Chapter 6
6.1- Why are nonfinancial measures alone insufficient for managing relationships with customers?
Although nonfinancial measures like customer satisfaction and loyalty scores are highly valuable, the organization must take in consideration the financial measures to improve customer performance. An excessive attention on the nonfinancial measures can lead to deteriorating financial performance. A company is considered successful when is able to create value product for customers, achieve competitive advantage, and earn above average returns. “To balance the pressure to meet and exceed customers’ expectations, and organization has to be aware of the costs that are implied on the products production, and the profits earn not only for the company as a whole; but also for every customer.” Also, financial measurements like: percentage of unprofitable customers and dollars lost in unprofitable customers provide a valuable balancing metrics to create the organization’s strategies and its Balanced Scorecard (Atkinson, Kaplan, Matsumura & Young, 2012).

6.3- “Companies should avoid high cost-to-serve customers because they are unprofitable” Do you agree with this statement? Explain.
I don’t consider that companies should avoid high cost-to-serve customers because they are unprofitable. “The high costs associated with these customers can be the result of their unpredictable order arrangements, small order quantities for customized products, nonstandard logistics, and large demands on technical and sales personnel.” To cope with this, companies must implement the activity based costing system (ABC system) to identify its unprofitable customers. Once they have identified these customers, the company has to work with them to reduce the selling, distribution, and administrative expenses to transform them from unprofitable to profitable (Atkinson, Kaplan, Matsumura & Young, 2012).

6.6- Why must service companies, even more so than manufacturing companies, focus on customer cost and profitability?
Service companies must focus, even more than manufacturing companies, on customer costs and profitability because the level of variation in demand for organizational resources is more customers driven than in manufacturing organizations. A company that manufactures standard products can calculate the costs involved in the production process without taking in consideration how their customers use them; because the manufacturing costs are “customer independent”. Only the costs associated to marketing, selling, handling, delivery, and service of the product might be customer specific. In the other side, for service companies, the customer behavior determines the quantity of demands of resources that produce and deliver the service to companies (Atkinson, Kaplan, Matsumura & Young, 2012).

6.13- Provide three reasons why customer loyalty provides benefits to companies.
In first place, we have to take in consideration that without customers it is impossible for any business to sustain itself. So, achieving the desired results is highly determined by the customer satisfaction which is translated on the customers’ actions and attitudes toward a product or a company as a whole. Customers’ loyalty is beneficial to companies because loyal companies have a greater likehood to repurchase, and the costs to retain them are lower than the costs to acquire new customers. Also, loyal customers act like vendors because they can persuade others, through word of mouth, to become new customers, they can become references for potential future customers. They are less likely to defect when a competitor offers a similar product at the same or slightly lower price. In the other side, they often prefer to pay a price premium to retain a known and trusted relationship with a key supplier. And, in last place, loyal customers are willing to collaborate with the supplier to improve performance and development of new products (Atkinson, Kaplan, Matsumura & Young, 2012).

6.14- Why might customer retention rate be a poor measure of customer loyalty?
Because high customer retention rate not necessarily represents a satisfied or loyal customers. In occasions, customers remain with their current suppliers because of inertia, high switching costs, or the current lack of an alternative supplier. For example, many customers stay in a mobile phone company even if they are unsatisfied with its service; because if they change to another company they have to pay high penalties to cancel the contract; and in addition they have to spend more money buying new phones and entering in new contracts (Atkinson, Kaplan, Matsumura & Young, 2012).