New Perspectives on Customer Profitability Dispersion in Business Markets – An Exploratory Study

Ravi Balasubramanian, Massey University

Abstract: The Pareto like distribution of Customer Profitability (CP) in business markets have been reported in the prior literature, and some of the factors that contribute to this have been investigated. However, many factors relevant to a manufacturing organisation, such as the cost of overdue payments and the impact of price differentials to different customers have not been investigated. Using empirical data from a New Zealand organisation, this study sheds new light on the pricing dynamics for large organisations that can offset potential losses when market conditions are conducive. A method to compute service cost and cost of overdue payments are outlined, and their impact on individual customer profitability is illustrated.

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