Problem:
Beaujolais Financial Group (BFG) segments its customers into premium members, who purchase extensive services, and standard members, who purchase minimal services. It offers premium members a 10 percent discount on the total package of services purchased but requires standard members to pay full price. BFG devotes one full-time customer representative per 100 premium members and one per 1,000 standard members. Customer representatives receive salaries and a bonus of 1 percent of customer revenue (after 10 percent discount, if applicable). BFG estimates that it spends twice as much on total promotions for premium members to encourage their loyalty. General and administrative cost, which is not traced to customers, is $2,400,000 per year.
Required to do:
Q1. Estimate BFG's customer and overall profitability.
Q2. Write a short memo that critiques BFG's customer service policies and measurements.
Q3. Build a spreadsheet. Develop a spreadsheet to answer requirement (a). Analyze the profitability of the Premium and Standard products in light of the promotion costs being incurred for each product. Determine the margins associated with each product and the related return on net sales for each. Determine the advisability of continuing the promotional spending related to each product in light of your findings. What would you recommend?
Data:
Customer Service Resources...............................................Total.........Premium......Standard
Number of Customers.........................................................125000........45000...........80000
Average Sales Salary/year.....................................................................35000...........35000
Promotion Costs.................................................................2000000
Average Revenue per Customer (before discount).................................440................50