Sustainable Profit Growth
If you have been following this blog you know that the emphasis is to encourage companies to work smarter in their mission to drive shareholder value through a sustainable growth in profit performance.
I know that this seems like a no brainer but the reality is that companies are often trying to achieve this mission with limited visibility to the real drivers and inhibitors of profit performance. Everyone has the P&L. However, I find that most companies today cannot easily peel back that onion to have very specific and actionable insights for a specific customer or product that can make an immediate and measurable profit impact. Instead, by default, strategies are often developed using a “one size fits all” approach. The common mantras are “cut costs” and “increase sales” to increase overall margins.
However, there is a growing level of need to tackle this problem. And while it is rarely articulated, the real solution is to increase profits by truly understanding the product and customer profit “winners” and “losers” and to group or segment them in order to create specific strategies that increase their profit contributions.
Customer and product segmentation activities are a very hot topic in the industry today. What successful companies are doing differently is developing the capability to better understand how customers and products differ in their profit performance. Intelligent segmentation activities support the fundamental need for companies to work smarter, not necessarily harder, to increase their quarterly earnings and shareholder value, and quickly.
How do I approach customer and product segmentation activities? Let me offer three straight forward questions that I hope will be helpful. Empowering the organization to be able to answer these questions will lead to smart decisions to create sustainable growth in profits:
- Where do I specifically make and lose money with my customer transactions and what is causing the specific profit performance spectrum (selling price, discounts, cost to serve, etc.) by individual customer, channel and region?
- What specific actions can I take right now to increase the profit contributions by product and/or by customer?
- Once specific actions have been implemented, are these specific strategies for a customer, product, channel, and/or region working and having a direct positive impact on their profit performance?
Product and customer segmentation activities are critical areas of focus for effective Integrated Business Planning (IBP) solutions. Developing this organizational capability provides immediate and sustainable value. Value that drives competitive advantage!
I would appreciate hearing your thoughts and comments.
All the best, Richard
