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Distributor's Link Magazine Spring 2021 / Vol 44 No 2


52 THE DISTRIBUTOR’S LINK Nelson Valderrama Nelson Valderrama is the CEO of Intuilize, a software Service platform that specializes in helping mid-sized distributors transform data into profits. With more than 22 years’ experience as P&L manager executive for major PE firms and industrial distributors. Nelson has dedicated his career to help business uncover hidden competitive advantages and unleash the power of data in the new Digital Economy. For more information contact by email or visit KNOW YOUR CUSTOMERS: HOW SIMPLE ANALYTICS CAN MAKE YOU MAJOR PROFITS For me, the easiest way to understand complex concepts has always been to see them in a real-world context. That’s why today, I thought it would be nice to take a quick dive into a recent client exchange which I think perfectly sums up one of the most basic principles of business analytics: customer segmentation! Diagnosing A Simple Problem While working with this client - a mid-sized hardware distributor with 1000+ accounts serving OEM, MRO and various contracts — they presented me with a very familiar challenge: Their revenue was growing; they were considering revamping their e-commerce; and they started wondering, how the hell were they going to manage their pricing through all these channels?! While talking with the client about how they classified their customers, I confirmed what I have experienced time and time again while doing due diligence for Private Equity firms — all owners know by heart almost everything about their top 10-25% customers, but when asked about the customers in the middle of their profit range, they barely have a word or two to describe them. I asked this client of mine “why are you giving better pricing to some of the guys in the middle of the list than the top ones?” After a couple of seconds of silence…he realized that he didn’t know for sure. Segmentation Is A Surefire Fix I described to our client that a simple but comprehensive customer categorization (also know as segmentation or stratification) could be a good CONTRIBUTOR ARTICLE framework for his organization (not just him or the pricing guy). Simply put, through categorization, when anyone at his company was talking about “Account XYZ”, they would know immediately if that account was a “Core”, “VIP”, “Standard” or “Drain” account. So What Do These Mean? For a Core account (a segment that typically represent >50% of your total GM$) you do almost anything. VIP accounts are just shy of being Core accounts, so you want to really focus on nurturing and developing them. Standard accounts are your come-andgo customers but provide a nice GM$ at lower cost to serve. And the Drain accounts are actually losing you GM$, meaning it’s time to review the cost to serve them. This categorization or segmentation method has been use for decades in the B2C world, especially by the biggest companies in our field. For example, Grainger has Wall Street talking about their mid-size customers and how that segment is growing by double digits…but the reality is that when you dig into their financials the revenue from that segment only represents 12% of their customer base! Finding Real Profits Hidden In Plain Sight When we completed my client’s customer categorization, the list of his Core customers came out expected - but the remaining accounts were where the fun began… Much to his surprise, a couple of my client’s accounts surfaced as true VIP customers with obvious potential for growth. CONTINUED ON PAGE 126


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