On January 18, 2018, after 10 years of development, Nestlé rolled out Ruby chocolate KitKats in Korea and Japan, just in time for Valentine’s day. The pink KitKat, made from the Ruby cocoa bean, will make premium a line that has hundreds of flavors, including green tea and strawberry.
Asian distributors will race to be the first to market with the pink KitKat, but will greater consumption of the KitKat line result? What sustainable edge and profits will distributors get from Nestlé’s promotional bribes and intensive distribution policy?
In 2018, how many U.S. distributors, across channels, will be also racing to market with new micro-niche products within non-exclusive lines? And, for what sustainable gains?
Another Option: Better service value to key accounts
Here’s a case study that shows another approach. One that may be more realistic for a majority of distributors.
A distributor with 2017 sales of $18MM and operating profit of $300K (1.67 %) recently subscribed to a Customer Profitability Analytics (CPA) cloud service (www.waypointanalytics.net). The service gave them new insights into their most profitable customer segments. They found that their most profitable segments accounted for:
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- 5% of all customers
- $6MM in sales
- $1.3MM in profit
- The top 8 customers yielded $1MM of the segment’s profits
- The bottom 2 lost ($130K)
In addition, they discovered that 28% of all accounts generated profits of $3.2MM to pay for the $2.9MM in losses from the other 72%. They also just discovered big cross-subsidy opportunities.
Thoughts about this (and your) #1 niche
What can you take away from their learning? There are many questions you can be asking about your own business. First, losing a top-10 profitable account would hurt. So, how can you better keep them, get more share of their business and lower replenishment costs for both parties?
What are the root causes for the big profit/loss differences in the top and bottom of your big accounts? To find out, take a visit to the top six and the bottom two customer locations to investigate the efficiency of and upside effectiveness potential for replenishment and utilization processes. You can also look for more precise service metrics and potential extra services that are common to the niche.
Who will do this research? And, could your company execute on new research findings? Other distributors, who have used CPA, can claim typical success story results of a 50% to 100% increase in niche sales and more in profits. And, that’s just in year one!
The most important question may be: What if a competitor did this drill on your #1 niche first?
Can you make this happen at your firm? Or, are you too busy doing routine activities like product promotions on non-exclusive vendors’ so-called new stuff or servicing losing orders from a sea of losing, minnow customers?
Conclusions
Reinvent your service value for your most profitable customers and niches. You will grow sales, profits and rebates far more than with new, commodity roll-outs. To learn more on niche domination, request my “Roadmap” via email at bruce@merrifield.com.