Abstract

As relationships and service become increasingly pivotal in business, the profitability of customers is becoming more important than the profitability of products. In this environment, marketing success will be equivalent to generating maximum profits from a firm’s total set of customers. Doing so requires allocating managerial resources to the groups of customers that can be cultivated most efficiently by a firm. This article presents a management methodology called the "Customer Pyramid" that enables a firm to supercharge its profits by customizing its responses to distinct customer profitability tiers. The Customer Pyramid provides a tool for managers to strengthen the link between service quality and profitability and to determine the optimal allocation of often scarce resources to maximize profitability. Product and service strategies, customized for each customer tier, become more closely aligned with an individual customer’s underlying utility functions. This results in more effective, efficient, and profitable strategies for serving the customer. The article also provides numerous examples and practical guidelines for improving firm profits by moving customers "up the Customer Pyramid."