intensive customerdon schalk, president and coo, c.h ...program program description you will get...

Fermier Hall, MS 3367Texas A&M University

College Station, TX 77840-3367Phone: 979-845-4984

Fax: 979-845-4980http://id.tamu.edu

Phone: 979-845-4984 / 866-

260-2463 Fax: 979-845-4980http://readcenter.tamu.edu

Intensive Customer Stratification Program

Program DESCrIPTIoNYou will get hands on experience analyzing customers, developing and applying a practical-best practice approach to determining cost-to-serve. You will be able to apply it to your company data and use for your business setting immediately. The program will also help you understand the concept of “What to do?” and “How to do?” for applying customer stratification to various business decisions with a special focus on Pricing Optimization.

The pricing/discounting decision is an information exercise and determines at least half of a firm’s profitability equation. Even though most distributors understand to some extent other external drivers of pricing such as competition and market structure, understanding and implementing a holistic approach to pricing has always been difficult. This program will address practical methods to set and manage prices using existing and readily available information in order to maximize profitability.

You will hear success stories and steps to implement customer stratification and pricing optimization best practices from both business and IT perspectives based on projects from various lines of trade. The SELL exercise will walk you through the process of connecting customer decisions to shareholder value through financial statements. At the end of the program you will be able to assess the customer stratification and pricing processes in your company and develop a plan of action to implement these powerful best practices at your company right away.

“Customer stratification has greatly enhanced our understanding of our customers. We now know which customers maximize our value proposition. Linking customer stratification to our supplier and inventory systems empowers our team to quickly distill the variables affecting risk and reward so they can make better and more profitable business decisions.”

Frank Flynn, President, Sager Electronics

“Customer stratification has the power to enable us to transform our company from being product-driven to customer-driven. It has helped us understand our customers in greater detail, enabling us to optimize our selling resources, which will result in an improved ROI.”

Don Schalk, President and COO, C.H. Briggs Company

“Given the complexity of pricing, the Texas A&M Pricing Optimiza-tion program has gone a long way to specifying all the relevant elements and more importantly putting them in terms that can be quantified and managed. A&M can help you understand the variables and the math of distribution pricing. Don’t get on the phone without them”

Lawrence Mohr, Ph. D., Senior Vice President (retired), F.W. Webb Company

RegiSTeR Now!http://id.tamu.edu

KEy TaKE-awayS >> How to effectively classify / segment the customer base?>> Structured easy-to-understand approach>> A practical approach to determine ‘cost-to-serve’ customers>> A best in class approach to pricing optimization>> Understand the connection between customer stratification and pricing optimization>> Formulate and build pricing rules>> Real-world implementation benchmarks>> Leverage existing system information>> Maximize your ROI on sales resources while balancing customer service>> Effective use of IT & human resources

who ShoulD aTTEND?>> Sales and Marketing Managers>> Business, Branch & Regional Managers>> Pricing Professionals and Business Analytics Team>> Distribution Management Professionals>> Inside Sales and Pricing decision influencers>> Anyone in your firm who communicates or works with customers

Creating Competitive Advantage Through Education

SUPPORT SERVICES

SOURCE STORE SHIPSTOCK SELLCUSTOMERSUPPLIER

SUPPLY CHAIN PLANNING

Customer stratification and pricing optimization may sound like an odd idea in this economy where any paying customer is a good customer. But even in this climate, sales people are prioritizing their accounts. The only question is if their prioritization matches the company’s prioritization; both from a near-term and long-term viewpoint. Customer stratification assures a better match by measuring how much business a customer does with (sales), how profitable they are in gross margins, how loyal they are, and how costly they are to serve (to protect net margins). each of these dimensions should have a bearing on the sales force’s decisions. Customer stratification techniques are gaining popularity, but they often are not applied correctly. This cutting-edge program focuses on customer relationships and the net profit customers provide to their distributors. Shrinking margins have been hounding distributors for so long. Time has come for distributors to face this challenge head on by connecting customer stratification to pricing optimization. without this connection the pricing process is not optimal and will hurt distribution in the long run.

Pricing should be driven by customer stratification results, not by a cost-plus pricing model for all customers. The cost-to-serve dimension in our customer stratification model shows that every customer is different based on the services they access. The same applies to loyalty and profitability. Variations in customer behavior emphasize the need for a customized pricing approach for different customer types. The pricing decision-mak-ing is further enhanced when used in conjunction with inventory stratification and other pieces of information, such as item visibility, unit cost, and profitability levels.

Program oVErVIEw

DElIVEraBlES

“This program seems to be a detailed examination of the world of pricing optimization. It has been developed from real data that forms theories, develops strategies, and arrives at practical ways to improve profitability. This should be part of the future of distribution” Charlie Henry, Manager of Pricing, Kirby Risk Electrical Supply

“The Pricing Optimization program provided an expert level of analysis and insight that every distributor needs but few have the time or resources to produce on their own. It was both timely and valuable.”Paul Sommerfeld, Director, Applications & Training, CSC

REgISTER NOW!http://id.tamu.edu

ANALYTICS

• Customer stratification• Item stratification• Customer’s item visibility• Item unit cost level• Customer-item GM level

CUSTOMER AND ITEM ANALYSIS

1

EXECUTION

• Potential GM$ improvement• System aided decision-making• Augmenting Factors - New Customer - Competitor price, etc.

