Customer Profitability Analysis

This study seeks to substantiate its proposition through two research objectives: (1) To investigate the impact of customer accounting (CA) information usage on companies’ performance; and (2) to determine the moderating effect of perceived environmental uncertainty (PEU) on the relationship between CA information and companies’ performance. This study develops a theoretical framework by applying interaction fit. To answer the research questions, the study follows a sequential explanatory design and the data is collected in two phases. In the first phase, 172 questionnaires are distributed to managers, of which 97 questionnaires are deemed usable. The results of this stage indicate that CA information usage significantly influences organizational performance, and that there is a moderating effect of PEU on the relationship between CA information and organizational performance. The second phase aims to validate the quantitative results via seven semi-structured interviews. The result...

This study seeks to substantiate its proposition through two research objectives: (1) To investigate the impact of customer accounting (CA) information usage on companies’ performance; and (2) to determine the moderating effect of perceived environmental uncertainty (PEU) on the relationship between CA information and companies’ performance. This study develops a theoretical framework by applying interaction fit. To answer the research questions, the study follows a sequential explanatory design and the data is collected in two phases. In the first phase, 172 questionnaires are distributed to managers, of which 97 questionnaires are deemed usable. The results of this stage indicate that CA information usage significantly influences organizational performance, and that there is a moderating effect of PEU on the relationship between CA information and organizational performance. The second phase aims to validate the quantitative results via seven semi-structured interviews. The result...

Strategic Management Accounting (SMA) has emerged as a vital tool for organizations navigating dynamic and competitive business environments. While extensively studied in developed economies, research on SMA adoption in emerging markets, particularly in service-oriented economies like Sri Lanka, remains scarce. This study examines the extent of SMA usage in Sri Lankan service firms and investigates the impact of demographic factors such as firm size, industry type, and managerial experience on SMA adoption. Using a quantitative survey-based approach, data was collected from 202 service sector firms spanning industries such as banking, insurance, healthcare, hospitality, and information technology (IT). The results indicate that strategic pricing (M = 5.04), competitor position monitoring (M = 4.97), and customer profitability analysis (M = 4.96) are the most frequently employed SMA techniques, whereas life-cycle costing (M = 3.93) and lifetime customer profitability analysis (M = 3.98) are underutilized. Findings also reveal that listed firms and larger organizations demonstrate higher SMA adoption rates, whereas smaller firms face challenges due to resource constraints and a lack of expertise. This research contributes to the limited body of SMA literature in developing countries by offering empirical insights into the Sri Lankan service sector. The findings hold practical implications for policymakers, professional accountants, and industry leaders, emphasizing the need for targeted training programs, regulatory support, and digital transformation strategies to enhance SMA adoption.

Strategic Management Accounting (SMA) has emerged as an important discipline that bridges the gap between traditional management accounting and strategic decision-making. Unlike conventional approaches that focus primarily on internal financial metrics, SMA integrates external market-driven perspectives, providing organizations with a comprehensive framework for competitive advantage. This paper presents a detailed literature review of SMA, tracing its historical evolution, key definitions, techniques, and challenges. The review highlights various SMA techniques, including benchmarking, competitor analysis, strategic pricing, and value chain costing, which have been instrumental in aligning financial data with business strategy. However, despite its strategic importance, SMA faces significant challenges such as the lack of a universal definition, inconsistent implementation across industries, and barriers related to data availability and technological integration. The paper also emphasizes the role of digital transformation in reshaping SMA practices, particularly through artificial intelligence (AI) and big data analytics, which offer enhanced decision-making capabilities. Future research should focus on standardizing SMA frameworks, addressing implementation barriers, and integrating sustainability considerations to further enhance its relevance in contemporary business environments. As companies navigate increasingly complex and dynamic markets, the adoption of SMA will be critical for long-term strategic planning and performance optimization.

The paper outlines the outcomes of an empirical investigation of the links between involvement of insurance firms in customer analysis and their financial performance. The data were collected through a CAWI survey of independent insurance agents in Poland (n=590). Statistical methods included exploratory factor analysis and structural equation modeling. In keeping with the customer lifetime value model and loyalty management theory the concept of customer analysis was operationalized as a second-order reflective construct, expressed through five first order subconstructs. Financial performance was measured with an index of five self-reported metrics. The findings lent support to the hypothesis of a positive association between engaging in customer analysis and financial performance.

