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Decile
Analysis to Guide Retention Actions
The sales manager of an industrial division at
a components manufacturer wanted to evaluate the current sales-call
policy of his field force. He asked his sales analyst to identify
which accounts the sales force was targeting and how important
they were relative to key accounts. He also asked the sales
analyst to develop customer deciles based on sales and to append
to each customer record an estimate of the account's profitability.
The resulting decile analysis appears
in Table Decile-1.
It shows that the bottom 30 percent of the division's customers
represented only 2.4 percent of spending. Further analysis by
the firm revealed that the customers in these three deciles
were actually unprofitable to serve.
The sales manager then evaluated each sales person's sales call
strategy. The manager found that the sales force made 50 percent
of sales calls on the bottom 40 percent of accounts. This implied
that the firm should change its targeting strategy for existing
customers. There was no reason to market or target the bottom
four deciles beyond some level of maintenance. Only those accounts
with high sales potential warranted sales calls.
One solution for this manager would be to raise prices to low
potential, low volume accounts and to reduce selling efforts
directed at them. If these accounts attrite, the firm is no
worse off. Firms often find that they can make many of these
marginal accounts profitable if they raise their prices. Whatever
tactics this sales manager chooses, the division is in a better
position to differentially market to its customer base now that
it has examined its profitability using decile analysis.
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