Importance of Managing Customers Profitably
Customer profitability is one of the major indicators associated with business growth and effectiveness. Customer profitability refers to the benefits associated with every single customer to an organization. With regards to this, measuring customer profitability is accomplished through consideration of factors such as the cash inflows, cash outflows and business gains. The metrics used in the determination of customer profitability also take into consideration the reliability and loyalty of particular customers.
There are several benefits that a business can gain from customer profitability. For instance, stronger customer relations can be established through management of customer profitability in an organization. This is because it helps to understand customer needs better and to communicate with customers more intensely. As a result, businesses that manage customer profitability effectively can achieve greater customer loyalty and reliability. In addition to this, businesses that manage customer profitability efficiently are better at sales management (Pigues and others 46).
Sales management in businesses relies on the management of customer profitability efficiently. The awareness of customer needs can help organizations to plan their activities well. Sales activities involve several aspects. For instance, companies have to plan their prices well to maintain profitability. Keeping customer records is an essential step towards achieving greater profitability as it enables companies to work with clear goals and objectives. Through understanding the needs of the customers, companies can avoid operating ventures that may eventually fail (Hutt and Others 91). To achieve this, customer profitability management allows companies to manage and maintain company sales effectively. Apart from this, customer profitability management also helps companies to manage services.
Service management in an organization involves all practices that help to deliver services and products to the customers. It is only by understanding the customer needs that an organization can plan and execute its service delivery and hence add value to the company. It is essential for organizations, through customer profitability management to have information on specific customer need and preferences as well as purchasing trends and to use the same for the improvement of service efficiency.
Service differentiation comes with improved service delivery and involves separation of services due to the different customer categories. The customers who value firm products are accorded different treatment from the customers that have no value for the organization’s products (Stolt 69). Product management also results from effective customer profitability management. Customer profitability management helps organizations to assess different products performance in the market. Through gaining an understanding of product growth and development, it is possible for organizations to align their product deliverables to market conditions and subsequently achieve greater market performance. Product characteristics can be matched to customer needs to make it possible for organizations to satisfy all their customers.
Organizational operations also need to be managed to achieve sustainable profitability. Customer profitability management can help organizations to manage their operations through understanding the processes that lead to the realization of greater profits. In this way, companies can choose operational procedures that are profitable to their businesses. In addition to this, companies also get to manage their finances in a better way by understanding the nature of their businesses. Through engaging in investments that realize profits and addressing customer needs effectively, organizations can plan their financial resource allocations and subsequently make better reports on financial capabilities. Despite the applicability of customer profitability management in financial management, there is still a challenge to businesses. This is because of the imbalance that exists between the payment details requested by stakeholders and customer expansion needs (Kumar 87).
Hutt, Michael D, and Thomas W. Speh. Business Marketing Management: B2b. Australia: South-Western, Cengage Learning, 2013. Print.
Kumar, V. Managing Customers for Profit: Strategies to Increase Profits and Build Loyalty. Upper Saddle River, N.J: Wharton School Pub, 2008. Print.
Pigues, D K, and Jerry D. Alderman. Winning with Customers: A Playbook for B2b. Hoboken, N.J: Wiley, 2010. Internet resource.
Stolt, Robert. The Importance of Customer Relationship Management in Business Marketing. Munchen: GRIN Verlag GmbH, 2010. Internet resource.
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