Lollapalooza Effect: (A Charlie Munger term) When multiple cognitive biases reinforce one another within a group, irrational beliefs will take over.   

THE PROBLEM WITH SMALL CUSTOMERS WITH UNPROFITABLE, AVERAGE-ORDER SIZES

When distributors create a Cost-to-ServE (CTS) model to estimate and rank customers by net-profitability, there are typically two, customer-group shocks:

FINANCIAL TACTICS AND SERVICE METRICS TO WIN NET-PROFITABLE CUSTOMERS  

Financial KPIs urge: “try harder, be cost efficient”. Good stuff. But, what are your analytics to achieve unique service-value capabilities which win and keep big, targeted, net-profitable accounts that average higher margin dollars per order than their average service-cost per order?  And, do they keep and motivate best-service-ethic people to:

• Achieve the service-metric goals for the target accounts? 
• Cure root causes for net-unprofitable customers and SKUs?

THEMES BEHIND MY BLOGS?

This note is one of 130 blogs posted at www.merrifieldact2.com. A big underlying theme for these postcards has been “inventing analytics to better measure and manage true causes of Profit-Power”.  

I’ve rotated through sub-topics (or lenses) including:

1. Finance. What are the dysfunctional financial-management assumptions and blind spots that plague many distributors? 
2. Profit-Equation Management (or order-size economics). You make money at the line, order and customer level when: Margin Dollars minus Cost-To-Serve Dollars equals Positive Profit Dollars. Most distributors vastly underestimate their losing customers, SKUs, and Sales Territories – all of which have losing Profit Equations. Building a cost-to-serve model is not hard. What is? Giving up old beliefs that all customers and gross-profit dollars are all equally good. 
3. Customer (and SKU) Profitability Ranking Reports. By creatively focusing on the top/best and bottom/worst 5% of these reports, huge profit improvements are possible.
4. Field research to discern next-level, service metrics for most net-profitable customers and customer niches (“nichonomics”).  Distributors who do this kill those who don’t.  
5. High-Performance, Service Cultures to attract, engage, and focus talent needed to turn insights (from topics 2-4) into better service-value and profits.
6. Key, defining capabilities that customers reward and no other competitors have. Topics 1-5 create these capabilities which win profitable order-streams from best customers. Then, all financial numbers (which are downstream, aggregated, averaged-out symptoms) improve.  
7. Envisioning Omnichannel Cloud Commerce circa 2021. Do you have the analytics to inform and enable your digital transformation strategies? Topics 1-6 provide the profits, agility, and confidence to change to win in 2021.  

AN E-BOOK OF MY BLOGS?

Would an E-book that re-sorts my blogs into sub-topics with additional comments and discussion questions be useful? If YES, let me know: bruce@merrifield.com