I have two examples for you this week that you may, perhaps even will, be able to apply to your business.  The first looks past the idea of benchmarking towards achieving a real match of sales strategy to customers’ real needs and preferred buying processes.  The second links the concept of identifying new market segments to the idea of redesigning your sales process in a creative manner.

Both examples are straight from my casebook.

If you play follow the leader, the only strategy available is “catch up.”

I had just started a workshop on international benchmarking for the senior management team of an international manufacturer of paper and packaging board.

Their reaction was immediate. We already do benchmarking and we track our performance against competitors, mill by mill, globally.  We know everything there is to know about our cost competitive position.

“Show me.” I responded, and they did.  They trotted out data by the metre; comparative statistics on energy consumption, productivity, cost per tonne, chemical usage per tonne, production rate and many other benchmarks I had never heard of. All this data was shared internationally, so that the whole global industry knew exactly the position of every mill on the global cost curve.

Here is a summary of my reply. “All this data shows is that your mills have a fixed position on the cost curve and the only way you can change that is by investing millions in new technology. There is no competitive advantage in playing catch up.  We need to search for something that competitors do not know about, some aspect of the customer service process that they have not considered, something they will find hard to copy.”

We looked at, and started mapping the process of dealing with the customer, and we were away. They found a surprising number of leverage points where they could serve their customers better by improving their delivery processes and providing higher value without increasing cost.

The key is to focus on the parts of the whole customer relationship that give you some leverage over the value you deliver; that is your real source of competitive advantage, because you will win business and leave competitors looking puzzled.

If you need more convincing, check out the competitive edge from focusing on the way the customer buys.

I was analyzing sales for a bulk steel distributor, asking the age-old question; “who buys what?”

I looked at their top 20 customers out of a list of 3,000, checking annual sales first. I noticed that 0.7% of customers generated 15% of total gross profit. This seemed to be important. I checked the quantities of what they bought in each product group.  A pattern emerged. There were two market segments, two discrete groups of customers who bought 90% of their steel from a different single group of products.  The two product groups were “structural steel” and “manufacturing raw material”.

I checked the top 100 customers, and the same pattern emerged.  I showed the figures to the CEO saying  “You have two businesses here.”

His response was blunt, “Look around you. There is only one business I can see. I have been in steel all my life and my father before me. Don’t be silly.

I showed him the graphs and the numbers.  He called in his marketing manager and sales manager, saying “Michael says we have two businesses, not one.”

Their reply was unprintable, reflecting on my parentage and sanity. The CEO showed them the graphs and numbers. “He could be right.”, they mused, and we brainstormed what the 2 groups needed from the business.  Manufacturers wanted sheet steel slit or cut to tight tolerances and strict quality specifications delivered at the specified time, and were prepared to pay a premium for quality.  The construction industry wanted a truckload of mixed structural steel, standard product, delivered on site tomorrow at the lowest price.

We started to talk about the selling process. There was only one, and every distributor used it.  Telephone sales staff negotiated price for delivery tomorrow as long as they had it in stock; no stock – no sale. We reflected that this did not fit the needs of the “newly discovered” manufacturers. I knew because I had been a manufacturer.

We investigated further, conducting a market survey of customers’ preferred buying processes and confirmed what they wanted.

We reorganized the sales force to have a specialist group of sales reps dealing with manufacturers negotiating supply contracts for forward delivery, leaving the telephone negotiators to haggle on the phones over structural steel deliveries.

The pay-off was huge.  Gross profit on manufacturing supplies was around 20%, while structural steel average 14%.  With sale people specializing in their market segments, and building customer relationships, sales grew in both segments. Market share rose. Competitors did not know what had been done to them and by the time they found out it was too late.

Suddenly my client’s business became attractive and was snapped up by the national market leader at a much higher price than it had been worth before we changed the sales strategy.  Eventually everyone found out how to do it, and the competitive edge became the industry standard, and disappeared.

It was nice while it lasted.

That is how changing sales processes to match customer segment buying needs can add millions to the value of a business by redefining market segments.

I wish you well in your search for competitive advantage

Michael Taplin earned recognition as a KPI modeling specialist and business strategy consultant in Australia 20 years ago. Today he lives in New Zealand and contributes his ideas on better business performance through www.bizlearn.biz, where his newsletter is available as a free subscription, and you can also download whitepapers and tutorials on a range of topics. 14 years as a volunteer business mentor has influenced his approach to small business and helped to adapt big business ideas into useful practical stuff for small business owners. Review his KPI models at bizlearn KPI tutorials and apply themn to your business.