Cost-to-Serve Model (CTS)

Cost-to-serve methods are flexible and free from heavy prescriptions … [they] can be applied at varying levels of sophistication from simple spread sheets to advanced relational databases (Braithwaite and Samakh, 1998).

Information about Cost-to-Serve Model (CTS)

The term 'cost-to-serve' broadly describes customer-service costs and was popularised by a few publications (see Braithwaite and Samakh, 1998). In terms of academic research on the subject, the term has been used almost interchangeably across different disciplines with terms such as ‘marketing costs’ and ‘marketing and logistics costs’ (Guerreiro et al., 2008). Braithwaite and Samakh (1998) observed that while companies often know in specific detail exact costs for producing a product, they are often less than well-informed about what it actually costs to serve a customer. These authors argued that it is the customer, not the product, that makes the profit. Thus, CTS method is key to understanding customer profitability. At the same time the concept is counter to prominent Harvard Business School strategist Michael Porter’s warning to organisations regarding attempting to be low-cost while at the same time differentiated (Kaplan and Cooper, 1998). Recent research shows that organisations can implement CTS to be profitable on all customer segments regardless of cost or product differentiation (Guerreiro et al., 2008).

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