by the sales manager could lead to improved profitability? Explain your answer.
2. Describe some other strategies that could be used to manage unprofitable customer groups and improve company profitability.
3. Explain some of the aspects of activity-based customer profitability analysis that may limit its usefulness.