cant. Customers differ widely in their requirements for delivery
service, in their ordering patterns and, indeed, in the products that
they purchase. Each product has its own unique profile of margin,
value/density, volume and handling requirements. Similarly, cus-
tomers will order different product mixes, will have their own
unique requirements as to the number of delivery points and of
course the number of times they order and the complexity of their
orders will differ. Putting all these factors together can produce
widely differing cost implications for the supplier.
The so-called ‘Pareto Law’, or 80/20 rule, tells us not only that 80
per cent of the total sales volume of a business is generated by just
20 per cent of the customers, but the likelihood is that 80 per cent
of the total costs of servicing all the customers will be caused by
only 20 per cent of the customers (but probably not the same 20 per
cent).
Figure 6.3 illustrates the shape of the profit distribution resulting
from the uneven spread of revenues across the customer base. From
this example, it will be seen that there is a ‘tail’ of customers who are
actually unprofitable and who therefore reduce total profit contri-
bution!
One of the key tenets of Relationship Marketing is that ideally the
firm should only seek high-intensity relationships with those cus-
tomers who are, or who have the ability to become, high performing
clients in terms of profitability. A fundamental basis of a successful
relationship marketing strategy therefore is the ability to create indi-
vidual customer profit and loss accounts. The problem is that tradi-
tional accounting systems make it difficult, if not impossible, to
identify the true costs of serving individual customers. So often it is
assumed that there is an ‘average’ cost of serving a customer and so
the ability to target those customers with the real potential for trans-
forming the suppliers’ bottom line is foregone.
Opportunities for value-adding through customization
High-intensity customer relationships are based upon long-term
collaboration and interaction. The presumption is that customers
will recognize the benefits that accrue from allowing the supplier to
become more involved in their own value chain or, if consumers, in
their ‘activity chain’. These types of relationship are really partner-
ships or alliances and they work best when customers actively seek
412 Relationship Marketing