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Bellis-Jones initiated the issue of customer profitability in the February 1989 issue of Management Accounting. Since then the dual focus of customer satisfaction and product costing pursued by TQM and ABC has served to divert attention unnecessarily from some strategic considerations. The resultant attention to customer requirements and product profitability may mean that we fail to question the strategic importance of the product, who buys it and the manner in which customers satisfy the company's goals. Customer profitability rather than product profitability might be a more appropriate focus.
Detailed analysis of customers, and associated service-cost differences, are frequently not addressed. They may be justified:
* if the cost of obtaining and maintaining information is not excessive;
* if the information so generated is useful in the making of strategic decisions. Analysis of the revenue streams generated by customers, relative to their service costs, may lead to some customers being eliminated from the business or, at least, a change in emphasis of the way in which resources are allocated between customers. The problem is a similar one to that of examining product profitability and deciding to change the product mix or to eliminate some from the portfolio.
What we must avoid is any attempt to apportion total costs over all customer groups. The consequential effects of doing so, should we choose to drop a customer and subsequently re-spread the costs over the remaining customers, are potentially laughable. We might find ourselves in the position of continuing to...