Read the Case Study 8.1 - Telco Corporation (pages 284-5 10th Edition and page 3

Question

Read the Case Study 8.1 - Telco Corporation (pages 284-5 10th Edition and page 307-8 9th edition).

Answer the (5) case study questions. The questions should be answered in full detail and in paragraph form.

CASE 8.1 Telco Corporation

Telco Corporation (Telco) is a $25 billion global manufacturer of industrial products, with its global headquarters located in Bloomington, Indiana. Telco is comprised of six major divisions: (1) electrical generators, (2) turbines, (3) industrial air conditioners, (4) machine tools (e.g., drill presses and lathes), (5) fork trucks and skid loaders, and (6) air compressors. Each division is managed as a separate profit center, and each has its own sales force, manufacturing facilities, and logistics network. Telco has approximately 15,000 customers worldwide, with 40 percent buying from more than one Telco division. At a recent operating council meeting, Jean Beierlein, CFO, was lamenting to the other council members the fact that pretax profits were falling even though revenues were growing. “We ’re in a perplexing situation. The stock market likes us because revenues are growing. However, I don’t see how we are going to make our dividend objectives this year because our operating profits are decreasing from last quarter. Our service levels to customers are at an all-time high and our sales forces are consistently meeting their revenue objectives.” Troy Landry, vice president of supply chain for the compressor division, added his observation on this dilemma. “I ’ll tell you what the problem is. We are constantly exceeding our logistics budget to provide this outstanding service for customers who shouldn’t be getting it. Sales is constantly promising expedited delivery or special production runs for customers who generate very little revenue for us.

One of these customers, Byline Industries, only spends $1 million per year with us and yet our logistics costs as a percent of revenue for them is 25 percent. Compare this with our average logistics costs as a percent of revenue across our customer base of 11 percent and you can see where the problem lies.” Tom Novack, president of the generator division, disagreed with Troy’s observation of Byline. “Wait a minute, Troy. Byline is one of my best customers. They buy 15 percent of my revenue at a logistics cost of 8 percent. We need to make sure they are happy.” Listening to this exchange was the new Telco president, Nick Martin, who recently joined Telco after spending 15 years as COO of a global agricultural products manufacturer. This problem was not new to Nick. His former employer was also structured across business lines with common customers across the globe and found that a similar service strategy for all customers was not a viable alternative. Nick added, “I ’ve seen this before.

The problem is that we are treating all customers alike and we are not taking into consideration those customers who buy from more than one division. Before the meeting, I asked Jean to run some profitability numbers across our customer base. The results are amazing. Thirty-three percent of all of our customers account for 71 percent of our operating profits. Another 27 percent account for approximately $100 million in losses. Obviously, we have some customers who are more profitable than others. We need to develop a strategy to segment our customers and offer each segment the suite of services they are willing to pay for.” “Wait a minute,” exclaimed Chris Sills, vice president of corporate sales. “You ’re asking us to take some services away from our customers. Who is going to break the news? What about the sales commissions for my reps? This is not going to be received well by the customer base.”

You have been hired as an expert on customer relationship management. Telco’s current service offerings to its entire customer base include product quality, order fill rates, lead time, delivery time, payment terms, and customer service support. You have been asked to prepare a report outlining how Telco could adopt the CRM approach to its customers. Specifically, this report should address the following:

1. How should Telco approach segmenting its customers? That is, on what basis (cost to service, profitability, etc.) should the customers be segmented?

2. How should Telco tailor its service offerings to each customer segment?

3. Should certain customers be asked to take their business elsewhere?

4. How should the revised service packages to each segment be introduced to that segment? By the sales force? Should all segments be done at the same time?

5. Each division has its own sales force, manufacturing facilities, and logistics network. As such, common customers (those who buy from more than one division) place separate orders with each division, receive multiple shipments, and receive multiple invoices. Would it make sense for Telco to organize around customer rather than by product? If so, how would this be done? What would the new organizational metrics look like?

Explanation / Answer

1. Segmentation is the process of divding market into submarkets on basis of various factors like age, gender, income, social status, etc.

In this case, the Telco can tru its hand into segmenting the market to pick up the falling profits. It provides a wide range of realted goods to its customers. It could segment its market on the basis of customer services (including its offerings) along with profitability. A suitable mix of segments can be formed first deviding on basis of profitability and then on basis of customers services hence doing double level segmenting. The customer service based segmentation will help the company to allocate the customer service cost of servicinga customer's order. And the service based segmentation will also locate easy operation and supply managemnet os the specific offering to the concerned submarket reducing the cost.

2. In the followings way the company can made adaption to its current offerings/services to its new segments-

i) Strategic and tactical function shsould be formed and implemented carefully on the baiss of the needs of new created segments. Suchfunctions will involve a comprehensive mx of strategy development and customer relationship managemnet.

ii) Communication owuld be another key to have conscious improvemnet over the new processes. The new system of stretgic and tactical oeprations/functions acn only be successfully implemented when specific communication modes can be identified and targeted to make use of them in order to dervie benefits and improve customer services with help of strategic functions.

3) Asking customers to take their business elsewhere is actually demeaning the customers needs which would be henious crime in business arena. It would create a negative image of the company in the market that it cannot take care of its customers and businesses processes well and can even shun some customers to have more profit. Thus it is not wise to have them asked to leave.

4) The following means could be used in order to revise service packages to each segment -

i) Adaotation to services and products being offered in each segment according to the need of respective segments.

ii) revision of the service packages should be done simultaneously that would not only reduce the overall cost but also result in quick implementation.

iii) sales force should not be altereted as the existing talent already know what customer need.

5) In order to be focussed on customer relationship managemnet the company needs to organize its business aroudn its cutomers rather than product. Applying modern techniques like updated softwares, internet technology will help this done. New metrics like rapid order cycle time. focus on logistic operation responsiveness and better use of ligistic system operation should be used.

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.