As prices for many items have stabilized because of competition, some Internet-based retailers now are competing on the basis of real-time customer service provided by live company representatives. These e-tailers report improved customer satisfaction, traffic, and sales growth that they attribute to real-time customer service. Whether this improved customer satisfaction and sales growth has led to improved profitability is unclear. Consider the following actual and predicted data for HomeMarket.com, which is contemplating adding real-time customer service, through online chat technology Current actual data:

PMMA Sale Semmennctte outer tae Memes nega monet aeniticen salp wer sungie GaRNydauureanertele $11,000,000 Average cost of sales as percent Of SaleS .0... icc ecceeteeetereee s 60%

SAISSICNO VENDINGCM liter ce terecear sate ces teens aa ted ae eantesneeere aera 3%

Predictions related to new customer service:

INGrease IMGUSTOME N SAUSTACHOM tramarenntads danmumtcenctsernass essen eseaa tes 5%

Software and training costs for new Customer SELVICE ........c seer $300,000 Ongoing operating costs for new CUSLOMEF SEFVICE ........ceeeeeeeeees $2,500,000 Cost savings from reduction of email response SeIVICE ...... cece $100,000 ANC GitIGHASAIES OLOWL aiAk Ae fences. cates Des ease reeG eee eons. skeet 20%

Required

a. Identify the costs and benefits of HomeMarket.com’s proposed customer service operation.

(Ignore taxes.)

BUILD YOUR OWN SPREADSHEET. Build an Excel spreadsheet to thoroughly analyze the profitability of the proposed customer service operation.