tag:blogger.com,1999:blog-4073374429670892152.post8000086366351152219..comments2024-02-24T09:34:36.701+00:00Comments on StrategicCoffee: Change happens - deal with itUnknownnoreply@blogger.comBlogger2125tag:blogger.com,1999:blog-4073374429670892152.post-36155929349918311822011-06-22T08:59:02.900+01:002011-06-22T08:59:02.900+01:00I think that cross-subsidisation becomes less sust...I think that cross-subsidisation becomes less sustainable as the number of transactions increases and as the product become more commoditised. So where you have fewer buyers and fewer sellers with a bespoke and creative product/service, as you describe, the cross-subsidisation can probably be sustained for quite a long time. However, where you are talking about many buyers and sellers of, say car insurance, on an annual basis, cross-subsidisation becomes very hard to sustain. (see for example http://www.tangiblelondon.co.uk/LuciansBlog/index.php/archives/427)<br /><br />As platforms and product supermarkets slowly take over the retail financial services sector, the information content in the market goes up, and cross-subsidisation will become harder to sustain.<br /><br />The answer is probably not to ditch 80% of your capability and client base though, but to restructure your business (process improcement, segmentation, etc.) into a more profitable place. :-)<br /><br />Of course, a related concept is that of business development, where you take on a client who is not profitable with a view to growing the relationship until they are profitable. This is cross-subsidisation across time for a single client, rather than cross-subsidisation at a point in time across many clients. That can also work, provided you have a clear process for understanding the trajectory of the client towards profitability, and know when to cut your losses and move on.Chrishttp://www.chriscfox.comnoreply@blogger.comtag:blogger.com,1999:blog-4073374429670892152.post-54711499777605752462011-06-21T11:55:25.529+01:002011-06-21T11:55:25.529+01:00Couldn't agree more with your main argument, C...Couldn't agree more with your main argument, Chris, but not so sure about the specific point on cross-subsidy. In my experience of over 30 years working in marketing services agencies, cross-subsidy has always been the norm - to the extent that at one agency it was famously (and truthfully) said that one large account was responsible for 120% of the agency's profit. There are plenty of good reasons why this is a necessary and even advantageous state of affairs - ranging from hard business reasons, like the economies of scale that result from maintaining certain levels of volume, through to more qualitative human reasons, like the fact that your best staff may stay with you because they enjoy the opportunity to work on satisfying but unprofitable accounts. <br /><br />Once, an agency where I was working was instructed by its head office to prepare a plan to increase margins to 25% immediately. It sent back a plan which involved resigning 80% of its business and firing 80% of its people. Head office promptly withdrew the plan.Lucian Camphttp://www.luciancampconsulting.comnoreply@blogger.com