Question

Dan Brown, Griffin Industries' sales manager, recently read an article that described ways to evaluate customer profitability.
After learning that 80% of a company's profits may be generated by less than 20% of its customers, Dan was ready to take steps to identify unprofitable customers and figure out how to turn them into profitable ones. Descriptions of two of Griffin's customers follow.
Morgan Light and Sound has been a customer since 2008. The company orders standard products in case quantities. Morgan places 90% of its orders through Griffin's website.
During the last year, Morgan placed 20 orders and made one merchandise return. Morgan called Griffin's customer service department twice during the year to resolve shipping problems; these calls lasted a total of 20 minutes. Brown makes an annual sales visit to Morgan to explain new product updates and maintain the customer relationship. Morgan's purchases for the year totaled $400,000 and generated a gross profit of $90,000.
Holmes Holographics, one of Griffin's first customers, has been a customer since 1998.
The company orders a wide variety of products, half of which are specialty products that Griffin must special order. Holmes places 20% of its orders through Griffin's website and 80% through the customer call center. During the last year, Holmes placed 100 orders and made 25 merchandise returns. In addition to placing orders, Holmes called the customer service department 32 times to resolve a variety of issues; these calls lasted a total of four hours. Brown visits Holmes' office twice a month to maintain the relationship. Holmes' purchases for the year totaled $500,000 and generated a gross profit of $98,000.

Required
a. Which of the customers is most likely unprofitable for Griffin? Why?
b. What suggestions do you have for Brown that may improve the unprofitable customer's profitability?



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  • CreatedFebruary 21, 2014
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