A hybrid multi-criteria decision model for supporting customer-focused profitability analysis

Strategic analysis of customer profitability for assessing market segmentation and reconfiguring customer relationship management (CRM) activities remains the key factor for achieving high return on CRM investment. The purpose of this paper is to map the profit-based ranking of corporate customers into the current market segments, with a view of determining the relative profitability of each market segment.

This study develops a novel model that combines activity-based costing (ABC), CRM, fuzzy analytic hierarchy process (AHP), and technique for order preference by similarity to ideal solution (TOPSIS) methods to evaluate strategically customer profitability and prioritizing corporate accounts. This case study airline company has invested heavily in CRM over the past seven years on integrating multi-functional departments that touch customers. The airline operations management and marketing functions provide key inputs. Results of the hybrid model validate feasibility of the proposed model.

The airline management makes use of the ranking results to optimize customer profitability by reconfiguring marketing programs, integrated schedule design, fleet assignment, maintenance routing, crew scheduling, and real-time optimization of schedule recovery in the aftermath of disruptions or irregularities. The proposed model also directs the marketing function to customize service offerings and introduce appropriate service levels to engage customers of different segments for the purpose of maximizing corporate profitability.

Significant amount of investment is necessary to design and implement the extensive CRM database and systems to assure customer data quality and availability so as to bear fruits in the proposed hybrid model. These data requirements can especially be a critical barrier for small to medium-sized companies.

This hybrid model is able to capitalize on the benefits of the ABC, CRM, fuzzy AHP, and TOPSIS methods and offset their deficiencies. Most importantly, it can be applied to various industries without complex modification.

This study represents the first move to adopt the fuzzy AHP and TOPSIS methods to analyze the ABC and CRM data inputs of an airline company. In mapping the profit-based ranking of corporate customers into the current market segments, the relative profitability of each market segment can be determined.