qdi strategies behavioral segmentation project example

COPYRIGHT 2014 QDI STRATEGIES, INC.

QDI: Behavioral Segmentation Project Example


Behavioral Segmentation to Develop Distribution Strategy

One of QDI’s clients, a manufacturer of process equipment, believed that the

market valued application sales support enough to give the sale to the vendor who

provided that support. To act on this belief, the client would have to build a large

direct sales force that would replace or co-exist with the traditional distribution

network.

This was a high risk strategy. The client needed market proof that the customers

would behave as he projected. Likewise, the client needed a strategy for working

with distribution in the event he decided to build a large direct sales force.

The purpose of this joint project was to measure the value that customers place on

application sales support and determine if a segment that valued this support was

large enough to justify a change in strategy to a direct sales model. The result

enabled our client to capture a higher portion of the value created. (VALUE

CAPTURE)

This presentation shows the results of the Value Modeling and the channel

implications of a direct versus distribution sales approach.

Direct vs. Distribution Strategies for Value Capture


Project Objectives

• Size the portion of the market that places high value on the solutions that our clients can deliver

• Size the portion of the market based on its channel purchase preference: – Prefers direct – Prefers distributor – Neutral

• Determine the advantages of a direct versus distributor sales strategy

• Recommend a go-to-market strategy based on this research

Methodology: Project

Objectives


What We Did

• Market Research – 164 interviews across 9 Standard Industrial Codes (SICs)

• Mix of engineering and purchasing titles • About 1/3 in big, medium, and small process system owners • Names from many sources; objective to have some “random”

effect

– 20 additional “focus” interviews across the same segments • Buying behavior relative to supplier consolidation • Logistical service level requirements

• Market Modeling – Attractiveness maps

• Attractiveness based on $ potential independent of how you go to market

• Attractiveness of “distributor required” segment • Attractiveness of “would buy direct” segment

Methodology: Sample

& Value

Model


Percent of Market Purchases - Value Application Sales vs. Projected Sourcing Behavior

Low

High

1

2

3

High

4

1 $9,370,963 $10,352,249 $44,641,831 $48,372,485

2 $7,121,346 $5,832,946 $6,887,411 $7,518,747

3 $7,300,872 $794,946 $14,166,882

4

Low

$12,314,943 $3,160,726 $9,006,846 $7,324,566

Value

So

urc

ing

Scale: Green = Direct, Orange = Questionable, Pink = Distributor

Methodology: Value

Model

Results


Channel Opportunity Recap – % of Revenue

Distributor20%

Direct61%

Questionable19%

Methodology: Project

Objectives

Methodology: Value

Model

Results


Opportunity for Value-Add Sales Approach

Very High Value40%

High Value31%

Medium Value10%

Low Value19%

Value Opportunity

Methodology: Value

Model

Results


Requirements for Distributors

• Distribution controls logistics to 20% of the market – More if you include HPI and CPI (38% of the market)

– While the customer places high value on value-added services, he places higher value on purchasing efficiency

• Client will not be able to force these customers to buy direct – Therefore, you will need to work with these distributors

– These are the same distributors who sell to the general industry market

Methodology: Channel

Role

Evaluation


Distribution Requirements

MRO Value Chain

Specifying

Purchasing Logistics

Product

30% - 40% 60% - 70%

Reducing Purchasing Costs Has Major Bottom Line Impact


Role

Evaluation


Direct vs. Distributor Sales

• Factory “controls” all elements of customer satisfaction

– Pre-sale

• “Application selling”

• Price

• “Responsiveness”

– Transaction

• Take the order

• Ship and deliver

– Post-sale

• Troubleshooting

• Distributor is involved in most aspects of the sale

– Pre-sale • “Application” - Factory rep

can do on his own

• Price - Factory rep must coordinate with distributor

• Responsiveness - up to rep and distributor

– Transaction • Distributor takes order, ships

and invoices

– Post-sale • Troubleshooting request

could come to distributor instead of Factory rep


Role

Evaluation

Direct Sales Distributor Sales


Direct vs. Distributor Sales

• Rep learning curve

– Rep has to learn products, customers, customer specific product applications

– Learn company operating procedures

– Takes 2-3 years for a new rep to become competent enough in application sales to build a territory from $500K to $1000K

• Rep learning curve

– Rep has to learn products, customers, customer specific product applications

– Learn factory operating procedures

– Rep has to learn how to work with distributors

• Build relationships with distributor reps

• Learn distributor operating procedures

– Learn to manage intra-distributor conflict

Direct Sales Distributor Sales


Role

Evaluation


Direct vs. Distributor – Value Comparison

12

Activity Present Strategy Potential Strategy

Direct Dist. Direct Dist.

Relationships + +

Customer Sat + +

Info. Power + +

Presence + = =

Mix Control + +

Application selling = = +

Rep learning curve = = +


Role

Evaluation


Direct vs. Distributor Sales - Costs

Marketing Costs •Sales •Inventory •Logistics •Order handling

Retained by the manufacturer

Transferred to the distributor

Duplicated??

Distribution is a “cost transfer” system. The distributor performs functions for you (hopefully more efficiently than you can) that must be performed to service the customer. When activities are redundant, the system is inefficient.


Role Evaluation


Recommendations

• Capture the value using direct application sales – About 60% of the market values solutions and would

accept direct sales

• Work with distributors on the balance of the business – Customers who value solutions but prefer to buy direct –

jointly sell with distributor – Customers who do not value solutions and prefer to buy

from the distributor – assign them to the distributor

• Manage conflict through activity based discounts and account assignments – Assign distributors “distribution neutral” accounts based

on the strength of their existing relationships

Methodology: Action

Steps


Get To Know Us

• Exploratory Meeting

- No-cost discussion of the issues you are facing and our perspective

• Customized research

- Have us design a study for you

• Strategy project

- Have us design a project to address your strategic issues Contact Information

QDI Strategies, Inc.

1580 S. Milwaukee Avenue, Suite 620

Libertyville, IL 60606

847-566-2020

www.qdistrategies.com

Steve Bassill

President

[email protected]