The competitive business landscape surrounding the tourism industry inevitably requires significant attention to be placed on maximising the customer base towards establishing a competitive advantage. In this vein, the use of customer accounting has emerged to be a source of crucial information about the customers, which they could assist the management in decision making, managing, and controlling the operation and in turn improve the organisational performance. Considering that, this study aims to articulate and examine the relationships between customer accounting, customer knowledge, and performance. Based on a survey administered to 112 hotel managers, the practice information was collected and analysed using partial least square (PLS). Findings show that among the four dimensions of Customer Accounting, Customer Profitability Analysis, Valuation of Customer as Assets, and Customer Equity Analysis relate significantly to Customer Knowledge, except for the Lifetime Customer Profitability Analysis. Subsequently, only Customer Profitability Analysis and Valuation of Customer as Assets significantly influenced performance. The finding suggests that the adoption of Customer Accounting consisting of combined data about customers may assist the hotels in making decisions to improve their performance. Given that, this study highlighted an accounting technique, that is, Customer Accounting which should be practised by the operators of Malaysian hotels to allow them to manage their customers better, and which is the determinant toward ensuring business success and sustainability.

The widespread use of customer relationship management systems has provided hospitality/hotel organisations with detailed insights into the profitability of their individual customers and at the same time have highlighted unprofitable patrons. Critically appreciating contributions in the area of customer profitability analysis (CPA), this paper provides a retrospective (management accounting) and prospective (customer lifetime value) approach to estimate profitability of customer/guest segments in the hotel business environment. The research enumerates antecedents and outcomes of CPA and proposes an integrated framework to render robustness to the prevalent revenue management systems.

This paper investigates the use of customer profitability analysis (CPA) in four and five star hotels located in Algarve (Portugal). Traditional accounting systems have been criticized for focusing on product, service or department profitability, and not on customer profitability, thus failing to provide effective information to marketing-related decisions. Results are reported by operating departments, whilst marketing activities focus on customer market segments. Recognizing the growing emphasis on customer value creation, and to overcome the mismatch between the provision and use of information in hotels, CPA techniques have been suggested. Notwithstanding their benefits, namely a strategic focus, hotels still apply traditional techniques. A structured questionnaire collected through personal interviews showed that CPA is far from widespread in hotel management; instead, hotels accumulate costs in profit centers and in cost centers. None of the surveyed hotels had adopted activity based costing, despite this technique being viewed as the most appropriate to calculate individual customer profitability.

Time-driven activity-based costing (TDABC) is a potential solution for profitability analysis, especially in industries with high overhead costs and a high number logistical or sales transactions, which would make the updating of a conventional ABC model costly. Despite a wide ranging TDABC literature, little is known how a company’s customer base influences the way profitability management systems are developed. Accordingly, this study draws on the typology provided by Lind and Strömsten (2006) and focuses on the use of TDABC for customer profitability analyses (CPA). Thus the purpose of this paper is to investigate how companies with different customer interfaces make use of time-driven activity-based costing in their customer profitability analyses. The paper is based on three interventionist case studies focusing on the use of modern costing in CPA. We build our investigation primarily on the interventionist method and participant observation. Our findings highlight the potentia...

This paper investigates the use of customer profitability analysis (CPA) in four and five star hotels located in Algarve (Portugal). Traditional accounting systems have been criticized for focusing on product, service or department profitability, and not on customer profitability, thus failing to provide effective information to marketing-related decisions. Results are reported by operating departments, whilst marketing activities focus on customer market segments. Recognizing the growing emphasis on customer value creation, and to overcome the mismatch between the provision and use of information in hotels, CPA techniques have been suggested. Notwithstanding their benefits, namely a strategic focus, hotels still apply traditional techniques. A structured questionnaire collected through personal interviews showed that CPA is far from widespread in hotel management; instead, hotels accumulate costs in profit centers and in cost centers. None of the surveyed hotels had adopted activity based costing, despite this technique being viewed as the most appropriate to calculate individual customer profitability.

The paper attempts to answer the research question whether conducting customer analysis improves firm performance. It presents results of research among Polish insurance agents. According to its findings, conducting customer analysis is positively correlated with firm performance. Other factors that determine firm performance to a large extent are related to economies of scale and established competitive position (i.e. co-workers, low perception of risk related to other channels, agents’ reputation). The use of dedicated CRM software does not influence firm performance. The research results are discussed with the perspective of customer profitability and customer lifetime value.

