Monthly Archives: September 2019

168. Status-Quo Cultures v. Imperative Change

Distributors’ Big-Change Challenges

Amazon is teaching everyone to want an increasingly better “e-buying-journey”. Because AMZ is corralling next-gen, B2B buyers’ searches, manufacturers are scrambling to create Omnichannel solutions for B2B e-buyers. How will distributors change to accommodate both the new needs of customers and suppliers?   

Distributors’ standard service-bundle (including outside and inside sales overhead) will be pressured into un-bundling and then re-bundling in multiple ways. To do this, distributors will need to know their service-activity costs on an a la carte basis and have a data-driven culture of innovation.

What? Why?    

With a cost-to-serve model distributors can do a two-step transformation:  

  1. Identify the big net-profit and net-loss cross-subsidies that hide within aggregated financial numbers.
  2. Then, feed the winners and fix the losers to boost both their profits, and the courage needed to invent new business models.  

By knowing the a la carte costs for each service activity, distributors will have 3PL-type flexibility. For key accounts, distributors can co-design customized replenishment systems and then e-integrate them. How customer-centric!    

Getting best net-profit analytics is the easy part. (Contact me for a virtual session on this). The tough part is acting on new insights to first get super-profitable, to enable digital business-model innovations.   

“MY VETERANS WON’T CHANGE”

If culture is: “the way we do things around here”, (as well as the get-along, go-along standards that we have accepted for too long). Then, most distributors have too many “set in their ways” associates who will resist any real change. What to do?

New Department Takes Non-Invasive, Small, But High-Impact Steps

Net-profit analytics (at the line-item level) allows you to zero-in on one, best, focused experiment at a time. To execute: set up a stand-alone “Innovation Department” with a “champion of change” to secure targeted wins. Trumpet wins to induce the next-most ambitious employees to bid for “Innovation-Department” help. Change the culture one person/department/territory/branch at a time. Hardcore resistors will feel increasing peer pressure to embrace growth and change or leave. Why should a few entitled associates be allowed to sit in the company boat and watch everyone else row them to greater prosperity?

For More How-To’s:

Check out these two bite-size blog posts:

For the big burrito, going into much greater detail, request my Core Renewal Roadmap by email: bruce@merrifield.com

And, follow my curated posts (with commentary) on LinkedIn to track the on-rushing B2B, cloud ecommerce opportunities. Click HERE or search for: D. Bruce Merrifield, Jr.

166. Digital Tools Aren’t A Profit-Growth Strategy (Part C)

Two Digital Selling Tool Paths:

  • Get a big, cool, web-selling site for both new and old customers.
  • Visit your most net-profitable customers to identify pain-points that can be reduced by applying off-the-shelf digital tools.

Case Question: How to Web-Sell Small, Losing-Accounts v. Profit Giants?

A one-location, $10MM distributor (packaging, jan-san) subscribes to a cloud Customer Profitability Analytics (CPA) service. They decided to segment customers by net-profitability, and digitally resell them accordingly. Here is what they did for two very different customer segments.     

Small Losing Accounts were 50% of the 1000 active accounts. They totaled 5% of margin dollars, but 21% of all orders. The segment’s service costs far exceeded the margin dollars for a big loss. The distributor’s fulfillment, process-cost structure is incorrigibly high v Amazon’s. They can’t make a profit on retail-sized orders at wholesale, list-pricing-plus and free freight.     

Solution? They created a “Small Account Division” with its own P & L and announced these new terms:   

  • Increased prices and a higher minimum order requirement.
  • Unbundled delivery charge.

Plus, these new, order-entry and order-size incentives:

  1. Minimum order size drops IF a customer enters an order via the web using a credit card.  
  2. The delivery charge stair-steps down to zero as the order size increases above the minimum.
  3. Then, by continuing to build the order even higher, additional price discounts/savings can be earned.  
  4. For order-building ideas, two SKU-suggestion lists were made available: A) Previously bought SKUs; and B) top 20 most-popular SKUs.   

Results? 10% of the customers left, but the new division became profitable.

Profit Giants’ Facts:

The top 20 most net-profitable accounts yield over 100% of the operating profits. (The company’s customer cross-subsidy stats: the top 30% accounts yield 140% of profits; bottom 70% lose 40%; so, 100% yields 100%.)  

Another 20 target accounts could potentially match the best-accounts’ profits. The entire organization is now refocusing extra efforts on the combined 40 accounts.  

How to e-sell these accounts better? Ask them! A comprehensive survey yielded a grid of opportunities including semi-customized e-integration solutions for each.

Because the company knows its unbundled service-activity costs (as does a 3PL firm), they – as an experiment – asked some target accounts:

“Would you be interested to compare your current, supplier-replenishment system(s) with one from us that starts with our open-book costs, and adds fees for your selected, unbundled services with maximum e-integration?”

80% said “Yes!”.

Conclusion: Get Customer Profitability Analytics and E-sell customer segments differently.

*This is the third and last of a series. The first two are my last two blogs at www.merrifieldact2.com .

CALLING ALL WAYPOINT USERS: It’s time to earn your analytics black belt. Join us November 6th & 7th in Old Town Scottsdale for a 2 day, dual-track training event to refine your data analysis skills, and maximize the competitive advantage that WayPoint gives you. CLICK HERE to take advantage of this great opportunity. Not yet a WayPoint customer? request a free demo HERE.

165. Cool Digital Tools Aren’t A Profit-Growth Strategy (Part B)

Two Digital-Selling-Tool Paths

  • Invest in better digital-selling tools for all customers to (hopefully) use. 
  • Visit your most net-profitable customers to identify pain-points that can be reduced by applying off-the-shelf, digital tools. These may be one-off, custom solutions. Or, the solution may work with modifications for other same niche-need big customers. 

Consider these two contrasting case studies. Which path is a focused, profitable-growth strategy?

Case One: An APP for All

Consumers are besieged with APP offers. So, a contractor-supply distributor creates an APP that does two things: placing orders via your mobile phone, and getting fast delivery (options) from an Uber-type delivery partner. Results were weak. Why? The CEO wasn’t sure (yet).

My Questions to the CEO:

#1. For upfront customer research. What criteria were used to identify and visit 3-5 accounts most apt to use the APP? Then, did you brainstorm with them about:

  • How valuable this APP might be and why specifically?
  • For what percent of job scenarios would the delivery option be most beneficial?
  • What extra fee would the contractor pay for different delivery response times? 
  • If the prospects were excited, how could the APP be further improved? 

*Remember to be open to serendipitous insights*

#2. Post-mortem questions about APP 1.0 to a broader group of visited accounts:

  • How did you hear, (if you did), about the APP and its intended benefits?
  • Why did you not use it?
  • Is there any value within this ideaspace that can be re-developed? 
  • If an APP 2.0 has more promise, what additional marketing/education will be needed for wider adoption?

The team had done negligible pre and post-APP launch market research. (Will APP 2.0 happen? Stay tuned to future blogs.)  

CASE TWO: An App For One, Mongo Customer

The CEO of another contractor-supply distributor called on a huge account to explore buying-process “friction” possibilities. The customer had a niche doing a few standard jobs in big-contract quantities. Each job needed a fixed kit of SKUs with occasional tweaks. The two honchos oversaw the co-creation of a custom APP with order buttons for the standard kits. The contractor CEO insisted that everyone use the APP. Sales to the customer doubled and both parties realized other economic benefits.  

Bottom Line: Find and co-create digital solutions with best customers first.  

*Second of several case study comparisons.