Question

How is customer profitability impacted by Marketing, Selling, Distribution and Administration Cost allocation / trailing mechanisms? Is it possible that ostensibly high price paying customers are actually not that profitable ? Discuss examples from any industry and experience on such possibilities

Answer 1

Customer profitability includes analysing the profit earned customers wise. It analyse the sales made to the customers when there is difference in the cost structures involved of the sales made. There can be various reasons for the diffrerence but major difference arise out of the various expenses done in the head Marketing, Selling, Distribution and Administration Cost. Some customers require heavy and continuous marketing when there are many opions available to them or they require distribution in the remote areas thus increasing the costs. When such costs incurred for the particular customers or the group of customers there shall be impact on the customer profits involved.

There is a fine possible that ostensibly high price paying customers are actually not that profitable because of the high cost involved. For example, in the mobile industry there may be chances that person paying $ 800 is not as profitable as the person paying $ 600 for a phone because of the extra costs of advertsing and the components involved in its production.

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