The customer pyramid: Creating and serving profitable customers

As relationships and service become increasingly pivotal in business, the p rofitability 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 r equires allocating managerial resources to the groups of customers that can be cultivated most efficiently by a firm. This article presents a manageme nt methodology called the "Customer Pyramid" that enables a firm to superch arge its profits by customizing its responses to distinct customer profitab ility tiers. The Customer Pyramid provides a tool for managers to strengthe n the link between service quality and profitability and to determine the o ptimal allocation of often scarce resources to maximize profitability. Prod uct 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 s erving the customer. The article also provides numerous examples and practi cal guidelines for improving firm profits by moving customers "up the Custo mer Pyramid."