ABC analysis

The ABC analysis classifies customers into A, B and C customers based on turnover, contribution margin, sales potential and/or support costs as well as other possible criteria.

Thus, the ABC analysis provides initial indications for customer-oriented resource allocation. In general, the aim is to focus more cost-intensive forms of support (e.g. field service visits) on selected customer groups only and to find more cost-effective forms of processing (e.g. call center support or transfer to a wholesaler) for less attractive customers such as the C-customers.

In practice, the ABC analysis is­ widely used in both consumer and corporate business. Frequently, the analysis identifies 80:20 structures, showing that many companies generate about 80% of their turnover with 20% of their customers.

However, the application of the ABC analysis does not come without complications. For example, a purely sales-related ABC analysis does not account for the potential of the customers. This might lead to two different types of C-customers: customers, who indeed have little demand for the offer of a supplier and customers, who have large demand, but essentially satisfy it with competitors’ offers. Grouping such different customers into one category can lead to wrong decisions in market cultivation.

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