The analysis of customer profitability within the grocery wholesale business in Malta

Abstract

The information regarding each particular customer generated by the analysis of customer profitability has become increasingly important now that firms are competing in a liberalized and thus more competitive market. However, since management accounting systems are primarily designed to analyse product profitability for the purpose of product-related decisions and financial reporting, in most companies there seems to be very little information available about the costs incurred in serving each particular customer and about the profitability of customers. While product profitability analysis is important, there seems to be lack of data available on which to base customer-related decision-making. Thus, one of the aims of this study was to discover to what extent this applies amongst firms within the local grocery wholesale business. In addition, this study was aimed at identifying the current approach adopted by such finns in analysing customer profitability and the reason why such analysis is not carried out in cases where firms do not analyse customer profitability on an individual basis. Moreover, this study was also carried out with the intent of identifying the benefits attained by such finns as a result of customer profitability analysis, and to determine the manner in which such firms deal with unprofitable customers and with strategically important customers. The research method adopted was quantitative in nature and made use of mail questionnaires and personal semi-structured interviews to obtain the necessary primary data. From the results it was deduced that the majority of firms within the grocery wholesale business in Malta do not perform customer profitability analysis, the main reason being that the firms' current cost accounting system is not capable of performing such analysis. Only a small proportion of firms carry out customer profitability analysis using activity-based costing techniques. The findings therefore shed light on the importance of adopting better cost accounting systems for the purpose of analysing customer profitability, and on the importance of an enhanced utilization of customer relationship management systems.