Activity-Based Costing 139buy, this would be the cost, not the average of $41,000 or the higher one for
worst-case. Are you getting better? Is your cost of this activity decreasing? The
research from the Chasm Group seems relevant here.^3 They found that new-
technology buyers over the product life cycle fall into four segments. Each re-
sponds to a different CVP and requires a different selling approach. The first
product life-cycle segment, called early adopters,is the smallest but the most
important. They seek new technology, are risk takers, and are probably much
like your three best-case customers. This customer group is important because
you can use their results as validation of your new offering. The later life-cycle
segments are larger, less technologically savv y, and more risk averse. They are
skeptics and need to see validation before they buy. If you studied your seven
worst-case data points they probably fall into this segment. If you learn to use
the experiences of your first customers to sell to these more risk-averse seg-
ments, your cost should approach the $8,000, and you would have a true first-
mover advantage.Denise didn’t like to further dampen their spirits but knew she had to.
“ We haven’t finished yet. Don’t forget you also have to load the customers on
the network. What does this process cost?”
After a collective groan, the group got to work. The customer loading
process involves the activities necessary to enter a Web merchant and its ful-
filler(s) onto the ETN/ W network. Although the activities are much different
than for customer capture, the analysis is similar. The activities in this process
are customer business operations review, system design, and implementation
and cer tification.Over the past 12 months seven customers had been loaded.
The analysis was a bit easier since there was no funnel effect; seven went
through each activity.^4
Business operations review was outsourced to a number of subcontractors
that ETN/ W used. Their report detailed the customer ’s IT systems and how
transactions were treated. While most handled them real time, some batched
the orders and dealt with these at the end of the business day, sending confir-
mation to customers on the next business day. For the seven customers loaded,
ETN/ W paid $25,000, or about $3,600 each. System design—writing the neces-
sary software interfaces and configuring hardware linkages for the payment
processing, fulfillment, and shipping systems—was done by ETN/ W technical
staff, as was implementation and certification. System design cost $35,000, and
implementation and design, $160,000. Both the business operations review and
system design activities were relatively homogeneous—they did not vary from
customer to customer. The final activity, however, implementation and certifi-
cation, was much like the customer sale activity. Depending upon the customer,
the cost could vary greatly. From discussions with those involved with these ac-
tivities, the threesome recognized this variability and did the necessary analy-
sis. A best-case customer was one that understood the process, had compiled
the necessary documentation, had their IT group prepared, and had only one or
two fulfillers. As before, the worst-case was unprepared, unresponsive, and had
numerous fulfillment agreements. Of the seven studied, three fell in the former