The paper outlines the outcomes of an empirical investigation of the links between involvement of insurance firms in customer analysis and their financial performance. The data were collected through a CAWI survey of independent insurance agents in Poland (n=590). Statistical methods included exploratory factor analysis and structural equation modeling. In keeping with the customer lifetime value model and loyalty management theory the concept of customer analysis was operationalized as a second-order reflective construct, expressed through five first order subconstructs. Financial performance was measured with an index of five self-reported metrics. The findings lent support to the hypothesis of a positive association between engaging in customer analysis and financial performance.

Time-driven activity-based costing (TDABC) is a potential solution for profitability analysis, especially in industries with high overhead costs and a high number logistical or sales transactions, which would make the updating of a conventional ABC model costly. Despite a wide ranging TDABC literature, little is known how a company’s customer base influences the way profitability management systems are developed. Accordingly, this study draws on the typology provided by Lind and Strömsten (2006) and focuses on the use of TDABC for customer profitability analyses (CPA). Thus the purpose of this paper is to investigate how companies with different customer interfaces make use of time-driven activity-based costing in their customer profitability analyses. The paper is based on three interventionist case studies focusing on the use of modern costing in CPA. We build our investigation primarily on the interventionist method and participant observation. Our findings highlight the potentia...

The competitive business landscape surrounding the tourism industry inevitably requires significant attention to be placed on maximising the customer base towards establishing a competitive advantage. In this vein, the use of customer accounting has emerged to be a source of crucial information about the customers, which they could assist the management in decision making, managing, and controlling the operation and in turn improve the organisational performance. Considering that, this study aims to articulate and examine the relationships between customer accounting, customer knowledge, and performance. Based on a survey administered to 112 hotel managers, the practice information was collected and analysed using partial least square (PLS). Findings show that among the four dimensions of Customer Accounting, Customer Profitability Analysis, Valuation of Customer as Assets, and Customer Equity Analysis relate significantly to Customer Knowledge, except for the Lifetime Customer Profitability Analysis. Subsequently, only Customer Profitability Analysis and Valuation of Customer as Assets significantly influenced performance. The finding suggests that the adoption of Customer Accounting consisting of combined data about customers may assist the hotels in making decisions to improve their performance. Given that, this study highlighted an accounting technique, that is, Customer Accounting which should be practised by the operators of Malaysian hotels to allow them to manage their customers better, and which is the determinant toward ensuring business success and sustainability.

Ultimately, costing principles, such as the causality principle, must be converted into practical practices with supporting tools. This chapter describes how cost modeling has evolved over the last century. It describes the trends and obstacles that have helped or delayed developments. These evolving areas and trends include (1) the expansion from product costing to include channel and customer profitability reporting and analysis, (2) the integration of managerial accounting with other enterprise and corporate performance management (EPM/CPM) methods, (3) the shift from historical reporting to predictive accounting (e.g., marginal/incremental costing, (4) driver-based budgeting and rolling financial forecasts, (5) customer lifetime value (CLV), (6) imbedding analytics into managerial accounting (e.g., correlation and regression analysis), (7) acceptance of two or more co-existing managerial accounting methods, and (8) chargebacks to internal users and service-level agreements of in...

Many CFOs and accountants are still using management accounting methods from the 1960s. They are providing flawed and misleading costs because they use simplistic cost allocations of indirect expense (commonly referred to as "overhead") that violate costing's "causality principle". They need to get into the 21st century using progressive methods like activity-based costing (ABC).

The core purpose of the research is to investigate the relationship between the internal attributes of corporate governance and strategic management accounting. 166 companies listed in Tehran Stock Exchange (TSE) were selected to advance the research objective. Part of the data was collected through financial information published by the companies and the other via questionnaire. Multivariate correlation and regression methods were used to test the research hypotheses. Findings showed that there is a significant relationship between variables such as board independence, number of board meetings and CEO duality with usage of strategic management accounting techniques among the corporations. But no significant relationship was found between board size and the dependent variable.

Despite many conceptual and empirical studies, the relationship between marketing information systems and financial performance remains ambiguous. In this paper, we propose and test a model explaining how customer analysis can affect financial performance. The data for the study were collected from 590 insurance intermediaries in Poland. The results indicate that the strongest predictor of financial performance is the degree of formalized knowledge processing, followed by the scope of performed customer analysis. Other factors that positively correlated with financial outcomes include earning most revenues from corporate clients (versus consumers) and employing policies aimed at regaining former customers. The study also found that add-on selling is not significantly associated with better financial results.

