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:
- Minimum order size drops IF a customer enters an order via the web using a credit card.
- The delivery charge stair-steps down to zero as the order size increases above the minimum.
- Then, by continuing to build the order even higher, additional price discounts/savings can be earned.
- 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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