WHAT-If ANALYSES

3

• Recent price/margin• Recent cost• Customer max price/margin• Group max price/margin• Overall max price/margin

PRICING RULESENGINE

OPTIMIZATION2

NEW MARGIN

RECENT MARGIN

[TARGET MARGIN - RECENT MARGIN]

OPPORTUNITY GAP MULITPLIER

Pricing Rules & Group ExerciseCustomer Stratification Model Texas A&M Pricing Methodology Impact(Real World Results - HVAC Distributor)

Branch 1($3.3MM Sales)




18.4%14.9%

16.5%

36.3%

24.4%21.8% 19.4%

48.6%

BEFOREAFTER

Optimizing Distributor ProfitabilityBest Practices to a Stronger Bottom Line

F. Barry Lawrence • Senthil Gunasekaran • Pradip Krishnadevarajan

OBJECTIVERedeploy Sales Force Time from Service Drain Customers to Opportunistic Customers and evaluate the impact on Return on Net Assets (RONA)

DATA Total Core Opportunistic Marginal Service DrainSales Force Time 127,296 40% 5% 25% 30%Sales $ 148,265,879$ 60% 8% 10% 22%GM $ 37,363,002$ 67% 8% 10% 15%A/R $ 18,829,767$ 27% 7% 23% 43% N/A N/A

N/AAvailable Sales 72 employees * 40 hrs per week * 52 weeks per yr * 85% efficiency = 127,296 hours per year

Force Time 72 40 52 85% N/A N/AN/A

25.2% N/AN/A 17.2%

N/AN/A N/A N/A

N/A N/AN/A

Opportunist Core N/A N/A11,861,270$ 88,959,527$ N/A N/A

Current EBITDA $

-$ $ 7,709,826

Additional Sales $ New EBITDA $Current Sales $ by cust type

Additional hrs allocated Additional # Orders

Lost GM $

Current GM %

Expected Sales $ per redeployed hour

Additional GM $ Other Income & Exp $

SELL ANALYZER ‐ CUSTOMER STRATIFICATIONSALES FORCE TIME REDEPLOYMENT WORKSHEET

Current Total GM $Lost Sales $ 37,363,002$

New Total GM $

11,861,270$ 88,959,527$ N/A N/AMarginal Service Drain N/A N/A N/A N/A14,826,588$ 32,618,493$ N/A

N/A N/A1,864$ N/A

6,365 N/A N/A 854$N/A 38,189

N/A N/A6,365 N/A N/A

N/A 38,189N/A N/A

N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A

` N/A N/A

Current Variable Op Exp $ Total # Orders

15,246,922$ 75,000

Current Total Sales $

148,265,879$ Avg Order Size

1,977

Lost Sales $# hrs freed Decrease in Var Op Exp $

% hrs redeployed Reduced # Orders

Current Var Op Exp $ Total Variable Op Exp $

15,246,922$Current Sales Force Time (hrs)

Lost Sales $ per redeployed hour

Current Sales $ / hrCurrent Sales Force Time (hrs) Variable Op Exp $ per Order

Additional Var Op Exp $ Fixed Op Expense $Avg Order Size 14,406,254$

Pro

fit &

Lo

ss E

lem

en

ts

N/AN/A

5,084,037$ Sum40.6 N/A 4,330,846$

N/A 90.6

N/AN/A N/A

L t S l $

# days in a year New Total Inventory $ New Total AssetsNew Total Sales $ 365

148,265,879$ DOI Other Current Assets# days in a year 57.5 1,978,468$

365Additional Sales $

New Sales $ by cust type

New A/R $ by cust type New Total A/R $DSO

Current Total Sales $

Var Op Exp $ per Order Current RONA %

203$ 23.57%

New RONA %

Current Opport. Sales + Additional Opport. Sales Current Serv.Drain Sales ‐ Lost Serv.Drain Sales

Pro

fit &

Lo

ss E

lem

en

ts

en

ts

N/A N/AN/A

365

New Total COGS $ Other Current Liabilities

2,404,335$

DPO Notes Payables

32.5 1,427,456$

New Total Current Liabilities# days in a year New Total A/P $

Current Net Assets $ 32,705,777

Cash & Market. Securities

1,990,029$ New Net Assets $

Lost Sales $New Total COGS $ Fixed & Non-current Assets

New Total GM $ 6,153,034$

Current Opport. Sales + Additional Opport. Sales Current Serv.Drain Sales ‐ Lost Serv.Drain Sales

Pro

fit &

Lo

ss E

lem

en

ts

Ba

lan

ce

Sh

ee

t Ele

me

nts

Day 1

Customer Stratification overview and Framework

what would be the 4 types of customers at your firm?

