Bruce Merrifield, President — Merrifield Consulting
•competitive strategy •distribution management best practices •leadership training •business model
Monday, April 03, 2017—A Two Step Strategy for Being Number One
In this video, Bruce Merrifield, Vice President of WayPoint Analytics, turns the tables on Waypoint President Randy MacLean, and asks Randy to strategize on how to beat the competition.
Bruce plays the role of an established distribution company that has been very successful for a long time and strives to please every customer. So how does Randy use analytics to win business away from Bruce and increase profits?
The first step is to know your company's whale curve. Every company has a whale curve, even those that don't know it. Randy knows the whale curve shows how profits are supported by super profitable customers on the left side, and how profits are drained at the other end by money-losing customers. In the middle are the customers who have no real effect on the bottom line.
The other bit of data that Randy knows is the cost structure for the customer. He knows this because he has already worked with and traded these customers before. But, now he understands the numbers.
Randy's plan is to first take Bruce's profit away, leaving him with low or no cash flow. The best way to do this is to poach two or three of Bruce's top customers. Because Bruce operates under the assumption that margin equals profit, all Randy has to do is come in with a margin that covers his cost-to-serve rate. He knows that Bruce has no idea how low he can go on margin, and he knows Bruce will never go too low because he thinks he is cutting into profit.
Randy knows that margin percentage has nothing to do with profit.
The second thing Randy can do is to allow some of his profit draining accounts to flow over to Bruce. Because Randy has already replaced the cash flow with one of Bruce's best accounts, he can afford to give up the losers.
What happens is that Bruce gets super busy with new accounts, thinking he is gaining all this new business, but there will be no margin dollars. If Bruce decides to take a hard look at the numbers, he may catch on. But, by then, it will be too late.
For more information about Bruce Merrifield, visit: www.merrifieldact2.com
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