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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