One Size Fits All? Segmenting Customer Base for Maximum Returns

Large corporations can achieve significant cost savings by developing and employing a sophisticated and continuously updated, billing and credit policy. Days of sale outstanding (DSO) is a major cost driver for corporations with large revenues, as this leads to an increased risk of default, increased dunning and collection costs, a non-optimal billing procedure with attendant costs and perhaps most importantly, an increase in the order-to-cash cycle time and the significant increase in hidden costs this implies. Segmentation of the customer base according to behavior and risk combined with the design of bespoke billing and credit policies suited to the behavior and risk associated with each segment, can lead to a significant decrease in the costs mentioned above. This paper illustrates the work done at Norway’s largest telecommunication operator, Telenor, to address these issues using the continuous simulation methodology as well as other econometric tools.