Strategic Insights 19
QUESTIONS ABOUT CUSTOMER NICHONOMICS
If the bulk of your firm’s sales
come from selling price-sensitive, commodity products, then is your differentiator:
“service value”? If so, do you let the customer define what “distinctively,
rewardingly valuable service” is? Wouldn’t the “service value equation”
(metrics) vary – starting with different arrays of one-stop-shop SKUs – for
each customer-niche you target? And, what are the customer size boundaries for
a given “Cost-to-Serve (CTS), Selling/Service Model”?
If you measure service generically
for all customers, don’t you risk having “good” service for most niches and “rewardingly
best” for none? Many customers will then use “price” as a tie-breaker between
two or more “good” service-and-people suppliers. They aren’t pure-price buyers.
They may use prices from poor-service firms to pressure the good ones. Without
a best-total-value proposition, they want:
To avoid poor-service
costs that exceed price savings from weakest suppliers;
To keep the few
best suppliers hungry and quoting to the bottom; and,
To get “good
service” AND measurable price savings.
THE SOLUTION FOR PROFITLESS
How do you, niche-by-niche, achieve
Best Service Value (BSV) performed at the Lowest, Cost-To-Serve (LCTS) to enjoy
Highest Profit Before Interest & Taxes (HPBIT) on a sustainable basis? Is the “value equation”, BSV – LCTS = HPBIT,
possible? Yes, through focus, fit and share of customer niche. In sport, decathletes
lose to event specialists. In free markets, customers within a niche (event) will
reward the best-value supplier (specialist) with 50-80% of the profit pool or
“gold”. #2 will get 20%+ (or “silver”) and the rest get breakeven or losses. Niche-focused
Highest service value
share of all customers within a niche.
within the niche.
growth that is all very profitable as a by-product.
QUESTIONS TO PONDER
As you proceed
down a given distribution center’s customer-net-profitability ranking report,
what appears to be the branch’s, historic, #1, most “net-profitable” niche of
prospective niche, the top 2+ most profitable customers represent how many more,
similar customers down the ranking report or under-sold in the marketplace?
How do you define
the boundaries for what customers are in or out of a specific niche using
discriminators like: industry segment; selling service-model cost; annual
margin-dollar potential range; common items bought; and buying
If you ranked
all of the items that a niche-group of active customers bought, how many items
were bought by 2 or more of these customers? Are these most popular items, net-profitable
How can you tune
fill-rates higher on the profitable items?
What will higher
fill-rates do for:
customer’s average, order-size and service satisfaction? (up)
frequency and costs? (down)
sales that mislead item-demand forecasting? (down)
shipments and costs? (down)
service pride and confidence? (up)
margin dollar flow through to the bottom line? (way up)
Who is in charge
of measuring and managing the fill-rate economics in #6 above? What type of
analytic-tracking-report capability do they have? What type of net-profit
development incentive at both the SKU and supply-line level?
What are the
popular, net-profit losing items? What few customers are buying them constantly
with whom you could co-create a win-win, “precision supply chain solution”?
fill-rates, what are the other “service value metrics” that you can co-determine
by interviewing a few, key, representative customers within each target niche?
10. How do we measure and improve these metrics
internally to a distinctively, best-value level?
11. Can you learn and then sell/teach customers how our
service value equation:
Lowers the 11
elements of their “total procurement cost”?
“uptime” of the people who must use our products on a timely basis?
customers’ satisfaction-retention-referral economics?
12. How stunningly profitable and unprofitable are the
niche’s customers at the extremes of the net-profit ranking report?
13. If your total team did a few extra things for the 5
most – profitable, unprofitable and potential upside – customers, what is the
net-profit-improvement upside potential?
14. Large, progressive customers are trending towards
buying commodities at a “lower, total, supply-chain cost”. Are you creating and
selling the “service value-chain solutions” that they are looking for?
15. Could customer-niche-centric action – double your
sales and quadruple your profits – within your best, historic, niches?
16. What are your dated financial, product pushing
assumptions that keep the team from seeing and thinking about customer-niche,
service value economics?
17. How can you convert these questions into actionable
Contact me and/or attend the Advanced Profit Management Conference in Phoenix.
All previous Strategic
Insights are posted at www.merrifield.com/Insights.