164. Cool Digital Tools Aren’t A Profit-Growth Strategy

2020 Companies, Big Data, Core Renewal, Distribution Strategy, Index, Service Value Innovation Guidelines, Supply Chain Partners, WayPoint Analytics

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 their buying journey pain-points to remove with digital solutions.    

Here are two contrasting case studies. Which one is a focused, profitable-growth strategy?

Case One: Great Web Site for All

A huge distribution chain invests millions into an award-winning, web-selling site. Active accounts double. Margin dollars increase by 5%, and warehouse orders increased by 25%.

The distributor subsequently subscribes to a Customer Profitability Analytics (CPA) cloud-service. Shocking revelation: the Web Division is hugely net un-profitable. The web-division leader goes crazy. “The model is flawed; etc.” (Reinvent the model to show that we are profitable.)  

Questions:

  1. Does this distributor have web, fulfillment, and delivery costs as low as Amazon?
  2. Doesn’t Amazon lose on many small orders even with lower costs? But, AMZ does have profitable offsets that the distributor does not! Think: clickstream data (+) machine learning (+) AI which enables: up/cross-selling, targeted email promotions, selling of dynamic precision ads to resellers/brands, etc.
  3. What is the opportunity cost for the distributor’s resource investment in web selling to all?
  4. What if they had put those resources into creating better, digital experiences/benefits for their most net-profitable customers?

Case Two: Key-Account, Digital Solutions First

A distributor using the same Customer Profitability Analytics (CPA) service discovers that:

  1. 3% of their customers (all in the same niche) generate a massive percent of the company’s net profit. Although the niche has the lowest average margin-percentage for warehouse business, their average order is $8000. And, the goods are typically pre-sold when they arrive at the warehouse to be shipped immediately to the customers.
  2. A CEO-led team visits the five best customers in the niche to search for new needs. They all buy misc. SKUs from multiple vendors with lots of attendant paperwork.
  3. Solution: the distributor designs and installs an on-premise storage system. Replenishing all misc. SKU-needs is now fast with lower stockout, downtime and emergency order costs. The orders feed into each customer’s semi-customized, reorder-page at the distributor’s web site. Operating profits for the niche increase 50% in one year for a huge ROI.

Recommendations: Find digital solutions for your monster net-profit accounts first. And, don’t pursue retail-sized customers and orders with a distributor’s, fulfillment cost-structure.  

*Part A of several case study comparisons.