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Customer Management

Sales channel optimization

Selling profitably through the right channel is a challenge in a commodity industry. Traditional sales channels have been on the decline in the industry. Recent integration developments have sparked the discussion about the future role of the traditional paper merchants. In other parts of the industry the key to success is the supply chain integration and closer link of the partners in the supply chain. Overall, as in any other industry, the availability of information and an ever increasing transparency in the value chain leads to a requirement for redefinition of the sales channel approach to increase or keep profitability. Furthermore, there is a tendency to push service requirements backwards in the supply chain. What used to be the role of a merchant has now become part of the service catalogue of the mills.

Redefining the role of each player in the value chain requires thorough analysis and scenario modeling to prepare for and anticipate future developments.

The output of the analysis is an assessment of the sales channel effectiveness. Truly effective channels serve targeted customer segments, maximize sales and minimize cost, while providing the appropriate service level.

The channel selection generally depends on an assessment of customers' needs, as well as one's own costs and benefits whilst taking strategic intentions into account.

"Are we effectively and efficiently serving our customer base?" Answering this question becomes much easier if a customer segmentation based on profitability and customer requirements exists.

Based on the needs for each customer segment, a certain set of value propositions can be selected that match the customer requirements, yet also comply with profitability constraints.

The definition of the channel needs to consider the specific processes that are performed to provide services to the customer segment.

The StepChange Consulting team can support you in assessing the effectiveness and profitability of your current sales channels. We help our customers to design an appropriate mix of channels that successfully serve the target customers. To meet the challenges of tomorrow and to support strategic decision making, we develop scenarios with our customers to provide a tool to explore the development of business environments and the factors that drive change.

Pricing tactics

Paper & Packaging companies struggle to capture value through situational pricing. Typically prices are determined according to "the market". Sales forces seem to be resistant to informed differentiated pricing to different customers. Upon closer review, it becomes apparent that there is little analytical information on the cost drivers of each client. This lack of quantitative transparency serves as a disadvantage in the negotiation process as it limits the range of supportive arguments.

The result is an unstructured and inconsistent pricing approach that shows little differentiation among customers and results in a loss of margin and significant threat potential. Pricing information is increasingly transparent, and an unjustifiably low price for one customer can have a knock on effect with others customers. Consistency is key to mitigating pricing threats.

Often customers are over serviced, either by providing standard service levels in excess of requirements, or providing additional services which are not paid for. Neither scenario is uncommon and both result in margin loss, sometimes to the extent of loss making. The main cause for this is the lack of integration of Supply Chain information, transparency of transactional costs, customer strategy and personal incentives for the sales force.

Management of prices & margins based on holistic Supply Chain Information is the key to improved value generation. Knowing the cost drivers on a transactional basis will allow for improved, fact-based decision making and will support solid customer negotiations.

The StepChange team is experienced in identifying the key value levers that influence pricing leakages quickly and decide on the best approach to capture this untapped value.

Customer segmentation and service level management

The "Achilles Heel" of many companies in the pulp and paper industry is not knowing the true profitability of individual customers and not fine tuning the service package valued / paid for by the customer. The key is customer segmentation and associated service level management.

Customer segmentation is essentially the identification of subsets of buyers within a market who share similar needs and who demonstrate similar buyer behavior. Once segments have been identified, the seller is able to differentiate his approach and services according to the needs of the customers, as well as to decide how much effort he wants to commit to serve customers.

When you ask sales managers "do you have customer segmentation?" the natural and typical answer is "yes, of course!". Looking closer it becomes apparent that the segmentation lacks objective classification criteria. Subsequently, no concrete service differentiation is attached to the segmentation and in many cases the customer differentiation is left to the sales person.

Although senior sales people have a good understanding about which customer needs & deserves what level of service, a lack of explicitly defined segmentation criteria and services per segment lead to inconsistencies across the whole customer base.

Ultimately, these inconsistencies will result in a number of customers being "over-serviced" with services they do not need, or "under-charged" for services they do not deserve. In both cases money is lost, either for unnecessary services that do not have an impact on top line revenue, or for costly services that are not justified by the profitability of the customer to the company.

Examples for inconsistencies include the availability of small delivery quantities to customers that could use bigger order sizes, or multiple transports a day for low profit customers.

StepChange Consulting supports customers in setting up a solid customer segmentation based on clearly defined segmentation criteria to answer the following key questions:

Based on the customer segments, the standard services are defined per segment, i.e. those services that a customer within a segment value and deserve based on their profitability. If in line with the market strategy, additional services can be available to each customer segment, but would typically be subject to a service charge.

Product mix optimization (creating a sustainable product basket)

Just as in any other industry, customer demands are increasing, ultimately leading to an ever increasing product and services range. Absorbing these requirements has significant impact on the supply chain ranging from demand planning, inventory management, raw material requisitioning, production planning and operations. It is essential to avoid falling into the over-servicing trap and suffering from spiraling costs.

The core to maintaining a balanced product portfolio is the understanding of product profitability, the quantified cross-selling potential of individual products, and a standard process for periodically consolidating / rationalizing the product & service catalog.

These streamlining initiatives tend to be infrequent and all too often, they simply stall. The main reasons are the complexity of the task with 000s of products and de-motivation due to perception of progress being off-set by introduction of further new products. The resulting resistance to reassess the product basket on an ongoing basis also contributes to the phenomenon of increasing portfolio complexity.

We believe that a solid understanding of product profitability is key to preventing the future product range from getting unnecessarily complex. High margin products need to be identified, taking total cost and Activity Based Costing into account. Non- or low-profit products need to be extracted and assessed for cross-selling connections or future potential.

Typically low volume products cause over-proportionally high efforts, e.g. set-up time of machinery or administration of supplier base. The cost to produce such a material might also top the costs to buy it.

Once the current product range has been streamlined, a product lifecycle management process needs to be established to ensure the strategic fit of products into the current and future portfolio.