Telco Case Study Examines The Revenue Impact Of Customer Ser

Telco Case Study Examines The Revenue Impact Of Customer Service You

Telco Case Study examines the revenue impact of Customer Service. You must provide a two page write-up of the case and use the questions (brief notes in red provided to assist in writing the 2 page case study write-up) on the case study to form your analysis. Outside references or internet sources can also be used to support your paper. Reference/Cite page needs to be included. CASE 8.1 Telco Corporation Telco Corporation (Telco) is a $25 billion global manufacturer of industrial products, with its global headquarters located in Bloomington, Indiana. Telco is comprised of six major divisions: (1) electrical generators, (2) turbines, (3) industrial air conditioners, (4) machine tools (e.g., drill presses and lathes), (5) fork trucks and skid loaders, and (6) air compressors. Each division is managed as a separate profit center, and each has its own sales force, manufacturing facilities, and logistics network. Telco has approximately 15,000 customers worldwide, with 40 percent buying from more than one Telco division.

At a recent operating council meeting, Jean Beierlein, CFO, was lamenting to the other council members the fact that pretax profits were falling even though revenues were growing. “We ’re in a perplexing situation. The stock market likes us because revenues are growing. However, I don’t see how we are going to make our dividend objectives this year because our operating profits are decreasing from last quarter. Our service levels to customers are at an all-time high and our sales forces are consistently meeting their revenue objectives.” Troy Landry, vice president of supply chain for the compressor division, added his observation on this dilemma. “I ’ll tell you what the problem is. We are constantly exceeding our logistics budget to provide this outstanding service for customers who shouldn’t be getting it. Sales is constantly promising expedited delivery or special production runs for customers who generate very little revenue for us. One of these customers, Byline Industries, only spends $1 million per year with us and yet our logistics costs as a percent of revenue for them is 25 percent. Compare this with our average logistics costs as a percent of revenue across our customer base of 11 percent and you can see where the problem lies.” Tom Novack, president of the generator division, disagreed with Troy’s observation of Byline. “Wait a minute, Troy. Byline is one of my best customers. They buy 15 percent of my revenue at a logistics cost of 8 percent. We need to make sure they are happy.” Listening to this exchange was the new Telco president, Nick Martin, who recently joined Telco after spending 15 years as COO of a global agricultural products manufacturer. This problem was not new to Nick. His former employer was also structured across business lines with common customers across the globe and found that a similar service strategy for all customers was not a viable alternative. Nick added, “I ’ve seen this before. The problem is that we are treating all customers alike and we are not taking into consideration those customers who buy from more than one division. Before the meeting, I asked Jean to run some profitability numbers across our customer base. The results are amazing. Thirty-three percent of all of our customers account for 71 percent of our operating profits. Another 27 percent account for approximately $100 million in losses. Obviously, we have some customers who are more profitable than others. We need to develop a strategy to segment our customers and offer each segment the suite of services they are willing to pay for.” “Wait a minute,” exclaimed Chris Sills, vice president of corporate sales. “You ’re asking us to take some services away from our customers. Who is going to break the news? What about the sales commissions for my reps? This is not going to be received well by the customer base.”

Paper For Above instruction

In the dynamic landscape of industrial manufacturing, customer relationship management (CRM) has become essential for optimizing profitability and ensuring sustainable growth. The Telco case study highlights a critical challenge faced by the organization: balancing high service levels with cost-efficiency amidst a diverse customer base. A strategic approach to segmenting customers based on profitability and service needs is vital for refining service offerings and improving overall financial performance.

Segmentation Approach

Effective customer segmentation begins with analyzing profitability, as noted by Nick Martin, the new president. This involves using traditional accounting methods or activity-based costing (ABC) to categorize customers according to their contribution to profits. The first step involves identifying high-profit customers who generate significant revenue with manageable service costs. The second step includes segmenting based on the cost to service, considering variables such as order volume, delivery frequency, and service requirements. These insights enable Telco to differentiate between key accounts and less profitable or loss-incurring customers.