Customer Buying Power

Sample Buying Power Analysis

Customer Profitability

Sample Profitability Analysis

WORKING SESSION: Data Preparation for Customer

Stratification

Discussion and Questions

Day 2

Customer Loyalty

Sample Loyalty Analysis

Cost-to-Serve (CTS)

Sample CTS Analysis

WORKING SESSION: Data Preparation and Customer

Stratification Analysis


Day 3

WORKING SESSION: Data Preparation and Customer


Bringing it All Together

Customer Lifetime Value and Net Profit

WORKING SESSION: Data Preparation for Customer


Customer Strategies

Sales and Marketing Framework

Day 4

Customer Stratification Results Presentation

Role of Customer Stratification in Pricing optimization

PRiCiNg gAMe

item Prioritization

Sample item Analysis

Customer’s item Visibility


Day 5

Sample item Visibility Analysis

Unit Cost and gross Margin Levels

Sample Unit Cost and Margin Analysis

Building the Pricing Rules

optimizing Distributor Profitability - Customer Stratification and Return

on investment (Roi)

ACTION PLAN: Presentation


CeRTiFiCATe PReSeNTATioN

High profitabilityNo relationshipLow cost to serveLow volume

High profitabilitySustained relationshipLow cost to serveHigh volume

Low profitabilityNo relationshipHigh cost to serveLow volume

Low profitabilitySustained relationshipHigh cost to serveHigh volume

Customer Loyalty (Life)


Cus

tom

er P

rofi

tabi

lity C

ost to Serve

OPPORTUNISTIC CUSTOMERS

CORE CUSTOMERS

SERVICE DRAIN CUSTOMERS

MARGINAL CUSTOMERS

Customer Loyalty (Life)


Cus

tom

er P

rofi

tabi

lity C

ost to Serve

Fermier Hall, MS 3367Texas A&M University

College Station, TX 77840-3367Phone: 979-845-4984

Fax: 979-845-4980http://id.tamu.edu

Phone: 979-845-4984 / 866-

260-2463 Fax: 979-845-4980http://readcenter.tamu.edu

Intensive Customer Stratification Program

Program DESCrIPTIoNYou will get hands on experience analyzing customers, developing and applying a practical-best practice approach to determining cost-to-serve. You will be able to apply it to your company data and use for your business setting immediately. The program will also help you understand the concept of “What to do?” and “How to do?” for applying customer stratification to various business decisions with a special focus on Pricing Optimization.

The pricing/discounting decision is an information exercise and determines at least half of a firm’s profitability equation. Even though most distributors understand to some extent other external drivers of pricing such as competition and market structure, understanding and implementing a holistic approach to pricing has always been difficult. This program will address practical methods to set and manage prices using existing and readily available information in order to maximize profitability.

You will hear success stories and steps to implement customer stratification and pricing optimization best practices from both business and IT perspectives based on projects from various lines of trade. The SELL exercise will walk you through the process of connecting customer decisions to shareholder value through financial statements. At the end of the program you will be able to assess the customer stratification and pricing processes in your company and develop a plan of action to implement these powerful best practices at your company right away.

“Customer stratification has greatly enhanced our understanding of our customers. We now know which customers maximize our value proposition. Linking customer stratification to our supplier and inventory systems empowers our team to quickly distill the variables affecting risk and reward so they can make better and more profitable business decisions.”

Frank Flynn, President, Sager Electronics

“Customer stratification has the power to enable us to transform our company from being product-driven to customer-driven. It has helped us understand our customers in greater detail, enabling us to optimize our selling resources, which will result in an improved ROI.”

Don Schalk, President and COO, C.H. Briggs Company

“Given the complexity of pricing, the Texas A&M Pricing Optimiza-tion program has gone a long way to specifying all the relevant elements and more importantly putting them in terms that can be quantified and managed. A&M can help you understand the variables and the math of distribution pricing. Don’t get on the phone without them”

Lawrence Mohr, Ph. D., Senior Vice President (retired), F.W. Webb Company

RegiSTeR Now!http://id.tamu.edu

KEy TaKE-awayS >> How to effectively classify / segment the customer base?>> Structured easy-to-understand approach>> A practical approach to determine ‘cost-to-serve’ customers>> A best in class approach to pricing optimization>> Understand the connection between customer stratification and pricing optimization>> Formulate and build pricing rules>> Real-world implementation benchmarks>> Leverage existing system information>> Maximize your ROI on sales resources while balancing customer service>> Effective use of IT & human resources

who ShoulD aTTEND?>> Sales and Marketing Managers>> Business, Branch & Regional Managers>> Pricing Professionals and Business Analytics Team>> Distribution Management Professionals>> Inside Sales and Pricing decision influencers>> Anyone in your firm who communicates or works with customers

Creating Competitive Advantage Through Education

intensive customerdon schalk, president and coo, c.h ...program program description you will get...

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