Benefits of Customer Profitability Analysis Reports in Repeated Budget Allocation Decision Making

52 Pages Posted: 4 Aug 2001

See all articles by Eddy Cardinaels

Eddy Cardinaels

KU Leuven; Tilburg University - Tilburg University School of Economics and Management

Filip Roodhooft

Katholieke Universiteit Leuven

Luk Warlop

KU Leuven - Faculty of Business and Economics (FEB); BI Norwegian Business School

Date Written: Undated

Abstract

We study how decision makers learn to improve performance across repeated budget allocation decisions. The costing system they use should be able to provide information that is of incremental value over mere outcome feedback and informal knowledge about customer's cost. We report an experiment demonstrating that customer profitability analysis (CPA) facilitates learning of the most appropriate allocation of a marketing budget among customers.

Results show that in a difficult learning environment, participants receiving CPA information made closer-to-optimal budget allocation decisions, resulting in higher cumulative profits compared to participants receiving traditional accounting reports. In easier learning environments, CPA yielded a smaller additional benefit over a traditional costing system combined with outcome feedback. Additional analyses show that CPA is superior because it enables decision makers to make more efficient use of a (hill climbing) heuristic for approaching the optimal allocation.

Keywords: Customer profitability analysis; ABC; Hill climbing; Decision making; Sales budget allocation

JEL Classification: M40, M46

Suggested Citation

Cardinaels, Eddy and Roodhooft, Filip and Warlop, Luk, Benefits of Customer Profitability Analysis Reports in Repeated Budget Allocation Decision Making (Undated). Available at SSRN: https://ssrn.com/abstract=278912 or http://dx.doi.org/10.2139/ssrn.278912

Eddy Cardinaels (Contact Author)

KU Leuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16326984 (Phone)

HOME PAGE: http://www.kuleuven.be/wieiswie/nl/person/00013472

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31 134668231 (Phone)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/?uid=e.cardinaels

Filip Roodhooft

Katholieke Universiteit Leuven ( email )

Leuven, B-3000
BELGIUM

Luk Warlop

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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