Customers increasingly demand that companies offer a wide variety of products and services. As a result, many companies spend millions of dollars conducting profitability analyses of their customers. For instance, the banking industry alone spends an estimated $500 million per year on customer profitability analyses. Accordingly, customer profitability analysis is listed as one of the recent major developments in managerial accounting (Cotton 2005). Customer profitability analysis refers to the practice of estimating the profitability of individual customers and identifying both customers that create value for the company and, just as importantly, those customers that destroy value. Effective customer profitability analysis provides the company with a strong competitive advantage by improving key strategic and operating decisions involving customer selection and retention. For example, Sprint Nextel drew the attention of investors, analysts, and customers alike when it “fired” 1,000 of its worst customers via a form letter (Srivastava 2007). This case reflects the experiences of several international companies in the automotive supply industry and provides you with an opportunity to enhance your knowledge about customer profitability. First, the case demonstrates the importance of customer profitability analysis. Second, the case enhances your ability to perform customer profitability analysis. Third, it helps you improve your critical thinking and analytical reasoning skills. Finally, the case enables you to integrate business knowledge across functional boundaries.
