Case Study:is Whether the Company Should Drop Relationship with Unprofitable Customer or Maintain Its Relationship.

An economic downturn generally pressures on a company’s economic activity and effects on a company’s profit. Thus, many companies may find their business strategies such as cutting off an operation cost or reducing working hours, in order to ensure that their businesses can remain its profitable. One of the dilemmas encountering with an economic downturn issue is whether the company should drop relationship with unprofitable customer or maintain its relationship even if both have been in a good business relationship for a long period. This dilemma is presented by Kaplan R’s case study, ‘When to drop an unprofitable customer?’ (2012).  

Maintaining relationship or cutting it off is the issue that Egan&Son Company need to make the decision. Egan, the supplier of doors and staircases, is now facing with the profit lost problem. Director of the company, Tommy, adopts activities-based costing, ABC, system to generate the true cost of each SKV and customer. He finds that the long-term business customer, Westmid, is no longer gain any profit to company but this customer still has received many concessions, for example, discounts and promotions. Therefore, the director would like to end the relationship with the unprofitable customer, Westmid, to raise up the company’s profit. The regional sale manager, Jane, who earns the commission from Westmid, however, argues against the director’s viewpoint, she believes that company should keep relationship with a customer even if they currently do not make any profit to company. She also claims that the long term relationship customer, Westmid, is the loyalty customer and also help to promote Egan’s product in Westmid’s showroom.  Now CEO of Egan asked for the recommendation that how the company should deal with the worst performing customer. Thus the director need to make the decision that should he recommend Egan to end the relationship with its unprofitable customer or maintain it.

Two experts, Timothy J. Jahnke, President and CEO of Elkay Manufacturing Company and Jacquelyn, associate professor at the Cox School of Business at Southern Methodist University, give differences advices about this dilemma. Both experts recommend that Egan should not drop the relationship with unprofitable customer without considering the possible purchasing potential of customer. However, both experts have different viewpoint about this issue. While Janhke claims that Egan&Son should continue maintaining the relationship with customer, Thomas asserts that the company should break up the relationship with unprofitable company and seek for new business opportunities.