A Proposed Model for Applying Customer Profitability Analysis (CPA) in the Pharmaceutical Sector: Evidence from Egypt

Abstract

Adopting customer profitability analysis (CPA) helps companies shed light on the profitability of customers or the profitability of customer divisions. The core purpose of this study has been to point out the possibility of adopting and applying CPA model by using activity-based costing (ABC) approach, and attempt to introduce such model to the Egyptian pharmaceutical industry. To accomplish this purpose, this study initiates with a brief idea regarding the CPA, ABC, and numerous previous studies that tried to apply CPA depending on ABC. The phenomenology is the dominant philosophy of this study and it will depend on a case study method which will be applied in the Egyptian pharmaceutical sector along with relying on the exploratory studies. The study proposed a model for applying CPA by using ABC which includes four pillars; establishing a database of customers, identifying the main activities of customers, designing the CPA model by using ABC approach, and finally what are the main cofactors that have a great influence on the success or failure of the CPA implementation. The most crucial results of this study are; adopting ABC approach helps identify the major activities in the firm including the customers’ activities, determining the costs associated with such activities, and applying CPA particularly by using ABC approach assists firms in classifying their customers / customer segments into profitable and unprofitable which has a great influence on the entire firm’s profitability. Furthermore, one of the most indispensable results of this study is that firms should not ignore a number of factors that have a great impact on the CPA application such as organizational behaviors and beliefs, information technology, firm’s strategy, accounting system, customers’ visits procedures, and spreading the philosophy of Customer Relationship Management (CRM) among all the employees in the company..