Question

You are in a meeting with some of your company’s more junior managers. After the discussion about the special services and custom product and delivery expectations of some customers and “going the extra mile” for the customer one manager comments we need to do that because the customer is always right. You are in the business of providing products to home builders and are getting many requests for non-standard paint colors. You are also seeing many special requests for job site deliveries at difficult to reach locations and very narrow delivery time windows causing much extra wait time for your trucks and drivers.

1. What are the key concerns related to excessive focus on nonfinancial customer metrics such as customer loyalty and satisfaction?

2. How might you use Activity Based Pricing to address your particular customer challenges?

Answer 1

1. There are several key concerns related to excessive focus on non-financial customer metrics such as customer loyalty and satisfaction. The are :

a)There is never one way to measure non-financial customer metrics. There is always ambiguity associated with measurement of non-financial customer metrics.

b)The measurement is never accurate as the non-financial customer metrics is individual customer driven. What constitutes inefficiency to an individual, could mean efficiency to another even when business function based on set standards.

c)A totalitarian view can never be taken by measuring non-financial customer metrics as many customers, may not provide feedback until something goes wrong. Any form of business normally focuses on increasing revenue rather than reviewing how comfortable the customers are with their products, on delivery of product., especially when businesses are small/mid-sized.

d)The customer demand for non-standard products should be relatively significant for the business, for it to cater to it, which can be analyzed only over a period of time.

e)The issue mentioned in d) above holds good for delivery at difficult to reach locations and narrow delivery time windows.

f)No activity which hinders the effective utilization of available resources can be adopted as narrow timelines will invariable associate with increased compensation demands by drivers and trucks, which cannot be justified unless overall revenue grows.

2. Activity based pricing concentrates on activities that increases costs. It is based on performance management techniques like score cards and constant improvement. As highlighted in the concerns related to non-financial metrics, based on demand of customers, the supply could be made, but with additional costs associated to match customer needs. As demand for non-conventional products increases, a standard pricing could be set and delivered. Activity based pricing facilitates value-based decision making. Thus all factors of the supply chain is considered in activity based pricing. Thus activity based pricing can address the customer challenges effectively.