Monthly Archives: September 2019

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 .

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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.