Imagine a company called myBEAUdi Apparel, a trendy
clothing and accessories producer. Economic headwinds are getting
stronger—and what's myBEAUdi Apparel going to do about
it? Its executives decide to adopt various cost management measures
over the next few months to enhance efficiency in the long run and
to focus on their key market. However, they're unsure how to go
about doing this.
One way would be to define individual steps of multi-dimensional
profitability which would provide a wide view of profitability
drivers across multiple dimensions like product,
individualcustomers and channel. In a
nutshell, it can answer the questions: sell
what, towhom and
What to sell?
It is not uncommon for profitability analysis to show that only
the top 20% of a company's products contribute 80% of the
profit, so let's assume that the same holds true for our
company, myBEAUdi Apparel, despite their extensive product range of
jackets, shirts, sweatshirts, socks and accessories. And behold! It
is indeed true: after a first analysis, it turns out that the
company's socks are extremely well-performing in terms of both
number of sales and profitability. Research determines that, in
particular, white socks are the most profitable product of myBEAUdi
Apparel. The CFO's first reaction is that this must be the
result of the newly introduced men's sportswear marketing
initiative. But only a customer profitability analysis will be able
to verify this supposition.
Whom to sell to?
Customers are the pillar of any business, but the respective
profit contributions of different customer types is highly uneven
and must therefore be well understood. Thus, a customer
profitability analysis is critical to myBEAUdi Apparel since it
enables the management to evaluate their customers and take a
strategic decision over which customer segments should be kept,
pushed or ignored.
A first glimpse at the individual customer segments shows that,
contradictory to the CFO's thought, sports enthusiasts are not
the most profitable of myBEAUdi Apparel's customers: that title
goes to retirees. Although wearing white socks and sandals is a
fashion faux-pas, it seems that it is still quite popular among the
older generation. Furthermore it's revealed that profitability
increases especially during summer months, and the underlying data
suggests that myBEAUdi Apparel's retired customers buy an
average of 10 pairs of white socks per person per month.
How to sell?
Online shopping has become more and more popular these days and
myBEAUdi Apparel has shifted some parts of its sales process to
direct selling via its brand new online platform. The Head of Sales
is very proud of the success of the new platform—but is it
the most profitable way of transacting with these newly identified
Not quite. An analysis on channel profitability for this product
and customer reveals that indirect selling through retailers is
still the most profitable channel. Even though selling to retailers
results in fewer deliveries, they are still important deliveries,
as the older generation still values the interaction and guidance
from retailers and is therefore ready to buy at a premium, instead
of via the online platform.
I see these kinds of outcomes all the time in my work conducting
profitability analyses—the results of which can sometimes be
surprising. By using multiple dimensions of tests it's possible
to isolate a sound selling strategy and to understand why it will
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guide to the subject matter. Specialist advice should be sought
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