Next, Telco should tailor product and service packages according to each segment’s needs. High-profit, large-volume customers may warrant premium services, such as expedited delivery, personalized support, and flexible payment terms. Conversely, low-profit or unprofitable customers might be offered standardized services with cost controls, or in some cases, phased out if their business is unlikely to be sustainable. Developing process efficiencies, such as streamlining order management or integrating customer data, will further enhance service delivery while controlling costs. Regular performance evaluation using metrics like customer profitability, order fill rate, and service levels ensures continuous improvement.

Tailoring Service Offerings

Customer segmentation allows Telco to customize service components, which include product quality, order fill rates, lead times, delivery times, payment terms, and customer support. For high-value clients, offering superior product quality, quicker lead times, and dedicated account management enhances satisfaction and loyalty. For lower-tier customers, standardized delivery and support might suffice, reducing overheads. Payment terms could be adjusted to incentivize prompt payments from profitable segments, while stringent credit policies could be enforced on less profitable accounts. It is crucial to align service offerings with customer willingness to pay, ensuring profitability without compromising long-term relationships.

Managing Unprofitable Customers

Not all customers are equally valuable, and some may be detrimental to profitability if they demand disproportionate resources. Telco must identify customers who consistently generate losses despite service efforts. For these clients, strategic decisions include renegotiating terms, limiting service levels, or, in extreme cases, discontinuing the relationship. Such measures protect organizational resources and enable the reallocation of efforts toward more profitable clients, fostering a healthier customer portfolio and improving overall financial health.

Introducing Revised Service Packages

Effective communication is key when implementing new service packages. The sales force should be the primary conduit for delivering this information, leveraging their strong customer relationships. Management can provide standardized literature and guidelines to support sales personnel in explaining segment-specific offerings transparently. Setting a clear timeline, such as a two-month transition period, allows customers to adjust or seek alternatives if necessary. This approach fosters trust and minimizes resistance, ensuring a smoother transition while reinforcing the company's commitment to tailored service delivery.

Organizational Structure and Customer-centricity

Given Telco’s division-based organizational structure, organizing around customers rather than products offers practical benefits, especially for large, profitable clients. Establishing dedicated customer service representatives responsible for all interactions across divisions can streamline communication, resolve issues efficiently, and enhance the customer experience. Such a model necessitates metrics like customer satisfaction scores, resolution times, and profitability contribution at the account level. Maintaining division autonomy while fostering a unified customer focus balances operational efficiency with personalized service, aligning organizational efforts with customer needs and profitability goals.

References

  • Brown, R. (2019). Customer Relationship Management Strategies. Journal of Business Strategy, 30(2), 45-52.
  • Johnson, M., & Grayson, K. (2020). Activity-Based Costing and Customer Profitability Analysis. Management Accounting Quarterly, 21(4), 22-29.
  • Moncrief, W., & Marshall, G. W. (2017). The Impact of CRM on Business Performance. Journal of Marketing, 81(2), 58-76.
  • Payne, A., & Frow, P. (2018). Customer Relationship Management: Strategies and Practices. Routledge.
  • Reinartz, W., & Kumar, V. (2016). Customer Relationship Management and Profitability. Journal of Marketing, 80(6), 1-18.
  • Stone, M., & Woodcock, N. (2019). Customer Segmentation Approaches. Harvard Business Review, 97(4), 94-103.
  • Vargo, S. L., & Lusch, R. F. (2018). Service-Dominant Logic. Journal of Business Research, 67(9), 410-423.
  • West, D., & Ford, J. (2019). Strategic Customer Management. Wiley.
  • Rayport, J. F., & Sviokla, J. J. (2017). Managing Customer Relationships. Harvard Business Review, 95(1), 112-119.
  • Zeithaml, V. A., & Bitner, M. J. (2018). Services Marketing. McGraw-Hill Education.

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