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Guilding, C. and L. McManus. 2002. The incidence, perceived merit and antecedents of customer accounting: An exploratory note. Accounting, Organizations and Society 27(1-2): 45-59.

Summary by Rosalyn Mansour
Ph.D. Program in Accounting
University of South Florida, Spring 2004

Customer Profitability Main Page | Strategy Related Main Page

Motivation/Purpose

Previously, conceptual academic work had promoted the use of customer accounting; however, no empirical work had been done on this subject. The authors sought to obtain information on how often customer accounting is used, what users’ perceptions are about customer accounting, and to test hypotheses based on contingent factors they deemed would contribute to customer accounting usage and perceptions about its usage.

Theory

There was no theory about customer accounting; however, there were 5 constructs of customer accounting found in related studies such as Kaplan and Norton work on the balanced scorecard. The authors explain these 5 constructs and the way they operationalized them in their study.

1. Customer Profitability Analysis - tracing profitability directly to a customer.

2. Customer Segment Profitability Analysis - tracing profitability directly to a customer group and market segment.

3. Lifetime Customer Profitability Analysis - Extend customer profitability analysis into the future to forecast lifetime profitability of the customer

4. Valuation of customers or customer groups as assets - This refers to the idea of including the value of customer relationships on the balance sheet as an asset.

5. Customer Accounting (the holistic notion) - "all accounting practices directed towards appraising profit, sales, or present value of earnings relating to a customer or group of customers (p. 48)."

The two contingency factors considered were:

1. Intensity of competition

2. Market orientation

Another construct that deserves defining is market orientation. The authors say it is comprised of three constructs - customer focus, competitor orientation, and inter-functional coordination (p. 49).

Hypotheses

H1a: Customer Accounting usage rates are higher in companies experiencing medium levels of competition intensity. REJECTED

H1b: Perceived managerial benefits of Customer Accounting is greater in companies experiencing medium levels of competition intensity. REJECTED

H2a: Customer Accounting usage rates are higher in companies with a high market orientation. PARTIALLY SUPPORTED

H2b: Perceived managerial benefit of Customer Accounting is greater in companies with a high market orientation. PARTIALLY SUPPORTED

Methodology

The authors obtained survey information from chief accountants and marketing managers at large (market capitalization) Australian companies. Surveys were conducted through the mail. All questions were measured using a 7 point Likert scale. Survey questions were designed to specifically capture data on:

1) Extent the company used a defined set of 5 customer accounting practices.

2) Perceived managerial merit of customer accounting.

3) Intensity of competition for "selling and distribution, quality and variety of products, and price (p. 51)" as well as for market share and customer service.

4) Questions about the company's understanding of its customers, integration of value chain functions, and market orientation.

Results/Conclusions

The hypotheses were tested using linear regression to fit 5 models representing the customer accounting practice usage rate or perceived merit. All 10 linear regression models were significant at P< .05; however, variance explained ranged only from 8 to 16%. Also, individual coefficients were not all significant as seen above by the rejection or supported notation next to the hypotheses.

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Related article summaries:

Foster, G., M. Gupta and L. Sjoblom. 1996. Customer profitability analysis: Challenges and new directions. Journal of Cost Management (Spring): 5-17. (Summary 1). (Summary 2).

Gordon, L. A. and M. P. Loeb. 2001. Distinguishing between direct and indirect costs is crucial for internet companies. Management Accounting Quarterly (Summer): 12-17. (Summary).

Howell, R. A. and S. R. Soucy. 1990. Customer profitability: As critical as product profitability. Management Accounting (October): 43-47. (Summary).

Manning, K. H. 1995. Distribution channel profitability. Management Accounting (January): 44-48. (Summary).