"Customer stratification" may sound like an odd idea in a climate where any paying customer is a good customer. Still, the sales force has at least two issues to deal with: First, who do I call on that will give me an order and pay for it? Second, who should I be calling on, it's one thing to get an order and be paid for it, but has the company made money? Customer stratification answers these questions and many other ones. Customer stratification measures how much business a customer does with us (sales), how profitable they are in gross margins, how loyal they are, and how costly they are to serve (to protect net margins). Each of these dimensions has a bearing on the sales force's questions. Without the right analysis, the sales force can make decisions about who to spend time with and give services based on their perspective of the customer relationship.
This Customer Stratification Webinar video is from the Proformative webainar "Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits" held on October 9, 2012. The webinar features presentations from F. Barry Lawrence, Ph.D., Program Director, Industrial Distribution Program, Texas A&M University and John Mansfield, Vice President Business Development, Graybar Electric.
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Using Customer Stratification and Cost to Serve Information in Your Sales Efforts to Maximize Profits
1. THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS
Dr. Barry Lawrence PhD, Texas A&M
John Mansfield, Vice President Business
Development, Graybar
25. John Mansfield
VP Business
Development
Dennis Shaw
Director
Financial
Analysis
Asa Goldkamp
Marketing
Specialist
Byron Bennett
Sr. Business
Technology
Analyst
Dream
Dream
Team
Team
Mark Rog
Branch
Manager
Najam Chohan
Area Financial
Manager
Susan Reale
Director
Operations
27. Core,
Opportunistic,
Service Drain,
Marginal
Customer
Lifetime
Value
Net Profit
Customer
Buying Power
Loyalty
Cost To Serve
(CTS)
Profitability
Sales $,
Product Line
Penetration
Hits, Trend,
Order pattern
7 Factors
GM% and
GM$
Customer Stratification: Best Practices for Boosting Profitability, F. Barry Lawrence, Ph.D., Pradip Krishnadevarajan, Senthil Gunasekaran, Copyright 2011 by the NAW Institute for Distribution Excellence
28. COST TO SERVE (CTS)
PROFITABILITY
Factor
No. Lines
Net Profit
50%
50%
50%
50%
BUYING POWER
Factor
50%
Weight
Sales $
50%
Product Lines
25%
# Items
25%
50%
Customer Lifetime
Value
18%
11%
14%
4%
Delivery
GM %
50%
21%
Will Call
50%
25%
C & D items
GM $
Days to Pay
Order Size
Weight
Weight
Returns
Factor
7%
CUSTOMER LOYALTY
Factor
Weight
Orders
35%
Consistency
35%
Trend
30%
Customer Stratification: Best Practices for Boosting Profitability, F. Barry Lawrence, Ph.D., Pradip Krishnadevarajan, Senthil Gunasekaran, Copyright 2011 by the NAW Institute for Distribution Excellence
53. Please join us at www.proformative.com to ask any
additional questions you may have and to continue this
conversation with your peers and the experts you heard
from today.
Notas do Editor
There are many benefits that distributors experience from customer stratification, but these are some of the key gains are: Inventory – helps you maintain or increase service levels for key customers while reducing/redeploying inventoryPricing – helps you price customers based on opportunities and the cost-to-serve associated with each customersNegotiation – if a sales person has information about the characteristics of the customer with respect to other customers, they will be better positions to make judicious decisionsSales Force – sales time is scarce; knowing who the key customers are allows sales reps to better focus their time; and allows managers to make sure we have the best sales people calling on our most important customersCompensation – allows distributors to have information that could establish compensation plans that align sales force objectives with company objectivesGrowth – creates a process to guide development of strategies to identify and capture new product or end-market opportunitiesMarketing – allows allocation of marketing budgets judiciously across customer types by media type with a higher ROI
Once we know the final Customer Lifetime Value and Net Profit rank, a ranking matrix is then used to assign a final customer type to each customer. This creates four types, with four tiers within each type, to give a total of 16 different groups.So for instance, a customer ranked A on both Net Profit and Customer Lifetime Value would be AA, a top-tier core customer, while one ranked BB would still be a core customer, but a lower-tier core customer.Each of these tiers is important, because as we present the data, it will provide more actionable information for the sales force and management. The next core customers are most likely to come from the borderline quadrants. There are 100 variables included in the final model, making it extremely comprehensive, yet relatively easy to implement within our system.Customer stratification provides Graybar a measurable scale of customer importance that is connected directly to shareholder value.
There are numerous ways to use customer stratification to make better decisions involving customers directly or indirectly. There are six key areas that the Customer Stratification team is concentrating our efforts on as shown here.The team will develop a playbook for each customer type, with strategies around each of these areas.