Question

Customers are said to be value maximizers and will seek to buy from the firm they perceive as delivering the greatest value. Conversely, companies need to understand which customers are profitable and to extract the maximum lifetime value by effectively managing customer relationships. Market-oriented firms that are able to do this effectively may well find themselves in a position that will permit them to achieve superior firm performance.

> Is there such a thing as an unprofitable customer? How do market-oriented firms make decisions about which markets to pursue and which not to pursue? What should firms do to ensure that their core customers are profitable ones?

Answer 1

Firms can be pretty much compelling in exploiting their market structure . Many companies charge every client the highest price the client is eager to pay. This is called price separation on the grounds that the company charges an alternate price to every customer. There is no such a thing as an unprofitable customer
If the company realizes the specific interest of the client, at that point the company can catch the whole consumer surplus. By and by, the company can quantify how regularly the item is utilized and charges the client the most significant expense the consumer is willing to pay for it.
Another chance is that open price divulgence is non-existent, with the goal that no client realizes what different clients are paying. Curiously, few out of every odd consumer is more awful off for this situation, since certain consumers might be charged a price that is beneath that of competition, as long as the income increase the incremental expense.
Company companies even offers a menu of amount based evaluating choices intended to initiate clients to self-select dependent on how profoundly they value the product. Such instruments incorporate volume limits, volume discounts , coupons, item packaging,etc.,. By and by, comapnies can utilize the amount as well as the quality to charge more to clients that esteem the item exceptionally.
While in the short run firms in any market structure can have financial profits, the more serious a market is and the lower the boundaries to section, the quicker the additional profits will blur. Over the long haul, new participants will enter and push the least productive firms out of the market.

Monopolists can be more or less effective in taking advantage of their market structure
monopolist is able to charge each customer the highest price the customer is willing to pay. This is called price discrimination because the monopolist charges a different price to each client. How can this be? For example, if the monopolist knows the exact demand schedule of the customer, then the monopolist is able to capture the entire consumer surplus. In practice, the monopolist is able to measure how often the product is used and charges the customer the highest price the consumer is
Another possibility is that public price disclosure is non- existent, so that no customer knows what the other customers are paying. Interestingly, not every consumer is worse off in this case, because some consumers may be charged a price that is below that of perfect competition, as long as the marginal revenue exceeds the marginal cost.
offers a menu of quantity- based pricing options designed to induce customers to self- select based on how highly they value the product. Such mechanisms include volume discounts, volume surcharges, coupons, product bundling, and restrictions on use. In practice, producers can use not just the quantity but also the quality (e.g., “professional grade”) to charge more to customers that value the product highly.
While in the short run firms in any market structure can have economic profits, the more competitive a market is and the lower the barriers to entry, the faster the extra profits will fade. In the long run, new entrants shrink margins and push the least efficient firms out of the market.