Targeting IV

Using current customer profitability to evaluate the market is internal thinking at its most poisonous. 

Some common criteria for the process of evaluating cost to grow and potential to grow are listed in the table below:

One element you do not see in this table is customer profitability.  This is one topic in which there is a substantial degree of confusion and theory abuse.  For our purposes, it is sufficient to say that customer profitability is the net result of your strategy, not your starting point.  How much money you make from doing business with a  customer is a function of the value you deliver (which should be considered in your potential to grow analysis), the competitive landscape (considered in cost to grow), and how you position your organization to deliver and capture the value, which is under your control.  

It makes no sense to include customer profitability under your current cost structure when the entire point of the exercise is to determine the right cost structure for the market.  Using current customer profitability to evaluate the market is internal thinking at its most poisonous.  This does not mean that customer profitability isn't important; it just means that it should dome later in the process.

ACTION POINT: Focus on determining the right cost structure for the market you want to serve.

Targeting III

Targeting generally involves ranking customer segments on two dimensions: cost to grow  and potential to grow. 

Being second or even third choice for some customers is okay, but you want to be the first choice for a certain group of customers.  The big question is: which ones?  Targeting generally involves ranking customer segments on two dimensions: cost to grow  and potential to grow.  Cost to grow refers to the incremental investments that you would have to make to enjoy more business from a given customer segment.  

Potential to grow refers to the realistically available opportunity should you choose to make these investments.  Segments that offer the best combination of relatively high investments.  Segments that offer the best combination of relatively high growth potential and low cost are obviously the most attractive.  The art of targeting is determining the criteria that should be considered in calculating cost and potential to grow.  The science is collecting and analyzing the mass of quantitative data required to score each segment on each criterion.

ACTION POINT: Consider the cost to grow and the potential to grow of the market segments you are targeting.

Targeting II

 If you do not make clear trade-offs, you will do everything poorly and be vulnerable to more focused competitors: 

Most wholesaler-distributor executives spend the majority of their time managing.  Managing involves constantly exhorting others to do more with less.  We cajole, sweet-talk and brow beat our teams into working harder, better, longer, and cheaper.  We tell them things like "put yourself in the customer's shoes" and various versions of "we can do it all."  We create mission statements that promise to prove premier products with flawless service at highly competitive prices.  Playing the role of cheerleader-in-chief becomes second nature--the default approach to our business.

In contrast to the manager, the strategist recognizes that you have to make trade-offs.  Is is simply mathematically impossible to simultaneously provide the industry's highest fill rates, best sales support, and lowest prices to everyone.  If you do not make clear trade-offs, you will do everything poorly and be vulnerable to more focused competitors:  the generalist with deep inventory will capture customers that need the best service levels: the specialist with great technical support will get the customers who want better solutions; and the desperate, under capitalized distributor-on-a-shoestring will take the price shoppers.  Being every customer's second choice is a recipe for bankruptcy.

ACTION POINT: Evaluate the trade-offs you will have to make to drive your business forward.

Management Education

Management courses for people without a few years of management experience are a waste of time.

What I would like to see-and what I have practiced now for many years in my own teaching-is:

• Management education only for already successful people.  I believe management course for people without a few years of management experience are a waste of time.
• Management education for people from the private, the public and the not-for-profit sectors together.
• Planned, systematic work by the students while at school in real work assignments in real organizations-the equivalent to the MD residency.
• Far more emphasis on government, society, history and the political process.
• Teachers with real management experience and enough of a consulting practice to know real challenges.
• Major emphasis on the non quantifiable areas that are the challenges-and especially on the non quantifiable areas outside the business-at the same time much greater quantitative skills, that is, in understanding both the limitations of the available numbers and how to use numbers.

ACTION POINT: Take executive development course that pertain to your current position and the position to which you aspire.  Apply the concepts directly to your work assignments.

Targeting

When you choose to invest more in one group of customers, you are also choosing to invest less in another.

Targeting is the process of deliberately selecting specific customer segments for strategic focus and investment.  Of all the subjects covered in seeking strategic clarity, targeting has proven to be the most difficult for wholesaler-distributors.  Why? We believe it is because of their sales-centric management and history.

When you choose to invest more in one group of customers, you are also choosing to invest less in another.  The true essence of targeting is deciding what not to do, and to whom you will say "no."  Saying "no" does not mean turning away business; it means not giving best pricing or same-day delivery or some other means of service differentiation.  We have found that saying "no" to anything is often a highly unnatural act for sales-driven companies such as wholesaler-distributors.

ACTION POINT: What segment of customers do you want to say "yes" to?