0402

Problem

Describe how a firm might use menu-based pricing to restore profitability to a high-cost-to-serve customer who demands extensive service and customized support.

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Usually companies often composed of two types of customers in their business transactions. They are categorized below in detail:

1. High- cost- to serve customer.

2. Low- cost- to serve customer.

• High- cost- to serve customers is the type of the customers who provide heavy additional expenditure to organizations before and after the sale. These are expensive to the organizations.

• Low- cost- to serve customers forms the category which needs basic cognizable support and services from the company.

Menu-based pricing:

Menu-based pricing is the separation of product price and cost of services. It is a transformation of paying a price for the benefit received by the customer. It helps a purchaser to analyze to pay for better service and appropriate time to make order in bulk to reduce costs.

A firm might use menu-based pricing to restore profitability to a high cost to serve customer who demands extensive service and customized support. It is explained below in detail:

Menu-based pricing to restore profitability:

• To provide additional services other than basic works, extra charges must be received.

• Installation, technical support, customer training etc must be consider as separate category and are made commercial.

• Fast deliveries are included with additional charges.

• Small order quantities must be separated from special discounts.