186. C-19 Competitor Consolidations?

Too Many Players for a Collapsing Demand?

Imagine being a distributor in Houston today serving the oil & gas frackers. Boom! Demand collapse!
A less-severe, boom-bust scenario happened in Houston from ’71 to ’85. Oil prices per barrel inflation-adjusted for today: $22.94 in ‘71. Peaked at $117.30 in ‘80. Then, bottomed at $33.97 in ’86.

During the boom – from ’71 to ’80 – the number of similar distributors servicing the oil industry increased from four to ten. Two of the entrants were indie startups; four were new branches opened by chains.

In ’85, one indie called me about what to do. We agreed that a magic solution would be to consolidate 3 to 4 of the existing players: a cat-herding challenge! The CEO sent a letter to all 9 counterparts stating the consolidation facts. He offered to be a – buyer, seller or merger – candidate depending on the math. Negotiations started with 5 of the 9.

Three Lenses: Financials; Customer Net-Profitability; and Rep Loyalties

I advised all players to do good-enough, customer-profitability rankings (with customer names blanked out). I promised that this new lens would spark creative options. The steps:

  1. Calculate the company’s overall average – sales, gross-margin-dollars, expense-dollars and profit-dollars – per invoice.
  2. Rank all customers by their average gross-profit-dollars per invoice (with total invoices alongside).
  3. Look for win-win scenarios built around most net-profitable customers.

Result Highlights:

  1. Four indies merged into one.
  2. One declared bankruptcy first. The start-up guy had too much debt, but 5, very, net-profitable accounts loyal to him. He became a rep at the new firm: making three times more; working a third as much; with no operational headaches.
  3. The other principals also cherry-picked their most net-profitable accounts to personally serve.
  4. Only four of the best, full-time reps (out of 15 total) were assigned to the remaining best, profitable accounts. All made more than before with better upside territories.
  5. An aggressive small, losing-customer program was executed.
  6. For ’88, the blended firm had: twice the sales; great profits; with one-third of the initial pooled accounts.
  7. This – downsize, upgrade, refocus and renew – scenario is only possible with customer net-profitability insights. Why buy a zombie competitor in total when a few key accounts are the only worthwhile gems for both parties?

C-19, Demand-Shock in Your Marketspace?

Consider doing a semi, open-kimono exploration with competitors using customer net-profitability. But, first get Net-Profit Analytics (NPA) savvy by checking out my 11, new webinars!

Here’s the webinar landing page for more information:
eCommerce 2023 webinar series

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