Müşteri muhasebesi işletmenin kârlılığı, yönetim hedeflerini gerçekleştirebilmesi, sürekliliğin
sağlanması için gereklidir. Pazarda rekabet gücünü sürekli kılmak isteyen her işletme müşteri muhasebesi için
gerekli tüm bilgileri sağlıklı şekilde edinmeli ve stratejisini bu bilgilere göre belirlemelidir. Bu çalışmada,
işletmeler için müşteri muhasebesinin gerekliliği düşünülerek tüketici davranışları bağlamında ele alınmıştır.
Tüketici davranışları bağlamında müşteri muhasebesi, iktisadi insan teorisi, müşterinin işletmeye ve ürüne olan
bağlılığı, müşteri kârlılık analizi, müşteri değeri ve muhasebe bilgi sistemi kalitatif ve kantitatif yöntemler
düşünülerek incelenmiştir. Sonuç olarak müşteri muhasebesinin sadece müşteri kârlılığından oluşmadığı ve bu
nedenle de her işletmenin müşteri muhasebe sistemi için kendi stratejisini oluşturması gerektiği sonuçlarına
varılmıştır.

The paper explores the relationship between conducting customer analysis and financial performance. The data for the study were collected from 590 small insurance intermediaries in the Polish market. The structural equation modelling indicates that the strongest predictor of financial performance was the use of formalized knowledge processing, followed by the scope of performed customer analysis. Other factors positively correlated with financial standing included: earning most revenues from corporate clients (versus consumers) and employing policies aimed at regaining former customers. The study also finds that add-on on selling was not significantly associated with better financial results.

JEL code: M31 Keywords: customer knowledge, customer knowledge management, customer knowledge valuation, customer knowledge valuation model, customer lifecycle Abstract. Customers can create value for firms in a variety of ways. Four of them are parts of customer relationship management (CRM), and mentioned as customer engagement value (CEV) components. The first component is customer lifetime value (CLV); the second is customer referral value (CRV); the third component is customer influencer value (CIV); the fourth component is customer knowledge value (CKV). There are a lot of works concerning the particular CEV element estimates, such as CLV, and recently also CIV or CRV. However, it is important to notice that there is no work on how to estimate CKV. Based on the observations above, finding a model to estimate CKV would be relevant and interesting.

The paper attempts to answer the research question whether conducting customer analysis improves firm performance. It presents results of research among Polish insurance agents. According to its findings, conducting customer analysis is positively correlated with firm performance. Other factors that determine firm performance to a large extent are related to economies of scale and established competitive position (i.e. co-workers, low perception of risk related to other channels, agents' reputation). The use of dedicated CRM software does not influence firm performance. The research results are discussed with the perspective of customer profitability and customer lifetime value.

Purpose – The purpose of this paper is to examine the role of organizational culture as a company migrates through a four-stage model for designing a customer profitability analysis (CPA) performance measurement system (PMS).
Design/methodology – This is a single-site phenomenological case study, at Growth Spurt Marine Accessories (Growth Spurt), a manufacturing organization headquartered in the United States. Data were collected over a two-year period through interviews with accounting staff, internal company documents, and recording observational notes.
Findings – The paper identifies three major factors that prevented Growth Spurt from transitioning its CPA reporting package through Kaplan and Cooper’s four-stage model of PMS design: (1) executives exerting their power and spending political capital to prevent implementation without providing rationale, (2) executives believing that the allocation methods were too subjective, and (3) executives relying on their own intuition in analyzing customer profitability rather than relying on data. These factors suggest that organizational culture plays an important role in migrating a CPA through Kaplan and Cooper’s four-stage model of PMS system design.
Research Limitations/implications – The findings suggest that a CPA that does not advance beyond stage II (financial reporting-driven) may still suit the needs of an organization. Additionally, managers should advocate for a multidisciplinary CPA design and implementation team to minimize potentially adverse effects of organizational culture. Originality/value – This paper is unique because it applies Kaplan and Cooper’s four stage model for PMS design to CPA and it uses a phenomenological case approach to explore impediments to a comprehensive CPA implementation.

