www.quantumprofitmanagement.com Quantum Profit Management
How Customer Segmentation Unlocks Hidden Profits

Bruce Merrifield, President — Merrifield Consulting

•competitive strategy •WayPoint Analytics •whale curves •market segmentation •big data •product Line •profit strategy •Wholesale Distribution Industry •new opportunities for distribution industry •business math for distribution •wholesale distribution basic math •business model •segmentation

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What do your best accounts have in common? In this video interview, Bruce Merrifield and Randy MacLean discuss the importance of customer segmentation and the insights it can offer your company.

Customer segmentation is a valuable management tactic. By grouping together similar customers, segmentation allows you to discover general insights shared by that group so you can develop programs and offerings geared to groups rather than individual companies. It's an important piece when shifting to a more customer-centric approach.

"Most distributors grew up being very product-centric," Bruce explained. "The goal of the old days was to get an exclusive franchise so the manufacturer would protect us and we would protect them."

"Nowadays manufacturers sell to everybody which puts more power in the hands of the consumer," Bruce said. "As a result, distributors need to adopt a much more customer-centric approach. One of your goals is to find ways to get more business from your best customers."

"By following this approach, sales goes from being the engine to the caboose," Bruce explained. "You're growing your sales by capturing a larger share of your best accounts. It's all about looking at the customers you have and identifying additional opportunities for profits."

In the video, Bruce presents a case where a WayPoint client with over 4,000 active accounts used a whale curve to identify their most profitable customers. The customers in their most profitable segment were very high volume accounts where the distributor believed that the activity was either break-even or incremental profit given the relatively low profit margins.

However, the order volume from these accounts was large enough that it completely overcame the cost-to-serve and a large amount of the distributor's operating profit came from these 150 accounts. The client called on several of these customers and, as a result of their audit, they discovered that the accounts were ordering a lot of other things that they carried.

The client then helped some of those customers with their reordering systems to streamline the process and picked up a substantial amount of new business. They were also able to use the information they learned about these customers to pick up 7 more accounts just like them and have doubled the profitability from this niche.

Meanwhile, the client realized that the customers they had assumed were their best – small, self-employed mom & pop companies with a very high margin – were actually in their worst segment. They then worked to reform this part of the business.

Customer segmentation is an incredible tactic when it comes to focusing your company's efforts. The whale curve is great for identifying your most profitable and unprofitable accounts while segmentation helps you figure out how to make them more profitable.

For more information about Bruce Merrifield, visit: www.merrifieldact2.com

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