Customer Profitability Analysis

Question 2 Pantas Delivery is a medium-sized parcel-delivery firm. Lately, the firm has beem finding difficult to retain existing customers and to gain new ones. The mergers between some of the major delivery firms have given those firms tremendous competitive advantages. The bi firms are now far more cost-competitive than Pantas Delivery, and they are able to expert services in all areas of delivery The senior managers of Pantas Delivery have called a crisis meeting to consider what thcy can do to survive in this newly structured market. Currently, the firm offers three types of services: same-day delivery, overnight delivery and international delivery. A mumber of strategic options are proposed at this meeting overnight delivery, as this is the potential growth area of the future and it currently generates the most revenue for the firm. Junaidi Nordin, the managing director, has suggested that the firm continue to offer the full range of services, but only to corporate customers. He suggests that small customers should be dropped. Lutfi Qayyum, the finance manager, proposes that the decision be deferred until the profitability of the three main areas of business, and of corporate and small customers, is investigated In preparation for the next meeting, Lati prepared some information for last year The sales revenues and direct costs of the three services offered by Pantas Delivery OvernightInternational Sales revenue Direct costs RM 900,000 RM 500,000 RM 2.700,000 RM 1,900,000 RM RM 2.300,000 .The percentage of sales revenue of the three services to the two customer groups was calculated as follows Small customers 60% 85% 15% Customer-driven activities were identified, the total cost of each activity during the year was determined, and the activity cost per unit of activity driver was calculated Activity cost per unit of activity RM 100 RM 25 per cheque RM 150 RM 200 per overdue ac RM 80 per complaint RM 200 per investigation RM 450 per initial call per monthly invoice Receive cheque per dispute Follow up an overdue account count Handle customer complaints Make initial sales call to corporate Make credit check on he number of customer-driven activities consumed by the two customer groups ws customers No. of invoices No. of cheques received 500 600 No. of customer complaints No. of delivery investigations No. of overdue accounts followed up No. of initial sales calls to No. of credit checks on corporate 120 90 300 37 customers RM 50,000 Advertisements to attract new corporate customens RM 250,000