How to Fire a Customer
Business is good. But how do you know? I mean, how do you really know? Once, all you cared about were products and events. Working with retailers on co-marketing means a whole new spin on how to figure out how you’re doing. Now you need to understand activity through the trade dimension.
“What is the unit you are trying to measure? Is it a market? Is it an account? Is it a store? We once had 10 different piles of money. Now we have a single dollar to spend on a single customer,” says Ray Jones, managing director of Northbrook, IL-based consultant Dechert-Hampe.
Account profitability has become the key, and the integrated relationships you have with customers have never been more valuable. “You need to treat customers like assets,” says Karin Huey of Powell, OH-based S4 Consulting. “A vast majority of manufacturers are not quantifying customer value. Once you do, you may stop selling to some of them. You may find that your `biggest’ customers are really not worth selling to anymore. You may not want to sell to Wal-Mart.”
Before you jump on a plane to Bentonville to give them the bad news, do some figuring on your own. Here’s an exhaustive (but I am sure incomplete) litany of account p&l inputs. You may never be able to track pure account profitability, but if you don’t add up these major factors, you’ll never get a clear handle on their contribution to the bottom line.
Start with the shipments. What did you really sell that day, period, quarter, drive, whatever? Make sure you’re using the same common measurements across all departments, be it pounds, cases, stat cases, cartons, or normalized units. See if your brokers really report that way, too. “There are usually five or six different measures of sales in the same company,” says Ben Ball, vice president at Dechert-Hampe.
Now figure what you paid to sell it to the customer. Trade deals, in-ads, displays, allowances, off-invoice, temporary price reductions. Find your cost per case (or pound or unit). If you have this clean, you’re ahead of the pack.
You probably paid a few support folks to do some things for you, too. Track it all. Unbundle your merchandising costs per store. Do you pay a third party or is it loaded into your broker commissions? Take account of the point-of-purchase: displays, signage, shipping, returns. By now you should be huffing and puffing.
Nothing like a little sampling to help out an ASM program. Costs per day for samplers, product, store fees, coupons. These aren’t just costs to your supplier; they should be tagged by that account. If it’s account-specific direct mail instead, or in combination, then it’s CPMs and coupons again and counts per store.
Sometimes there’s a fill-in with in-store media. Even if it’s a national run on all shopping carts or shelves or checkout-delivered coupons, take a look at the rate per cycle per store.
Do not forget the media air cover. TV, radio, creative costs. Make sure you track all your spending, not just by vehicle or media market but, there’s that word again, by ACCOUNT.
If Isaac Newton had been in promotion, he would have said it this way: “What goes out, must come back.” So add in your consumer takeaway. Measure your scanner data against your shipments. How does that data come in? Some by syndicated market, some by retailer trading or marketing area, some by store, some straight from the retailer?
Oops, don’t forget those indirect accounts. Your shipments go to C&S Wholesaler, but your scanner comes in from Pathmark, Grand Union, Big Y, and A&P. Map your shipments to scanner. It’s like reconciling your checkbook.
Check coupon redemption (not rates, but costs), face value, handling fees, deductions. Get those numbers by retailer, not by submitter. Evaluate the redemption activity at the retail level that you do business. Product sometimes comes back, too. Unsaleables, as unsavory as they might seem, have a direct and painful effect on your co-marketing measurement. If I missed anything, e-mail me with your thoughts at the address below.
I can just hear you now. “It’s too much data, I can’t take it. It’s like drinking from a firehose!” Stop whining and try using that firehose for what it was made for – putting out the fire.
Account profitability is a fine slave but a naughty master. You may have a better feel for how business is doing, but don’t confuse ultimate efficiency with maximum effectiveness. As a wise man once said, nobody ever shrank to greatness.
