ASSIGNMENT FOR WEEK 4: Measure, Rank Customers By Profitability and Then Do What?

To refocus on and revive the "core business" within a mature industry company, we have to know where we make our best and most profits. Chapter One suggested that if you make or distribute substantially mature products that end-users see as commodities, then perhaps we are generating more of our profit power from our best customers rather than our commodity products. How do we quickly and pragmatically determine who our most profitable customers are? If we could know our biggest winners and losers, then what (new?) profit improvement tactics could we pursue with more strategic focus? To start finding answers to these questions, please read:

  1. The annotated slide show at my web site at this link: ./articles/Identify_Customer_Niches.pdf.
  2. To boil all that you have read about (in the first three weeks plus the slide show above) into a practical monthly exercise for anyone in your company who is in charge of growing profits from a base of customers consider creating the 5/5/5 report touched on in point 7 in the short article at this link: ./articles/2_20.asp.
  3. Because more of you work for manufacturers than distributors, you might want to consider more complicated methods of "activity based costing" applied to customer profitability (as opposed to determining product profitability). The only source that I could find on the net that was simple, but named and illustrated 6 levels of analysis that you might pursue is a PDF file for which the link is below. This promotional piece is about 5 pages of stuff spread over 43 with big print and empty pages along the way (to discourage you from printing it out, I suspect). But, it gets across the idea that you can do ever more complicated levels of analysis to achieve higher levels of certainty about who is profitable/unprofitable and by how much. They also remind you to consider the cost/benefit trade-offs of getting too complicated. Here's the link to skim through:

Here are discussion questions for all of you to consider and post some answers:

  1. What keeps your organization from identifying the most profitable (or effective/efficient customers for charities and Army efforts) and the biggest losers (most inefficient, abusive)?
  2. If you did ranking reports, which of the seven plays summarized in slides 7 and 8 in my annotated slide show do you think you could sell your company on doing? Or doing better if they are "already doing that"? What additional help or understanding could you use to pursue your best opportunity?

End of Assignment for Week 4



ASSIGNMENT FOR WEEK 5: Re-defining the Total Service Product for Each Customer Niche

Revisit slide #7 in last week's slide show assignment at the link below and realize how much art there is in both step 2 - listening to what customers really value and will pay for within a given niche; and in step 4 - changing your company's service delivery capabilities. Here is the link to get to slide 7: ./articles/Identify_Customer_Niches.pdf.

Because every organization claims to listen to the customer and give them what they want, it is obvious that some both listen and execute a revamping of their organization capabilities better than others. This week let's focus on how should we listen to the customer better to find out their less obvious, but most valued unmet needs. As some background reading for this challenge, please read the following:

  1. Skim article 1.5 on my site to get the big picture about "Re-organizing Around the Customer". This article will be a bit of a review of many of the ideas that you have already encountered in past assignments, but "repetition is the mother of learning". (Who said that, if no one can name anyone, can I start to take credit for it?) Here's the link: ./articles/1_5.asp.
  2. Read article 3.1 entitled "How to Define Perfect Service" at this link: ./articles/3_1.asp.
  3. Read article 3.5 entitled: "Earn High Returns with Heroic Recoveries" at this link: ./articles/3_5.asp.
  4. Check out this exhibit which details "8 elements of service excellence" and how they both benefit the distribution company and lower the customers' TPC buying activity.
  5. ./exhibits/8elements.pdf.
  6. Skim through my annotated slide show on "Services for Fees", because as we listen to customers we will find that there are extra services that we could do them, but the profit/transaction flow from all customers will not support all (extra) services. So, we will have to segment customers and serve them differently. The very best will get extras for free and the smallest, most expensive will not get some traditional basic services except for perhaps a fee. Just like the banks have been doing to all of us with their 7 to 15 stratifications for consumers. Here's the link: ./articles/Fees_for_Services_slides.pdf.

All of these readings will help to tune the mind and ear to what customers may be trying to tell us, but we must still have an open-mind as we ask them to walk us through their entire customer activity process looking for pain and frustration points as well as looking at their measurable outcomes for productivity, total cost containment, and better value for their customer. Can we find new needs that we might be able to address in some way to win more margin than what the service solution might cost us?

As usual, the study questions are all about you and your needs. What in these readings and in this management challenge area - listening to customers for their true, complete needs - speaks to you and your personal/company reality? What did you find most helpful? What topics or angles would you like more information on? How can I, or the class, help you and your company to do a better job in this area?

End of Assignment for Week 5


Bruce Merrifield

Merrifield Consulting Group, Inc.

101 Black Oak Place

Chapel Hill, NC 27517