Telco Case Study

Telco Corporation is currently in an interesting state of affairs. As of this moment, Telco Corporation is experiencing a decrease of pretax profits while overall company revenue continues to increase. Also, customer service levels are at an all time company high for all customers serviced at each of its six major divisions. Finally, each of Telco's major divisions has its own independent sales force, manufacturing facilities, and logistics network. Simply put, these high levels of customer service and the lack of coordination between Telco's major divisions are why Telco is experiencing a loss of pretax profit. Telco must immediately start strategically implementing customer relationship management techniques. This means Telco must embrace customer segmentation because all customers are not equal. As Nick Martin has pointed out, 33% of Telco Corporations customers make up 71% of all operating profits while 27% of Telco's customers actually cost the company approximately 100 million dollars to service. All the while each and every customer is experiencing the same level of high quality customer service.

These customers must be segmented by profitability if Telco Corporation wishes to improve profitability in the future. This prioritization of customers will help Telco Corporation extract the most value from each customer segment. Telco should segment its customers into three distinct customer groups. The 33% of Telco customers that account for 71% of profits will be customer group A because they are Telco's most valued customers. The 40% of customers that are not part of the most profitable 33% or the least profitable 27% of customers will be customer group B. Consequently, the 27% of customers that are least profitable will be customer group C. The next step is to package product and service offerings to each segment. Once Telco Corporation establishes what each customer segment group values the most from its supplier, Telco can begin to tailor its value adding products and services for each of the three customer segments. These value adding products and services include product quality, order filling, lead times, delivery times, terms of payment, and customer support services. Customer group A, which consists of Telco Corporations most valued customers, should experience superior product quality, order filling, lead time, delivery time, payment terms, and customer support services. Customer group B should experience a lower standard of value added products and services than group A experiences. Group C should, of course, experience the lowest level of product quality, lead time, delivery time, customer service, ect.

Telco Corporation should not ask certain customers to take their business elsewhere. Although 27% of Telco Corporations customers actually cost Telco approximately 100 million dollars to serve, they should not be written off completely. Rather, Telco can use segmentation