A case study of an engineering company suffering from a lack of focus on higher value customers
This company had over 1000 accounts on its books but only 500 were “active.” In addition the sales force spent the majority of its time dealing with low value, low profit orders.
With only 500 active accounts out of 1000 it was clear that many customers did not come back to the company for repeat business but it was equally clear that the company did not know why. The analysis dealt with these two areas separately. A straw poll of the inactive customers indicated a number of issues only some of which could be dealt with in this project. But the most significant was product availability.
Of the 500 active accounts the analysis showed that approximately 30% of these accounts produced 90% of the business. Further analysis showed that the sales force had fallen into the trap of visiting small value, ‘easy’ accounts, producing low returns. In fact over 70% of visits by the sales force were to these small accounts producing just 10% of the overall company turnover.
To reorient the sales force to use its time more productively and to ensure that relationships with the most important customers were not ignored a process of market segmentation was developed. Markets can be segmented in a variety of ways depending on the client’s strengths and strategy. Every customer was allocated two codes; one for the market they operated in and one for the potential for the client’s products. This was to allow the company to focus on what it saw as its growth markets and to also focus on the better potentials within that market. Each customer was assessed on not only the amount of business currently being undertaken annually but also on the amount of business being done with competitors and future estimated growth. These figures added together produced a total available potential figure, which was then banded into one of 4 categories, A, B, C, D with A being the highest value and D the lowest potential.
This was plotted on the chart as shown to identify the weaknesses in coverage and development. (The x- axis represents the number of customers in each band while the y-axis represents the value of those customers.)
It was clear then that each band needed to be addressed in a different way to maximize effective customer contact whilst maintaining the cost effective approach of the sales force.
The solution adopted was to use the field sales force to develop better relationships with category A & B customers and use the Internal Sales force to maintain regular contact with category C. At the request of the Internal sales a sales person from the field could visit a C category customer to clarify or develop a project.
Over a period of time D category customers, including those that were inactive, were migrated to the Distribution Channel who could handle the requirements of this group much more cost effectively than the client.
Activity with higher value accounts (A&B categories) more than doubled in the first year and increased by a further 50% in the second year. In addition the quality of relationships with these customers improved dramatically with a further 26 A &B customers falling into the ‘Good’ or better category (from ‘Weak’). Average order value increased and access to projects at an earlier stage (vital in specification work) was achieved.
As a by-product sales force motivation was improved due to an increased perception of self worth and job satisfaction.