Page 124 - Marketing the Basics 2nd

116 Marketing: the Basics
two customer service levels you almost always have to have two separate organizations.
A firm must always try to renew their platinum customers, as they are central to profitability. Sadly, platinum customers are lost every year. They go out of business, they leave the country, our product is no longer relevant to their needs (when an executive retires he may go from the highest level of frequent flyer to almost no travel almost overnight) or a competitor may win them over
What the customer pyramid model tells us is that once customers are classified into their respective categories, each time the customer interacts with the company, there needs to be some type of mechanism that evaluates and then proposes to the client an incentive (or disincentive) to move up (or down) a tier. So the trick for firms is to be able to discern which customers are profitable over the long term, and which ones are not. We’ll address this concept in closer detail at the end of the chapter in our discussion of customer relationship management.
LEARNING CURVE EFFECT
The learning curve effect can be considered a contra-cost. It states that the more often a task is performed, the less cost will be incurred in the future. This relationship between experience and accumulated production has been the source of commentary for hundreds of years. But it wasn’t until 1925 that it was closely studied. At the Wright-Patterson Air Force Base in the United States, engineers discovered that as aircraft production doubled, the assembling time decreased by 10 to 15 per cent, regardless of the size of the plant. Studies on other industries yielded similar results. The more workers produced an item, the more productive they became, yet the learning curve gains were the same regardless of plant size. The realized efficiency level varied between industries, but amazingly, the maxim that the learning curve effect affects an operation regardless of scale remains largely true.
Being the first manufacturer to maximize the learning curve gives the firm a substantial advantage over its competitors. Because per unit costs are lower, it can use that cost advantage for one of three things: to give a lower price to customers making it harder