P15.42 LO15.9 Customer profitability; product profitability; competitive strategy: service firm Speedy Delivery is a medium-sized parcel-delivery firm. Lately the firm has been finding it 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 big firms are now far more cost-competitive than Speedy Delivery, and they are able to offer expert services in all areas of delivery. The senior managers of Speedy Delivery have called a crisis meeting to consider what they 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 number of strategic options are proposed at this meeting. Carmen Jones, the overnight delivery manager, argues that the firm should offer only overnight delivery, as this is the potential growth area of the future and it currently generates the most revenue for the firm. Jack North, the managing director, has suggested that the firm should continue to offer the full range of services, but only to corporate customers. He suggests that small customers should be dropped. Leslie Quinn, the finance manager, proposes that the decision be deferred until the profitability of the three main areas of the business, and of corporate and small customers, is investigated. In preparation for the next meeting, Quinn prepared some information for last year: The sales revenues and direct costs of the three services offered by Speedy Delivery during that year were as follows: Sales revenue Direct costs Same-day delivery $1800000 1000000 Overnight delivery $5400000 3 800 000 International delivery $4600 000 3200 000 The percentage of sales revenue of the three services to the two customer groups was calculated as follows: Same-day delivery Overnight delivery International delivery Small customers 40 15 50 Corporate customers 60 85 50