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Question 412 - CSCP discussion

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A company has determined that products sold to a large, strategic customer have unacceptable low variable margins. Which of the following strategies should the company use to improve profitability of sales to that customer?

A.
End the relationship and seek out a profitable customer to replace it.
Answers
A.
End the relationship and seek out a profitable customer to replace it.
B.
Implement a balanced scorecard.
Answers
B.
Implement a balanced scorecard.
C.
Evaluate the products' value to the customer and adjust prices accordingly.
Answers
C.
Evaluate the products' value to the customer and adjust prices accordingly.
D.
Move the production of the products to a low labor cost location.
Answers
D.
Move the production of the products to a low labor cost location.
Suggested answer: C

Explanation:

Understanding the Issue: The company has identified that products sold to a large, strategic customer have low variable margins, which is not sustainable for profitability.

Strategic Importance: Since the customer is large and strategic, ending the relationship (Option A) could have significant negative implications on overall business.

Balanced Scorecard (Option B): While implementing a balanced scorecard can help in measuring performance, it is not a direct solution to improving product margins.

Low Labor Cost Location (Option D): Moving production might reduce costs, but it involves significant changes and potential risks which might not address the pricing/value issue directly.

Value-Based Pricing (Option C): Evaluating the products' value to the customer and adjusting prices accordingly ensures the company aligns its pricing strategy with the perceived value, potentially increasing margins without losing the customer. This approach can also help in identifying and highlighting the value proposition, enhancing customer satisfaction and loyalty.

Reference: Supply Chain Management Principles and Concepts, Pricing Strategy literature, Customer Value Management studies.

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asked 16/09/2024
Ashad Conley
38 questions
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