The paper outlines the outcomes of an empirical investigation of the links between involvement of insurance firms in customer analysis and their financial performance. The data were collected through a CAWI survey of independent insurance agents in Poland (n=590). Statistical methods included exploratory factor analysis and structural equation modeling. In keeping with the customer lifetime value model and loyalty management theory the concept of customer analysis was operationalized as a second-order reflective construct, expressed through five first order subconstructs. Financial performance was measured with an index of five self-reported metrics. The findings lent support to the hypothesis of a positive association between engaging in customer analysis and financial performance.

The paper outlines the outcomes of an empirical investigation of the links between involvement of insurance firms in customer analysis and their financial performance. The data were collected through a CAWI survey of independent insurance agents in Poland (n=590). Statistical methods included exploratory factor analysis and structural equation modeling. In keeping with the customer lifetime value model and loyalty management theory the concept of customer analysis was operationalized as a second-order reflective construct, expressed through five first order subconstructs. Financial performance was measured with an index of five self-reported metrics. The findings lent support to the hypothesis of a positive association between engaging in customer analysis and financial performance.

Özet: Müşteri tatmini ve müşteri değeri birbirine yakın kavramlar olması nedeniyle çoğu zaman birbirleriyle karıştırılmakta ve aralarındaki nüanslar gözden kaçmaktadır. Dolayısıyla bu çalışma da müşteri değeri ve tatmininin kavramsal farklılıkları ve birbiriyle ilişkileri incelenmeye çalışılmıştır. Ayrıca satın alma sonrası müşterinin geleceğe ilişkin eğilimleri üzerinde hangisinin doğrudan ve daha güçlü bir etkiye sahip olduğu da araştırılmıştır. Bu belirsizliği ortadan kaldırmak için literatür bulgularından da hareketle geliştirilmiş iki ayrı model test edilmiştir. Bu modellerden birisi müşteri değerinin satın alma sonrası eğilimleri üzerindeki doğrudan etkisini açıklayan doğrudan model, diğeri ise müşteri değerinin müşteri tatmini yoluyla satın alma sonrası eğilimler üzerindeki belirleyiciliğini açıklayan dolaylı modeldir. Geliştirilen iki yapısal eşitlik modelinin verilere uyumu AMOS 5.0 istatistik paket programıyla analiz edilmiştir. Bulgular, müşteri değeri ve tatmini kavramlarının birbirlerinden ayrı fakat ilişkili kavramlar olduğunu ve müşteri değerinin, müşteri tatmini yoluyla satın alma sonrası eğilimler üzerinde dolaylı ve daha güçlü etkisini açıklayan ikinci modelin daha uygun model olduğunu ortaya çıkarmıştır.

Abstract: We study how decision makers learn to improve performance across repeated budget allocation decisions. The costing system they use should be able to provide information that is of incremental value over mere outcome feedback and informal knowledge about customer's cost. We report an experiment demonstrating that customer profitability analysis (CPA) facilitates learning of the most appropriate allocation of a marketing budget among customers.

Activity-Based Costing (ABC) is intended to assist managers to make better pricing decisions than those taken using traditional volume-based cost methods. The added value of ABC should be assessed against that of signals emanating from the competitive environment in which the firm operates. Prior research has often shown market-based information to be overwhelming, thereby calling into question the wisdom of investing in cost systems to better approximate actual costs.

ABSTRACT This paper experimentally investigates the value-enhancing effects of more accurate customer profitability analysis (CuPA) reports on customer pricing decisions and firm profitability when customers place different demands on the firm's support functions. Activity-based driven CuPA reports are contrasted against less accurate reports, either based on traditional volume-based costing or on aggregated feedback.

Most decision making research in management accounting remains focused on cost information in a production context. Little is known on the relevance of customer profifitability analysis (CuPA) reports, which more accurately reflect revenue and marketing support variations acrosscustomers, for marketing decisions. This study uses an experimental design to examine the impact of such reports on resource allocation decisions (that affect the firm's profits) in marketing environments varying in complexity. The main result of the experiment suggests that the value of CuPA reports depends on the complexity of the marketing setting. Only in a highly complex marketing setting do they enhance resource allocation decisions and resultant firm profitability. Conversely, in the simple marketing environment, decision makers can combine their traditional volume-based cost data with other available types of feedback to perform as well as under a more accurate CuPA report. These findings on complexity contrast with those of a prior study in a production context . It is argued that improvements in the current research design, in the form of regularly updated profitability reports and concerning accuracy, increase the relevance of CuPA reports in a complex marketing setting.